Sale-and-rent-back schemes must be regulated

Permalink: Sale-and-rent-back schemes must be regulated
by Kay Murchie

Sale-and-rent-back companies have been featured recently on programmes such as ITV1’s Tonight with Trevor McDonald and BBC1’s Watchdog.

The Council of Mortgage Lenders (CML), Shelter, the homeless charity and the Citizens Advice Bureau are urging Kitty Usher, the Government’s Economic Secretary, to bring these sale-and-rent-back companies under the control of the Financial Services Authority (FSA).

Collectively, the 3 companies have written a letter to Kitty Usher and expressed their concerns about such companies, who buy the homes of people in debt for below market value before leasing them back.

These companies often purchase properties as low as 60% below the market rate and in general offer no security of residence beyond a 6-12 month tenancy. The schemes have been branded ‘a disaster waiting to happen’ and are leaving an increasing amount of people in debt and homeless. These companies are preying on vulnerable homeowners.

Adam Sampson, chief executive of Shelter, said the Government must urgently introduce regulation to crush this crooked practice.

Previously, the FSA has said that sale-and-rent-back companies do not fall under its responsibility because it is regarded as a property transaction and not a financial service.

However, the CML, Shelter and Citizens Advice Bureau have disputed that these schemes are similar to regulated equity release home reversion schemes and Islamic mortgages, both of which involve the purchase of equity in a home and a long-running financial arrangement.

Michael Coogan, CML director general, said repossessions are on the increase so consumers need to be informed and protected. Therefore, the Government needs to consider urgently whether regulation of sale-and-rent-back schemes by the Financial Services Authority is appropriate because it would provide protection for potentially vulnerable consumers.