Rent-back future in doubt after FSA discovers fraud in sector
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The Financial Services Authority has effectively closed down the sale-and-rent back market after finding evidence of fraud and bad practice in the sector.
Following a review of regulated rent-back firms, the FSA has referred one to its enforcement division while others have either stopped taking on new business or cancelled their permissions. The FSA says this means the entire rent-back market is temporarily shut.
Of the 22 firms reviewed, only nine had been active since the FSA began regulating rent-back.
In March 2010 the FSA said it had received a report from a lender via the Information From Lenders Scheme, which claimed rent-back transactions were being arranged as normal buy-to-let mortgages.
In this scenario the rent-back firm would buy the property for a price below its market value and then remortgage it, increasing the value of the property on the application - thus committing fraud.
Nausicaa Delfas, head of mortgage and general insurance supervision at the FSA, says: “Rent-back is often the last resort for struggling home owners so we expected to see firms treating their customers much better.
“The resulting temporary closure of this market could have been avoided if 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.”
She adds that this is an example of the type of action the FSA, and in future the Financial Conduct Authority, will increasingly be taking to protect consumers.
The FSA was given regulatory oversight of rent-back by HM Treasury in June 2009 and implemented an interim regime a month later. This was replaced by a full regime in June 2010.
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