For most home owners in the UK today, the greatest asset they own is usually their house. Even if an individual has a mortgage on their home, there is normally a reasonable level of equity in the property, particularly if they have owned the property for a number of years. Although many home owners are asset rich, they are cash poor and not surprisingly, often look to releasing some of the value of their home when they require extra funds, usually in the form of a secured loan or a re-mortgage.
Another option which is increasing in popularity, particularly for those in financial difficulty, is the sale and rent back idea (also known as sale and lease back). With this type of scheme, a home owner can sell their home to a company, usually at a significant discount and the company will then rent the property back to the individual, allowing them to remain in their home which may have otherwise been repossessed.
With recent economic conditions, this sector has grown significantly and concerns have been raised as to whether or not this is a good deal for consumers taking this option, many of whom could be facing financial ruin and may not be thinking rationally and clearly.
As a result of these concerns, the Office of Fair Trading (OFT) is to launch an investigation into the sector to ascertain what level of advice and protection exists for those individuals who may be considering this type of scheme.
Currently, there is no regulation of sale and rent back schemes and most consumer protection groups welcome the investigation and believe it to be not a moment too soon.
Adam Sampson, chief executive of Shelter, commented “these companies encourage hard-up home owners to sign up for what is plainly a very bad deal.” He also said that Shelter have seen many cases where home owners have not only lost out financially on the sale of their house to the company, but then also had no right to live in the property on a permanent basis and ultimately ended up homeless. As a result of this, Shelter are pushing for the Government to introduce regulation for sale and rent back schemes in order to give vulnerable consumers better protection in this area.
