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Owen and Moira Martin are among the many British victims of companies offering controversial sale-and-rent-back deals. Their three-bedroom maisonette in Plymouth was repossessed last month because the company with which they had entered into an agreement never paid the mortgage, even though it had pocketed about £45,000 in fees from them.
Such horror stories have prompted the government to consult on how best to regulate the estimated 2,000 or so companies in the UK offering such schemes.
'It's been devastating,' says Owen Martin, a supermarket worker, who has had to move into a privately rented two-bedroom flat with his wife. 'We made sure the rent was paid, but we lost our home anyway because the company we sold to never paid the mortgage company.'
The Office of Fair Trading estimated in its recent report into the sector that some 50,000 sale-and-rent-back transactions had taken place. Operators offer to buy the property of someone facing repossession at a discount price, allowing the former mortgagee to remain in the property as a tenant. They usually also charge significant fees.
Such companies range from 'man-and-a-van' operators who often advertise their services on the sides of their vehicles, through small-scale buy-to-let investors looking to buy property at a discount, to bigger operations which advertise in tabloid newspapers.
In the wake of the OFT report, the Treasury is consulting on how best to regulate the industry, with responsibility set to be handed to the Financial Services Authority. Robin Gordon-Walker, an FSA spokesman, says the OFT investigation set off many alarm bells. 'Some of the practices described in the OFT report raise serious concerns about certain aspects of this market,' he says. 'The scope of FSA regulation is clearly a matter for the Treasury, but we look forward to engaging with their consultation about bringing sale-and-leaseback within our remit.'
But regulation will come too late for the Martins, who entered into a sale-and-rent-back agreement to pay off about £26,000 of mainly credit card debt. 'My wife had a heart attack on my 50th birthday and was off work for six months, so I had used credit cards to pay off bills. We weren't in arrears with the mortgage. I had made sure that was paid,' says Owen, now 51.
They bought the property for £41,000 in 2002 and it had risen in value to £110,000. Their mortgage was for £38,000. The sale-and-rent-back company charged £45,000 in fees for completing the deal and undertook to pay the new mortgage on the property so long as the couple paid the rent. The Martins received just £25,000, despite having £72,000 of equity.
'The day after we signed the papers the company told us the £400 rent we had agreed wasn't enough and put it up to £500. We paid 11 months' rent in advance and then, two months ago, got a call to say the house was being repossessed because that rent had never been used to pay the mortgage.'
One of the problems with sale-and-rent-back schemes is that people entering into them are generally only offered assured shorthold tenancies (ASTs), the standard form of tenancy agreement. Landlords, particularly if they are buy-to-let investors, can often only get mortgage finance if their tenants are on such contracts. However, ASTs offer the tenant little protection - the landlord can serve notice to take the property back after six months.
Some debt charities believe many people would be better off having their property repossessed. Frances Walker of the Consumer Credit Counselling Service says: 'We do not recommend sale-and-rent-back agreements at all because they are not regulated. There are legal safeguards with repossession and our counsellors advise people how to go through that process in a managed way.'
According to specialist repossession law firm Moore Blatch, the owners of a £180,000 house could find themselves up to £30,000 worse off by going down the sale-and-rent-back route, rather than repossession. Paul Walshe, head of legal services at the Southampton-based firm, says: 'People often don't understand how much they are paying to stay in their own home. When you're in this sort of worst-case position, it's very difficult to have clarity of thought.'
Peter Tutton, policy officer at Citizens Advice, says it is not the number of sale-and-rent-back victims contacting his organisation that is a concern, but the scale of the problem they face. 'The detriment they have suffered is often very large. The way people have got into jeopardy suggests some very bad practices.'
Sale-and-rent-back agreements have become more widespread because of the hardline approaches deployed by some mortgage lenders. And with the Council of Mortgage Lenders predicting 45,000 repossessions in the UK this year - 27,100 more than in 2007 - many householders remain worried.
However, some have managed to use sale-and-rent-back successfully. Claire Villette Davidson, 35, and her husband Jason, 37, a factory worker from Burton Latimer in Northamptonshire, faced being thrown out of their house two years ago. 'We got an eviction notice on 22 December, so it was quite a lovely Christmas present,' she says.
They were six months behind with their mortgage payments and entered into a sale-and-rent-back agreement with Shield4Life, based in Chertsey, Surrey, which took over the house. The Davidsons now rent it back for £495 a month. The couple's priority was to retain a home for their children, Liam, 16, Devon, 10 and eight-year-old Sia. 'We have managed to keep a roof over our heads, which was the main priority. We can stay in the property as long as we like. We also have the option to buy the property back at market value after two years,' says Mrs Davidson.
Laura Sercombe, a director of Shield4Life, whose founders come from charity and public sector backgrounds, says she would be delighted if the image of the sector improved. Her company offers 100 per cent of the market value for each property it acquires, but charges a 6 per cent fee. 'We set out from the start to operate with high standards and are in it very much for the long term. We are not out to make a quick buck,' she says.
The National Landlords Association, which has about 250 members operating sale-and-rent-back schemes, hopes to introduce its own code of practice. It wants operators to provide a key facts document, access to independent dispute resolution and for tenants to be given rights to stay in the property unless they break the tenancy agreement. They also want operators to provide evidence that they are buying the property at a true market value.
'We want to ensure that anyone who signs up to our code has a sound business model, is transparent in the way they conduct business, and operates in an honest and ethical way,' says Chris Norris, policy officer at the association.
Adam Sampson, chief executive of Shelter, the housing charity, welcomes regulation but believes market conditions themselves may do the job. 'If they see the market teetering on the brink of a major downturn, it may discourage some people from going into the market,' he says.
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