The consultation paper proposes a two-stage approach: an interim regime to be brought in from July to address the most significant problems consumers face as soon as possible, followed by a full regime which is likely to be implemented in the second quarter of 2010.
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.
A SRB market study conducted last year by the Office of Fair Trading found that some consumers enter into sale-and-rent back transactions when it might not be the best option for them.
That some sale-and-rent back firms may mislead customers as to the value of their property or the security they have as tenants. This includes telling people they will be able to stay in their home for years, when in reality the tenancy may only be guaranteed for six to 12 months.
There are also examples of firms imposing substantial rent increases or even evicting tenants after a short tenancy period. It is also possible that tenants may lose their homes if the landlord defaults on the mortgage.
Some consumers may be evicted because they cannot afford the agreed rent, which suggests staying in their property may not have been sustainable in the first place.
The government accepted the OFT’s main recommendation that sale-and-rent back should be regulated by the FSA. HM Treasury is today publishing a consultation paper setting out a definition of a regulated sale and rent back agreement.
Dan Waters, FSA director of retail policy, says: “We believe the issues identified by the OFT warrant a fast response, which is why we are seeking to bring in an interim regime this summer designed to ensure fairer treatment of customers as soon as possible, including the right to redress. We will then develop a more comprehensive regime to come in from next year.
“This two-stage approach is a new departure for us, but we believe it provides the right balance between implementing regulation quickly in order to address more serious cases of detriment, while giving us time to develop and implement a full regulatory regime that is suitable for the SRB market.”
Under the interim regime SRB firms will need to meet FSA threshold conditions including the requirement to be run by fit and proper people, to adhere to the Principles for Businesses and to meet some systems and controls and conduct of business rules. The section stage will include full authorisation, prudential requirements and further conduct of business rules.
The consultation paper will be open for responses until 01 May 2009.