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Sale and rent back protection welcomed

Sale and rent back protection welcomed

Category: Mortgages

Updated: 29/01/2010
First Published: 29/01/2010

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 It is now over 6 months old so the content may be out of date.

Regulation to protect sale and rent back (SRB) customers has been welcomed and described as coming into force not a moment too soon.

The Financial Services Authority (FSA) has published new rules and guidance which will provide a framework of protection for consumers in the market.

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

There is currently an interim regime to tackle the most immediate SRB issues.

The FSA will, from 30 June 2010:

- ban exploitative advertising and high-pressure sales techniques and prohibit the use of emotive terms like 'fast sale', 'mortgage rescue' and 'cash quickly' in promotional literature;

- introduce a 14 day cooling-off period to give consumers more time to make decisions on sale and rent back;

- ban cold calling and prohibited firms from dropping promotional leaflets through letter boxes;

- confirm rules to ensure consumers have a security of tenure for a minimum of five years;

- introduce an affordability and appropriateness check across all sales to check that the sale and rent back deal is right for the consumer; and

- put in place measures to ensure all risks are clearly signposted to the customer, via FSA literature and during the sales process.

"Sale and rent back can provide rich pickings for firms seeking to make money from people who are desperate," commented Adam Phillips, chairman of the Financial Services Consumer Panel.

"Firms have been able to lure vulnerable people into deals which they later regret when the rent rises or they lose their home. People see the promise of being able to stay in their own home and get cash up front quickly, without necessarily being warned of the longer-term consequences.

"FSA regulation of this area promises to provide better explanation and protection for consumers."

As part of the overhaul of the SRB sector, firms will have to provide the FSA with data. Furthermore, firms not authorised but are found to be operating in SRB will face the prospect of fines and imprisonment.

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