As money gets tighter for Britons, so mortgage repayments can quickly become unmanageable, leading homeowners to take desperate measures to avoid repossession. With so much at stake, "sale and rent back" schemes can start to look attractive.
The concept is simple. Those struggling with serious debt problems can sell their home, pocket any profit after the mortgage is paid off and then rent it back from the new owner. They continue to live there as a tenant.
But since this is, on paper, an agreement between two individuals rather than between a homeowner and a financial services company, the sale and rent back market is totally unregulated, and the potential for the unscrupulous to exploit the vulnerable is huge. Consumer groups say hard-up sellers are being offered well below the market price for properties, sometimes as much as 40 per cent, and in many instances are being given their marching orders from what used to be their home within months.
John Socha, chairman of the National Landlords Association and the recently created National Association of Sale and Rent Back (Nasarb) committee, admits that some providers "have been targeting the vulnerable" and says: "There are cases of massive rent hikes, and owner-occupiers being conned out of their own equity."
In response to malpractice, Nasarb last week announced it was to launch a voluntary code of conduct in April. This will take into account principles laid down by the industry regulator, the Financial Services Authority (FSA), to ensure providers put the needs of individual customers before profit during the sales process. Consumers will have the right to complain to Nasarb if its members have not acted in the spirit of the code – for example, if a tenancy agreement is terminated early. But crucially, Nasarb can only ask the provider to reconsider the case – it cannot insist that it pays compensation.
To add to this, the code of conduct applies only to the group's members – around 200 out of more than 2,000 sale and rent back firms in the UK. Operators range from one-man bands working from home to franchises with huge call centres. No one even knows how many there really are, despite an investigation by the Treasury.
Meanwhile, Mr Socha sees little likelihood of Nasarb members being forced under the new code to pay a minimum amount for the property – one of the most frequent ways in which sellers can be ex-ploited. "The formula is just too difficult to work out for this kind of rule," he says.
However, what Mr Socha does hope the code will incorporate is a requirement for the person entering into a sale and rent back agreement either to prove that they have taken the advice of a solicitor or to have signed a waiver saying they don't require advice.
"At least if we have put everything in place in an attempt to protect the vulnerable, and consumers go into these contracts with their eyes open, they can't complain later," he says.
But for the housing charity Shelter, that simply isn't good enough. Adam Sampson, its chief executive, says: "This voluntary code lacks any real teeth to ensure companies treat consumers fairly, and we urge [Nasarb] to call on the FSA to provide tougher, independent regulation of the sector."