Companies offering controversial sale-and-rent-back schemes could be banned from using exploitative advertising and high-pressure sales tactics, it was announced today.
City watchdog the Financial Services Authority is also calling for consumers to be given a cooling off period after they have signed up to one of the schemes, while firms will be banned from cold calling and dropping promotional leaflets through letter boxes.
It is also proposing stopping firms from using emotive terms such as "mortgage rescue", "fast sale" or promising they can get "cash quickly" in promotional literature.
The proposals aim to protect vulnerable consumers from being exploited by the schemes, under which companies buy the homes of people who face having them repossessed and then rent them back to them.
The rapidly growing sector has come in for heavy criticism following claims that some companies pay less than 60% of the market value for properties, while others levy steep rent increases and some evict people after just 12 months.
Today's proposals build on the FSA's interim regulation of the sector, which was introduced at the beginning of July and requires all firms offering the schemes to be authorised by the FSA.
Other proposals for the full regime, which will come in on June 30 2010, include a requirement for firms to check consumers can afford the deal they are being offered and that sale-and-rent-back is right for them.
In some cases, initial rent payments have been set at unaffordable levels, while in other cases people who have taken out one of the schemes have lost benefits they were previously entitled to.
The FSA also wants firms to make it clear to consumers how long they will be able to stay in their homes following reports that some companies suggested people could rent their homes for years, when in reality the tenancy was only guaranteed for six to 12 months.
Ed Harley, FSA head of mortgage policy, said: "Sale-and-rent-back can be the right solution for some consumers, but many of the people typically targeted are financially vulnerable and have been badly hit by the experience.
"The FSA's proposed new rules will help to protect consumers. We want to prevent high-pressure and inappropriate sales and help consumers understand sale-and-rent-back products, so they only enter into sale-and-rent-back where it is an appropriate and sustainable solution for them."
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