Sale and rent-back market to be regulated
The announcement that the Financial Services Authority (FSA) will regulate the sale and rent-back market from July 2009 is welcome news for both consumers and the equity release market, as it would do away with the current confusion between sale and rent-back schemes and equity release.
[UKPRwire, Fri Feb 20 2009] The announcement that the Financial Services Authority (FSA) will regulate the sale and rent-back market from July 2009 is welcome news for both consumers and the equity release market, as it would do away with the current confusion between sale and rent-back schemes and equity release.
Sale and rent-back schemes are widely advertised and are promoted as a way of exchanging a mortgage for an affordable tenancy. However, surveys by the Office of Fair Trading found that many companies offering the scheme were making misleading claims and tricking people into unfair deals, often misleading customers about the value of their property or their subsequent security as tenants. Some companies had made large rent increases, or even evicted tenants after a short tenancy period.
By contrast, equity release schemes are already regulated by the FSA, and most equity release providers are also signed up to the Safe Home Income Plans (SHIP) code of conduct. The latter allows homeowners to live in their homes for life with no monthly rent, whereas sale and rent-back schemes, generally sold to homeowners who cannot afford their mortgages, involve people selling their home at a lower than market value and renting it back for between six and twelve months.
More than half of independent financial advisers say that the two schemes are confused, with many homeowners entering sale and rent-back schemes without fully understanding the terms of the agreement, and sometimes losing both their homes and large amounts of money.
Generally, the two schemes deal with different types of customer – sale and rent-back schemes are favoured by homeowners struggling with mortgage arrears and other debts, while equity release schemes tend to be favoured by ‘cash poor, property rich’ pensioners – but both categories may not be fully aware of what’s involved in their choice.
So, while regulation of sale and rent-back schemes will be of benefit to consumers, the most important factor is that the homeowner is fully aware of all the available options and the exact terms and risks involved with each one, so they can make an informed decision about what is the best choice for their personal circumstances.
The consumer organisation Which? welcomed the FSA’s new regulatory powers, and advised people not to go into sale and rent-back schemes until formal regulation begins. The chief secretary to the Treasury, Yvette Cooper, said the new regulation would “give vulnerable homeowners better protection when they need it”.
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