The National Landlords Association has reaffirmed its commitment to raising standards among landlords operating in the sale and rent back sector following the recent Office of Fair Trading (OFT) Market Study.
The OFT reported that there is a need for statutory regulation by the Financial Services Authority (FSA).
If followed findings that some consumers enter into sale and rent back transactions when this is not the best option for them and that 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. It was discovered that some firms also impose substantial rent increases or even evict tenants after a short tenancy period.
The NLA has recently consulted across the sector about a Code of Practice aimed at encouraging transparency and openness for sale and rent back transactions. The OFT study means there is now recognition that ethical sale and rent back has a place within the housing market. The NLA says it will support any steps to drive out ‘rogue’ operators from the private-rented sector.
David Salusbury, Chairman, NLA, said: “Although the OFT has moved directly to FSA regulation, it does not affect the NLA commitment to doing what it can to assist cleaning up this market. The NLA will offer its full assistance to the Government and the FSA as they consider the implications of the OFT report.
“As we have said all along, people’s homes are not like other commodities and some of the questionable practices that have come to light through the OFT’s investigations have left some consumers even more vulnerable than before.
“But it must be remembered this is not the whole picture. We believe the majority of sale and rent back landlords act with professionalism and integrity. A small number of ‘rogue’ operators have now brought the entire market under close scrutiny.
“The NLA called for change and the OFT report is an answer to that call.”
The details of any statutory regulation will be up to the FSA to determine but the OFT considers it should include:
- an obligation on sale and rent back firms to be more transparent about the initial valuation and sale price, the terms of the tenancy and the amount of rent to be paid. In particular, firms must offer forms of tenancy that match the assurances they give to customers
- a requirement on firms to tell consumers about the free, independent advice available to them before they decide to sell.
Regulation may also require firms who fail to honour their commitments to offer redress to consumers.
The Council of Mortgage Lenders and Citizens Advice is also supporting the OFT recommendation for regulation by the FSA.
CML director general, Michael Coogan, said: “It is a year ago that the CML, Shelter and Citizens’ Advice first jointly called for the regulation of the sale and rent back sector. The OFT recommendation potentially brings regulation a step closer.
“In the meantime, there has been some progress towards improved transparency for consumers through voluntary measures, but a level playing field requires a regulatory approach to ensure appropriate protection from unscrupulous operators for consumers who may be in a vulnerable situation.”
Citizens Advice chief executive, David Harker, added: “We have seen cases of very severe problems arising from bad practices connected to sale and rent back agreements. These are long term agreements about people's homes so when sale and rent back goes wrong people can suffer huge financial and emotional loss. While sale and rent back agreements might be the right thing for some people, consumers need the sort of robust and binding safeguards that only statutory regulation is likely to provide.
“With more people seeking advice about mortgage arrears we are concerned that these safeguards should be put in place as soon as possible. Therefore we urge the government to act on the OFT recommendations without delay. In the meantime we call on the reputable businesses in the sale and rent back sector to develop rigorous standards of conduct in the way that sale and rent back agreements are sold and managed.”
