Sale and Rent Back Schemes Closed Down

by Mark Johnston

If borrowers are struggling to pay their mortgage, they may have heard about sale and rent back schemes.

Sale and rent back schemes were typically operated by private, profit making companies.

These schemes provided struggling home owners an alternative to repossession, but they offered limited on going housing and financial security.

Sale and rent back companies typically target vulnerable home owners. These companies have come under fire in the past for using high pressure sales tactics to ‘encourage’ home owners in difficulty to sell their properties quickly at big discounts on their actual market value.

The problems with sale and rent back schemes have been both numerous and serious. All properties were typically bought at a sustainable discount.

The Office of Fair Trading (OFT) investigated the industry back in 2008 after tens of thousands of home owners sold their homes to these companies who offered them tenancies as an alternative to being repossessed.

A system for regulating private sale and rent back schemes was introduced in June 2010 following pressure from Shelter and other advice organisations.

The Financial Services Authority (FSA) took over the formal regulation of these schemes and estimated that around 50,000 such deals had already been ‘struck’ with these companies.

When the Financial Service Authority (FSA) started the review of the 22 firms originally authorised to operate the schemes, they found many common failings which included:

–          firms did not correctly assess if the schemes were appropriate and affordable and customers were not given enough time to consider the agreement

–          the key facts of a sale and rent back agreement were not disclosed in the correct order

–          agreements contained incorrect information and did not meet the FSA’s requirements for tenancy agreements

–          sales and processes did not allow firms together enough information to assess if the schemes were suitable

–          financial promotions breached FSA rules

In 2010 the Financial Services Authority (FSA) banned these companies from cold calling and prohibited the use of emotive terms such as ‘fast sale’ and ‘mortgage rescue’ in their promotional literature.

Nearly 4 years after the regulator responded to the complaints about these companies, the remaining firms have stopped selling their controversial deals. From February 3rd 2012, no firms are taking on new business and therefore the sale and rent back market is temporarily shut.

Nausicaa Delfas, of the Financial Services Authority (FSA) said “the 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”.

Peter Vicary-Smith, of the consumer association Which? added “it is welcome news that the FSA has taken action to stop people falling prey to shoddy advice from sale and rent back firms”.

The Financial Services Authority (FSA) has recommended that customers with existing agreements who have concerns should contact their sale and rent back provider. Also independent advice is advisable if the customers are in a dispute with their particular provider.

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