Sale and rent back

Launched: May 2008

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Purpose of the study

1. To examine the characteristics of the product and the circumstances in which the product is sold.

2. To collect evidence on homeowners' experience, to consider whether homeowners are making informed choices.

3. To consider whether existing consumer protection legislation is sufficient and effective. If OFT concludes that existing consumer protection is not sufficient in this area, it will consider whether further action is appropriate, including recommending that consumer protection should be strengthened.

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Findings

1. Sale and rent back not always best option for consumers.

2. Consumers misled as to value of their property or security they have as tenants.

3. Examples of huge rent increass being imposed and evictions after short tenancy period.

4. Possible that tenants may lose their home if landlord defaults on mortgage.

5. Some consumers may be evicted because they dannot afford agreed rent, which suggests that staying in their property may not have been viable in the first place.

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Recommendations

The OFT has recommended that the sale and rent back sector needs statutory regulation with better protection for consumers. The OFT's report says that:

• some consumers enter into sale and rent back transactions when it might not the best option for them
  
  
• some sale and rent back firms may mislead customers as to the value of their property or the security they have as tenants. This includes telling people they will be able to stay in their home for years, when in reality the tenancy may only be guaranteed for six to 12 months
  
  
• there are examples of firms imposing substantial rent increases or even evicting tenants after a short tenancy period. It is also possible that tenants may lose their homes if the landlord defaults on the mortgage, and
  
  
• some consumers may be evicted because they cannot afford the agreed rent, which suggests staying in their property may not have been sustainable in the first place.

As a result, the main recommendation of the OFT report is that there should be statutory regulation of the sale and rent back sector by the Financial Services Authority (FSA).

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Action following market study

See the FSA website for FSA action.

In July 2009 - Twelve firms offering sale and rent back services have agreed to change their adverts or take down their websites completely after the OFT challenged some of their statements made to consumers.

17 February 2009 - On 30 January 2009, the OFT issued formal notices to 16 sale and rent back firms asking them to substantiate claims they make in their adverts.

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Market study details and report

See press release 'Sale and rent back firms need statutory regulation - OFT report'. 15 October 2008

Download the OFT Report  Sale and rent back - an OFT market study' (pdf 494 kb). October 2008

Download annexes of the report:

• Annexe A - Consumer survey (pdf 236 kb) 
• Annexe B - Equity release (pdf 106 kb)
• Annexe C - Analysis of cases recorded by advisors (pdf 74 kb)
• Annexe D - Website survey (pdf 82 kb)
• Annexe E - Financial assistance for homeowners and tenants (pdf 77 kb)
• Annexe F - Existing consumer protection (pdf 179 kb)
• Annexe G - Alternatives to sale and rent back (pdf 76 kb)
• Annexe H - Social mortgage rescue (pdf 89 kb)
• Annexe I - Impact assessment (pdf 92 kb)
• Annexe J - Consumer awareness (pdf 94 kb)
• Annexe K - Similar practices to sale and rent back in the USA (pdf77 kb)
• Annexe L - Case studies of consumer detriment (pdf96 kb)

See  press release 'OFT seeks substantiation from sale and rent back firms over adverts'. 30 January 2009

See  press release 'Sale and rent back firms change or remove advertising following OFT action'. 31 July 2009

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Background information

See  press release 'OFT launches market study into sale and rent back'. 14 May 2008

Download Sale and rent back - an OFT market study (pdf 494 kb).

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