Housing sale and rent-back sector commits to new code of practice

The controversial sale and rent-back sector – which buys people's houses at knockdown prices and then rents them back to the former owners – is to develop a new voluntary code of practice, in a bid to raise standards and prevent further mis-selling within the industry.

The schemes have generated a stream of bad press over the past few years as stories have emerged of pensioners selling their houses for a fraction of their real value, only to be turfed out as a tenant within just months of signing the contract.

Unlike equity release schemes – where elderly homeowners take out a mortgage on their property, which is repayable when they die or when the property is sold – sale and rentback schemes are currently completely unregulated. The schemes have become increasingly popular in recent years, as cash-strapped individuals, who have no assets aside from their homes, have turned to them as a quick and easy source of cash.

However, many of the schemes do not offer guarantees that the customer can remain a tenant in their property for life after the sale, consequently evicting customers within a few years, so that the property can be sold on.

The National Association of Sale & Rentback (Nasarb), which was established in October last year and now represents more than 200 providers, is now drawing up a voluntary code of conduct, to try and ensure customers are offered long tenancy agreements, and are made fully aware of any onerous terms and conditions relating to their schemes.

"For the most part, sale and rent-back providers are trying to offer owner-occupiers who find themselves unable to keep up with mortgage payments, the chance of not having to leave their home," said John Socha, the chairman of Nasarb.

"However, there are those providers who have been specifically targeting the vulnerable and not offering a secure tenancy going forward and it is this practice which is giving the entire sector a bad name.

"There are also cases of providers demanding massive rent hikes and owner-occupiers being conned out of their own equity. All practices which Nasarb condemns."

Norwich Union, one of the country's largest provider of regulated equity release schemes, said it welcomed the news, but added that it believed there was still a need for the Financial Services Authority (FSA) to step in and regulate the entire sector.

"This is certainly a step in the right direction to regulating the sector as a whole," said Anthony Rafferty, the head of marketing at Norwich Union Post Retirement Products.

"If this code of practice can do for the sale and rentback industry what the introduction of Safe Home Income Plans (Ship) has done for equity release, then this move should certainly be applauded.

"Any reassurances that can be given to consumers about the safety of their hard-earned money are a must and we call for the FSA to take heed of this new development, and take it one step further – to introduce full regulation of sale and rent-back. For those selling the products in the correct manner, this should be welcomed with open arms."