FSA beefs up sale-and-rent-back rules

29 January 2010 | By Natalie Thomas

The FSA adopted a two-stage approach to regulating the sale and rent back market.  To tackle the most immediate SARB issues for consumers as quickly as possible, it implemented an interim regime from 1 July 2009.  

Today’s publication contains details of the full regime, which will provide consumers with greater protection from June 30 2010.

In particular, the FSA has banned exploitative advertising and high-pressure sales techniques and  prohibited the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature, it has also:

• * Introduced a 14 day cooling-off period to give consumers more time to make decisions on SARB    
• * Banned cold calling and prohibited firms from dropping promotional leaflets through letter boxes
• * Confirmed rules to ensure consumers have a security of tenure for a minimum of five years
• * Introduced 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.

Ed Harley, FSA head of mortgage policy, says: “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.”

The FSA has also published proposals for the data it will expect firms to supply for use in the supervision of SARB firms.  

All firms active in the SARB market must be authorised otherwise they face potential fines or imprisonment. The FSA is proactively monitoring the SARB market for unauthorised activity, and will take action if necessary.  

Adam Phillips, chairman of the Financial Services Consumer Panel, says: “SARB can provide rich pickings for firms seeking to make money from people who are desperate.  

“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.  

But he adds: “The FSA must police this area thoroughly.  We still have worries that firms will try to exploit consumers both within the rules, and by trying to operate outside the rules.  

“The fact that only around 80 firms have applied for FSA authorisation, when the OFT had judged that there were over 1,000 firms undertaking SARB, means the FSA must watch the authorisation boundary carefully.  

“The Consumer Panel has real concerns about this particular product and will continue to monitor the situation.”