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09/09

06 February 2009

Protecting consumers in the sale and rent back market

The Government is today launching a consultation document on strengthening protection for vulnerable homeowners.  The Government is proposing that companies offering sale and rent back agreements, which may target homeowners facing repossession, should be brought within the scope of Financial Services Authority (FSA) regulation.  The consultation sets out the details of the proposed legislation and will close on 1 May 2009.  The FSA has published a separate consultation alongside on the detail of its proposed new regime.

The consultation follows an Office of Fair Trading (OFT) market study published at the end of last year, which looked at the impacts of the growing sale and rent back market.  The OFT report identified that there are a number of risks to homeowners entering into these arrangements and made three recommendations to Government, including compulsory regulation, increasing consumer awareness and improving information about housing benefits.

The Government accepted the OFT's recommendations. Its proposals today include a two-stage approach to regulation, in order to ensure consumers are protected as quickly as possible in the current market environment.  Subject to the outcome of consultation and Parliamentary approval, the Government is proposing that the FSA puts in place an interim regime by July 2009.  The FSA will put in place its full regulatory regime following consultation and the publication of its final rules.

The launch of the consultation today follows action taken by the OFT last week asking 16 sale and rent back providers to substantiate claims made in their adverts.

The Government's proposals build on the comprehensive package of support for homeowners facing financial difficulties. 

The Chief Secretary to the Treasury, Yvette Cooper, said:

“Many people are worried about their homes and their mortgages right now. Unscrupulous companies must not be allowed to exploit people when they are vulnerable with dodgy deals that end up pushing people out of their home. The OFT found some shocking cases. That's why in this consultation the Government is proposing tough new regulation to give vulnerable homeowners better protection when they need it”

Housing Minister, Margaret Beckett said:

"We are determined to give as much support as possible to home owners who maybe facing difficulties right now. These new proposals will help to protect vulnerable consumers at risk from unscrupulous companies seeking to exploit households in the current climate. This is part of the wide range of actions we are taking to restore stability and confidence in the housing market and to ensure real help is in place for those who need it most.”

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Notes for Editors

  1. The sale and rent back (also known as sale and lease back) market offers homeowners the option of selling their properties at discounted rates in exchange for tenancy arrangements. Sale and rent back agreements effectively combine two transactions – firstly, individual homeowners sell their property at a discount, and secondly they are offered an agreement to remain in the home as a tenant.
  2. At Budget 2008, the Government asked the Office of Fair Trading (OFT) and the Financial Services Authority (FSA) to investigate the sale and rent back market, focusing on consumers’ experience of these arrangements, and consider options where appropriate to strengthen consumer protections. On 14 May the OFT announced that it would conduct a formal market study, working to an expedited timetable in light of stakeholder concerns.
  3. The OFT published its report on the sale and rent back market study on 15 October 2008. 
  4. The Government published its reponse to the OFT market study on 22 October 2008.
  5. The OFT announced it had taken action in relation to advertising by sale and rent back providers on 30 January.
  6. The Government published its consultation on regulating the sale and rent back market on 6 February 2009.
  7. The FSA published its consultation on the details of an interim regulatory regime for the sale and rent back market on 6 February 2009.
  8. The Government is taking a range of other steps to support homeowners and help them avoid repossession including:
    • Statutory regulation of mortgages and credit provides homeowners with important protections and appropriate means of redress. In 2004 the Government extended the scope of FSA regulation to cover first charge residential mortgages. The FSA’s regime requires that lenders only move to repossession as a last resort. Regulation of other credit business is covered by consumer credit legislation, administered by the Office of Fair Trading (OFT). 
    • In the 2008 Pre-Budget Report, the Government announced the creation of a new Lending Panel bringing together Government, banks, trade bodies, regulators, and consumer groups to monitor lending to businesses and households. The major mortgage lenders on the Panel have agreed to a moratorium on repossessions - committing not to repossess for at least 3 months after an owner-occupier falls into arrears. Some mortgage lenders have now gone further, and committed not to repossess for at least 6 months after an owner-occupier is in arrears. The Government welcomes these commitments.
    • The Government’s recently announced Mortgage Rescue Scheme and Homeowner Mortgage Support Scheme, together with recent changes to make Support for Mortgage Interest (SMI) more generous, will help to ensure that homeowners who experience a temporary income shock, lose employment, or are otherwise vulnerable, are able to remain in their homes.
    • The Government is determined to ensure that every household struggling with debts can access free and impartial debt advice.  In the Pre-Budget Report 2008, the Chancellor of the Exchequer announced £5.85m additional investment in telephone advice during the period to March 2011, and £10m to March 2010 for Citizens Advice bureaux to expand face-to-face debt advice capacity. Both measures will help to ensure that advice and support is available for borrowers who may need it.

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