Measures will offer protection until full regulation is introduced next year, says the FSA
Homeowners who fall victim to rogue sale and rent back companies may be able to claim compensation from 1 July in the first step towards full regulation of the schemes by the Financial Services Authority (FSA).
Full regulation will be introduced on 30 June next year, but it was announced today that the watchdog would introduce interim steps to tackle immediate consumer problems.
From the start of next month, people who lose money or their homes through these controversial schemes will be able to take their cases to the Financial Ombudsman Service if complaints to the companies themselves are not handled in a satisfactory way.
Sale and rent back companies, which usually advertise in the back of tabloid newspapers and online, target struggling homeowners by offering to buy their homes and allowing them to continue living in them as tenants, usually on an assured shorthold tenancy lasting six to 12 months.
Homeowners often stump up the cost of a valuation typically about £500 only to find the price being offered falls far short of the market value.
Up until now the companies have been unregulated and some homeowners who have gone ahead with the deals have found themselves facing eviction because the new owner wants to sell the property on or has failed to keep up with mortgage payments.
Under the interim regime, firms will have to apply for permission from the FSA to continue trading: they must comply with the FSA’s principles for businesses and will be required to have adequate resources and be run by fit and proper people. The watchdog will be able to stop, ban or fine firms that break the rules.
The move follows Office of Fair Trading (OFT) research last year which identified a number of risks to homeowners entering into these arrangements. The OFT made three recommendations to the government including compulsory regulation, increased consumer awareness and improved information about housing benefits.
A recent FSA survey found that only 42% of people questioned knew that sale and rent back is unregulated, although 58% thought that it should be. The majority also thought they would be entitled to stay in their home for more than five years, while the typical contract is six to 12 months.
Ed Harley, the FSA’s head of mortgage policy, said: “We know that some consumers enter into sale and rent back arrangements without understanding the costs and risks involved. This can be a source of real distress for people in already difficult circumstances.
“Firms entering our regime will need to run their business in a way that means customers are treated fairly. This includes making clear to customers important details, such as the length of time they can stay in the property, before they enter into the arrangement.”
Homeowner victims
The Observer has been highlighting the plight of those who have already fallen victim to sale and rent back schemes for several years. Unfortunately, the rule changes will not allow those who have suffered from rogue firms to claim compensation retrospectively.
Jean Turner and her husband sold their Norwich home to a sale and rent back company after falling three months into arrears on their mortgage. Although they only owed ?1,500 they had been taken to court by their lender and faced repossession.
Jean, now aged 53 and on disability benefits, approached the local council for advice and was given the number of a sale and rent back firm called Home Assured. Its representative visited the Turners and agreed to buy their home; the firm paid off the outstanding mortgage and arrears. The Turners then paid £500 a month in rent to stay in their home, the same amount they had been paying for their mortgage, but had no tenancy agreement or rent book.
Jean, who has since split up from her partner, discovered that although she was still paying rent to Home Assured it had subsequently sold her home to another owner. She received a court summons because the new owner failed to keep up with the mortgage payments, and the final straw came when he tried to raise the rent from £500 to £650, saying that all she had to do was ask the council for more money.
Jean refused and instead went to Shelter for help and now lives in local authority housing. “It was a horrible experience,” she said. “It is about time someone did something about these schemes. I wouldn’t want anyone to go through what I have over the past few years.”
The danger of people falling prey to unscrupulous firms should also be reduced by the introduction of the government’s £285m mortgage rescue scheme in January. Although only two households had been officially rescued by the end of April, government officials said more will be helped with 70 cases in the pipeline.
guardian.co.uk © Guardian News and Media 2009
