Sale and rent-back schemes to be investigated by OFT

The Office of Fair Trading (OFT) is investigating sale and rent-back schemes after concerns were raised over the contentious and unregulated practice.

Under sale and rent-back or sale and lease-back arrangements homeowners, typically facing repossession, sell their property at a discount in return for the option to remain in the house as a tenant paying rent.

The OFT's study will consider whether existing general consumer protection legislation is sufficient for sale and rent-back products, particularly in light of the circumstances in which these products are sold.

Consumer groups, mortgage lenders and MPs have voiced concern over the schemes, particularly because landlords seem free to cancel the letting contract and evict the tenant soon after cheaply acquiring the property. While most mortgage products, and the associated advice and information, are regulated by the Financial Services Authority, sale and rent-back advice, products and practitioners are not policed.

"Regulation is urgently needed," said Peter Tutton, of Citizens Advice, "especially given the potential for the rapid growth of this market. The consequences when things go wrong can be very serious, including people losing both their homes and substantial sums of money.

"We have seen a number of cases where people have gone ahead with sale and rent-back on the understanding this would allow them to remain in their home in the longer term, only to find themselves homeless within a year.

John Fingleton, chief executive of the OFT, said: "There are a number of potential concerns including whether consumers in difficult circumstances are making well-informed choices. We are therefore prioritising this work to take a good look at whether consumers are adequately informed and protected.

"Sale and rent-back is a relatively new sector which appears to be growing quickly. Given the current economic climate, this market study is timely."

The study, which was originally announced in the Budget in March this year, is expected to conclude in September.