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FSA rules on house sale and rent backs 1 February 2010
Steven Jackson (about the author)

The Financial Services Authority (FSA) has today published new rules and guidance to protect consumers in the sale and rent back (SRB) market.

Today’s publication builds on the interim regime which the financial watchdog introduced in 1 July 2009 as an emergency measure to tackle the most immediate sale and rent back issues for consumers.

The full regime, which will provide consumers with greater protection from 30 June, bans exploitative advertising and high-pressure sales techniques, as well as prohibiting the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature.

An alternative to repossession

People use SRBs as an alternative to repossession. SRB schemes involve individuals selling their home, usually at a discount, and obtaining an agreement to remain in the property for a set period - typically through an assured shorthold tenancy of six to 12 months.

The rules follow a market study by the Office of Fair Trading in 2008 which found that sale and rent back deals had the potential to cause serious harm to homeowners who are often already in a vulnerable position.

Ed Harley, FSA head of mortgage policy, said: "For some people in financial difficulty, staying in their home remains very important. Selling their home and renting it back in this way can be right for them. But we are aware of some firms exploiting vulnerable consumers at a difficult time. So, it is right that we introduce these further protections, and we will take swift action where they are not met."

Security of tenure for a minimum of 5 years

The FSA has also introduced a 14 day cooling-off period to give consumers more time to make decisions on sale and rent back. It has banned cold calling and prohibited firms from dropping promotional leaflets through letter boxes. And it has confirmed rules to ensure consumers have a security of tenure for a minimum of five years.

The rules also 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.

All firms will need to apply for authorisation in order to undertake SRB business in the full regime, including those that have been permitted to carry on SRB activities under the interim regime.

For the full FSA document visit: http://www.fsa.gov.uk/pages/Library/Policy/CP/2010/10_04.shtml

Source: Credit Today