A fresh attack has recently been launched against some sale and rent back scheme firms by the homeless charity Shelter, with officials claiming that many of these forms fail to live up to their promises and rip off consumers in terms of what they pay for the property. These schemes have become increasingly popular with struggling homeowners who want to stay in their property but cannot afford the mortgage repayments and do not want to risk having the property repossessed and getting thrown out.

Sale and rent back scheme work by the firm purchasing the property from the homeowner, and then renting the property back to them as tenants. Although in principle this sounds like a good way to help homeowners to avoid repossession some officials are concerned that sale and rent back firms are taking advantage of the more vulnerable, and are making promises about lifelong tenancies that they then fail to keep as well as paying way under the market value for the property, delivering the homeowner with a double whammy.

An official from Shelter recently stated: “People are being ripped off. We are seeing people who are getting only 50% or 60% of the value of their homes instead of the 70% to 90% they should be getting. Many of the promises that are made that people can stay in their homes for the rest of their lives are not being honoured.”

However, sale and rent back firms have responded by stating that were it not for this type of scheme many more homeowners would end up on the streets having been repossessed. They state that this way the homeowner gets to stay in the property whilst paying rent instead of a mortgage, with the rental payment sometimes coming to far less than the mortgage repayment did.

Shelter officials have viewed many sale and rent back firms in a dim light for some time, and in the past one official from the charity said: ‘Some firms will make any promises to convince you to go in for what is plainly a very bad deal. It’s daylight robbery. These vultures are preying on the elderly in particular.’

The CML has stated in the past: ‘There’s a clear opportunity for consumer detriment. These firms are being confused with the regulated equity release market. They are dealing with people at their most vulnerable point. It’s important that the Government acts quickly.’

The government responded by stating: ‘The Government is aware of concerns raised about sale and leaseback companies. It is important that anyone considering complex property transactions such as these should seek independent advice before committing themselves.’

The Council of Mortgage Lenders also commented on this issue last year, stating: ‘Controls exist for action taken by mortgage lenders when customers are in arrears but there are no such safeguards for customers entering into sale-and-leaseback schemes. In a climate of rising repossession, consumers in financial difficulty need to be well informed and protected. The Government needs to consider urgently whether regulation of sale-and-leaseback schemes by the Financial Services Authority is appropriate because it would provide protection for potentially vulnerable consumers.’

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