FSA puts 'sale and rent back' deals on hold after review shows poor practice in the sector
The Financial Services Authority shut down temporarily the ‘sale and rent back’ market (SRB) after it found households were given unaffordable or unsuitable renting options.
SRB companies, which purchase troubled homeowner's properties at sometimes 60 or 70 per cent of their market value and rent them back to those same owners, represented the last resort for households faced with repossession.
But the FSA said the market has been halted after it carried out a review of all regulated SRB firms to protect ‘vulnerable’ customers.
Shut down: Households faced with repossession who were going for 'sale and rent back' deals were often offered unaffordable or inappropriate solutions
The move follows campaigning from
Which, the consumer group, which found in its research last year that advice being given to
SRB consumers was ‘woefully inadequate’.
The FSA said: ‘The review identified
widespread poor practice among SRB firms. The main conclusion is that
the majority of SRB sales were either unaffordable or inappropriate.
‘This means consumers have entered
into agreements that have either already led to a detrimental outcome,
or are highly likely to in the future. This is unacceptable, and we are
taking immediate action to address this.’
It has been estimated that around 50,000 SRB transactions had taken
place by October 2008.
Of the 22 firms the FSA reviewed, many have stopped doing SRB business
altogether and others do not plan to do so in the foreseeable future,
while one firm has been referred to its enforcement division, meaning
the entire market is temporarily shut.
The FSA found that some firms did not fully assess how appropriate an
agreement would be for the customer and simply allowed them to enter
into it because they wanted to.
Some firms committed customers to
unnecessary and high charges early in the sales process and high
pressure selling techniques were used, the report found, while some
required excessive or unnecessary signatures and legal jargon was often
used.
A number of tenancy agreements also
allowed landlords broad discretion to vary rent levels, and it was not
clear to customers whether they could challenge this, the FSA said.
The watchdog said in its report: ‘In
many cases it was not clear from the file that the surveyor owed a duty
of care to the SRB seller. It was therefore not clear if these customers
received an offer that was based on a fair assessment of the value of
the property.’
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