Sale and rent back firms buy homes from individuals, usually at a significant discount, and then rent them back to the previous owners. Typical examples of the claims made in adverts by these 16 firms include:
that customers can choose to stay in their properties after they are sold, by renting them back as tenants for as long as they wish, at a fair market rate
that customers can buy back their properties at an agreed point in the future, and
that customers will have low rent periods and flexible rental terms.
The firms have been given 14 days to reply to these OFT notices. Based on their replies the OFT will make a decision on whether or not to take further action, against these firms, including prosecution.
This action follows a 2008 OFT market study into the sale and rent back sector which concluded that there was a need for statutory regulation. It found that some firms may be misleading consumers as to the value of their property or how long they may stay in the property after it is sold which may only be guaranteed for six to 12 months.
Heather Clayton OFT Senior Director of Consumer Protection said: 'Sale and rent back companies must be clear and transparent about the services they offer and the security consumers have as tenants. Clarity of advertisements is particularly important in the sale and rent back sector where customers may be under stress from financial difficulties, at risk of losing their homes and making important and complicated decisions. The OFT will continue to take action in any cases where such businesses engage in unfair and misleading practices.'
Andrea Rozario, Director General, SHIP (Safe Home Income Plans), commented: "Whilst we acknowledge that there may be some ethical sale and rent back companies, this clarification from the OFT will enable consumers to make an informed decision about their finances.
"There is no comparison between regulated equity release plans, with which consumers have the full protection of the FSA in addition to the safeguards implemented by SHIP, and the non-regulated sale and rent back sector. The two main differences consumers should take note of are:
Security of tenure: all regulated equity release products give the customer the right to live in their homes for life
No monthly rent: equity release plans do not require regular payment from customers.
"One point that we hope that the OFT will clarify is whether housing benefit would be available to anyone undertaking sale and rent back: we believe that these adverts give many customers a false sense of security that Government housing benefit will be available should they be unable to meet rent payments, but this is not necessarily the case. We also look forward to the FSA's response to October's OFT study which called for regulation of the sector."
