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Sale and rent back market closed down

Sale and rent back market closed down

Category: Mortgages

Updated: 03/02/2012
First Published: 03/02/2012

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The sale and rent back (SRB) market has been temporarily shut down after an almost year-long review by the Financial Services Authority (FSA).

An investigation into firms operating in the market found that most SRB transactions were either unaffordable or unsuitable and should never have been sold.

SRB is targeted at those in financial difficulties who may be vulnerable to selling techniques which obscure the downsides of selling their property and renting it back.

The sale of the property is usually for less than its market value and former homeowners are often only provided with a short-term tenancy agreement thereafter.

And following the probe, the FSA has referred one firm to its enforcement division while others have either stopped taking on new business or cancelled their permissions.

These moves have effectively shut the SRB market on a temporary basis.

Of the 22 firms reviewed, only nine had been active since the FSA began regulating SRB.

Of this nine, five firms have now stopped doing SRB business, three have kept their regulatory permissions but decided not to use them for the foreseeable future, five have agreed to undertake past business reviews - which may result in consumer redress - and one will only purchase second-hand SRB contracts from other firms.

The FSA has told existing SRB customers that they should contact their provider or seek professional advice if they have any concerns.

During its review of the sector which began in March 2011, the most common failings identified by the FSA were:

  • SRB firms did not correctly assess appropriateness and affordability, and customers were not given enough time to consider the agreement;
  • Disclosure of the key facts of an SRB agreement did not follow the correct order, was insufficient and not given at the right time;
  • Agreements contained incorrect information and did not meet the FSA's requirements for tenancy agreements;
  • Sales processes were inadequate and did not allow firms to gather enough information to assess appropriateness;
  • Financial promotions breached FSA rules; and
  • Training and competence, compliance monitoring, and record keeping were all inadequate.

The FSA said it will now work with firms to ensure that any customers affected by the issues are treated fairly.

Nausicaa Delfas, head of mortgage and general insurance supervision for the regulator, said today's announcement is the type of action that the FSA, and in the future the Financial Conduct Authority, will increasingly take to protect consumers.

"Sale and rent back is often the last resort for struggling homeowners so we expected to see firms treating their customers much better than this report suggests," she added.

"The resulting temporary closure of this market could have been avoided if sale and rent back firms had taken the time to fully understand their regulatory responsibilities and customers' needs.

"It seems most were more focussed on their own commercial success rather than the welfare of the customers, with one firm even resorting to fraud."


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