OFT reveals its sale and rent back findings

Permalink: OFT reveals its sale and rent back findings
by Lin Freestone

The Office of Fair Trading (OFT) has published the results of the market study it has been conducting into the sale and rent back sector. It was alerted to the problems being experienced by some customers by the Citizens’ Advice Bureau.

The report outlines a number of key details that should be covered by regulation including an obligation on sale and rent back firms to be more transparent about the initial valuation and sale price, the terms of the tenancy and the amount of rent to be paid.

It also said that regulation should include a requirement on firms to tell consumers about the free, independent advice available to them before they decide to sell.

The competition watchdog has said that regulation is needed urgently to protect vulnerable consumers who sell their home to companies and then rent them back from them. As some sale and rent back companies are misleading customers about the value of their homes and their security as tenants, the OFT has called for the sector to be regulated by the Financial Services Authority.

The chief executive of the OFT comments that its research shows that sale and rent back deals have the potential to cause serious and permanent harm to often vulnerable homeowners.

It has found that the unfamiliar and highly pressurised situations that these people find themselves in may leave them particularly vulnerable to misleading statements or valuations from sale and rent back firms looking to make a deal.

Even those customers for whom sale and rent back might be the best option as it offers a lifeline to prevent them having to leave their homes because they cannot pay the mortgage, could be unaware they are currently bearing almost of all the risks.

Sale and rent back operators typically buy houses for less than their market value and rent them back to owners, who would otherwise face repossession. This gives people a chance to stay in their homes while they sort their finances out.

It has been difficult to assess the scale of the rent and buy back industry. Some estimates have valued it at nearly £2.5bn a year. The OFT estimates there are more than 1,000 companies operating, in addition to non-professional landlords, who have to date conducted about 50,000 transactions.

One of the UK’s leading providers of home reversion plans, Bridgewater Equity Release, has responded positively to the investigations by the OFT, having raised its own concerns about practices within the sector some time ago.

A spokesperson for the company has said that, given that many firms market these products as a form of equity release it is important that the sector is regulated alongside home reversions and lifetime mortgages, and that customers are made aware of the differences between the products.

The OFT’s investigation was completed in just five months, reflecting the urgency of the situation, and its report has been submitted to the government for its consideration.