Sale and rent back/ sale and lease back companies
Last reviewed 01/09/2008: any recent updates in this colour.
Some companies offer to help borrowers who get into financial difficulties with mortgage payments by buying the home and then renting it back for a fixed period of time (six months or more). These are sometimes called ‘flash sales’, because they can buy the home quickly, sometimes within a week, but more usually between three to four weeks.
They are also called 'sale and lease back', ‘mortgage rescue’, ‘ sale and rent back’ or ‘sell-to-let’ schemes.The FSA does not regulate these schemes so customers may not have access to the complaints and compensation procedures if things go wrong. They are not the same as ‘home reversion’ or 'equity release' schemes which are for people who have paid off their mortgage and want to sell part or all of their home for cash and retain the right to live in it for a nominal rent. These schemes are regulated by the FSA.
Selling the property in this way may allow mortgage debts to be cleared and borrowers to stay in their home. However, if borrowers opt for such a scheme they will no longer own the home and could still be evicted if they fall behind with the new rental payments. In addition, most of these firms will pay less than the market value of the property, so we advise consumers to think carefully before entering into such a scheme and make sure they understand the consequences. We believe these schemes should be regulated to protect consumers and have called on government to do this.
On 14 May the Office of Fair Trading (OFT) announced that they would be carrying out a market study into the sale and rent back sector. Given the current economic climate, the OFT considers this important market study is timely, because sale and rent back is a relatively new sector which appears to be growing quickly. If the number of consumers potentially facing repossession increases, it is possible that the take-up of sale and rent back arrangements will also increase.
The OFT intends to take a detailed look at the characteristics of the sale and rent back product and, bearing in mind the circumstances in which these products are sold, consider whether existing consumer protection legislation is sufficient and effective. They aim to complete the work in September this year. Further information can be found on the OFT website.
