Sale and rent back companies provide vulnerable and struggling homeowners with the chance to sell their home at a discounted price and rent it back. This enables people who may not wish to leave their home to remain and become a tenant instead.

Last year, an investigation into sale and rent back by the Office of Fair Trading (OFT) uncovered evidence that some scheme operators mislead customers about the value of their homes, or promise to allow them to rent it back for years when it reality only offering a short-term tenancy of six or 12 months. Many former homeowners find their rent increased dramatically during the tenancy. The OFT also found that people felt forced into selling their homes because of the threat of repossession, when in reality it wasn’t the best option for them.

The FSA proposed the regulation of sale and rent back schemes in response to the investigation, promising to protect consumers, especially those under pressure to sell because of the credit crunch. The new rules have currently being introduced on an interim basis, with a more “comprehensive regime” starting on 30 June 2010.

Ed Harley, head of mortgage policy at the FSA, says: “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.”

In addition, firms will have to prove to the FSA they have sufficient resources to manage a portfolio of property. This is to prevent repossession down the line.

Prior to regulation, the industry had been plagued with rogue operators. Shelter have stated that they have seen many cases where companies pay people far less than the value of the house or kick tenants out of their home at short notice despite promising them they could stay there for life.

Sam Younger, chief executive of Shelter said: “With 65,000 homes predicted to be repossessed this year, more and more struggling homeowners will be tempted by sale and rent back schemes in the hope they can offer a lifeline. However, we have seen many people exploited by schemes and financially worse off and vulnerable to homelessness.

“Now the new regulation is in place, it’s absolutely vital that anyone considering taking up a sale and rent back scheme takes our advice and checks the company they are thinking of using is regulated. Following our tips will help prevent people from falling victim to a sale and rent back scam, and ultimately ensure they don’t lose their home.”

The charity has issued advice for anyone considering taking up a private sale and rent back scheme. Home owners are urged to make sure sale and rent back is the best option for them by first seeking independent advice. Even when regulated, sale and rent back is considered to be a very risky option.

re to be reported to the FSA. Anyone who sees an advert in the paper, or are approached by a firm and they are not authorised by the FSA, they are urged to sure to let the FSA know by contacting them via the helpline.

Homeowners should check that for certain that the firm is authorised by the Financial Services Authority (FSA) by checking their website or calling the helpline on 0300 500 5000. If they are not authorised home owners should not sign up with them.

Any rogue companies are to be reported to the FSA

R Lacey