OFT hits out at sale and rent back

Friday, 30 January 2009 5:25 PM

Sale and rent back firms have been hit by the Office of Fair Trading (OFT) demanding they substantiate claims and guarantees made in adverts.

The watchdog has issued 16 notices to firms to provide proof on claims in adverts.

Sale and rent back companies offer to buy a home and allow the former owner to rent it.

However, the sector has been mired in controversy.

In particular, the OFT is investigating claims customers can choose to rent properties back as tenants for as long as they wish, that rents will be at fair market rates, that people can buy back their properties at an agreed point in the future, and that customers will have low rent periods and flexible rental terms.

Firms have 14 days to respond to the notice.

Sale and rent back is currently unregulated - leading to concerns people facing repossession because of the economic downturn could further be exploited by rogue firms.

Heather Clayton, OFT senior director of consumer protection, said: "Sale and rent back companies must be clear and transparent about the services they offer and the security consumers have as tenants.

"Clarity of advertisements is particularly important in the sale and rent back sector where customers may be under stress from financial difficulties, at risk of losing their homes and making important and complicated decisions."

Criticism of sale and rent back has been strong of late - with firms charged with demanding high valuation fees, offering below market prices for a quick sale to people in desperate need of support, not providing guaranteed tenancies and leaving people still with debts.

An OFT report into the sector last year called for the regulation of the sale and rent back sector by the Financial Services Authority (FSA), which is now investigating.

The OFT is not naming those companies that have been approached.

The Council of Mortgage Lenders (CML) this week called for regulation of the private 'sale-and-lease back' sector to be a priority for government.

"People facing payment problems are looking at sale and lease back as an option and they are not dealing with regulated firms," Bernard Clarke at the CML said.

He also called for an extension of the government's own mortgage rescue scheme - that applies to 6,000 homeowners over two years - which acts as a state sale and rent back programme.

The CML estimates 75,000 people will face repossession this year.

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