REPOSSESSION FIRMS FACE NEW INVESTIGATION
The OFT is concerned by companies who claim they can help struggling homeowners avoid repossession
Wednesday February 4,2009
By Holly Thomas Deputy Personal Finance Editor
CONTROVERSIAL companies that claim they can help struggling homeowners avoid repossession are being forced to justify their advertised promises to the Office of Fair Trading this month.
The OFT is concerned with about 16 “sale-and-rent-back” companies, which offer to buy the homes of struggling mortgage borrowers in return for a cash lump sum and the right to remain as tenants.
However, the watchdog suspects these businesses could be misleading consumers on the value of their homes, and how long they are allowed to stay in the property after it is sold.
The firms have been given 14 working days to back up claims they made in adverts or face prosecution.
Sale-and-rent-back schemes typically pay about 75 per cent of the value of the property. There has been concern about how
they operate because they are unregulated and therefore offer very little consumer protection.
Heather Clayton, senior director of consumer protection at the OFT says: “Sale-and-rent-back companies must be transparent about the services they offer and the security tenants have.
“Clarity of advertisements is important where customers may be under stress from financial difficulties, at risk of losing their homes and making important and complicated decisions.”
Sale-and-rent-back deals appeal to those who need fast access to cash, with many schemes boasting the process can be completed within a week.
Those facing repossession are high on the hit-list because the deal allows them to repay their mortgage but stay in their home by paying rent at a rate lower than their mortgage payments.
This may be attractive to those who do not want to move or reveal money troubles to friends, family and neighbours.
Equally, the schemes are targeted at older people who want to access some of the equity tied up in their homes to boost retirement income, and at homeowners facing repossession who are desperate to sell.
These schemes are not a form of equity release, which is regulated.
Some victims of sale-and-rent-back face large hikes in previously agreed rent, or could find themselves evicted even if they keep up with the rent, because
the sale-and-rent-back company has defaulted on the mortgage.
The OFT is refusing to name the companies at present, but some could be made public depending on the outcome of the probe.
The watchdog said last year that the sector as a whole should be regulated to protect consumers.
Claire Barker, chairman of the Equity Release Solicitors’ Alliance says: “It is great news that the OFT is seeking substantiation from sale-and-rent-back firms over claims made in their advertising.
"Misrepresentation of sale-and-rent-back can prove detrimental to potential customers and so it is paramount that consumers understand the process clearly before making any decisions.
“Sale-and-rent-back should be regulated to ensure that some of the most vulnerable people in society are not exploited by a few unscrupulous property developers.”
Another fear is homeowners could be short-changed if properties are bought at a discount without an independent valuation.
Homeowners considering sale-and-rent-back should seek independent financial advice before making any decisions and signing up to it.
Anyone struggling to pay their mortgage and considering such a scheme should talk to their mortgage lender first.
Mortgage companies are required to offer assistance to borrowers in financial difficulty and have been given orders by the Government to view repossession as a last resort.
A lender might be able to extend the term of the loan, to help reduce repayments, or switch to an interest-only loan for a period.
Citizens Advice, National Debtline and the Consumer Credit Counselling Service can help with budgeting and negotiating new repayments with creditors.
