New protection for sale and rent back customers

If you have watched television or flicked through a newspaper in the past three years, the chances are you have heard of sale and rent back companies: firms which offer the to buy your home and rent it back to you so that you can release equity without being forced to move out. For this reason, the offer has proved popular with indebted homeowners, but many such deals have ended in misery as they find themselves evicted months after selling their home.

The main reason that the sale and rent back market has proved such a problem for consumers is that it is unregulated, meaning that people who currently take part in these schemes do not benefit from the protection afforded by the Financial Ombudsman Service if needed. A recent FSA survey of adults in Britain found that only 42% of those surveyed knew that SRB is currently unregulated and the majority thought they would be entitled to stay in their home for more than five years, whereas the typical contract is six to 12 months.

Now, the Financial Services Authority (FSA) has announce details of a regime set to take effect on 1st July that will tackle immediate problems for customers in the sale and rent back market and ensure consumer protection in this area.

According to the FSA, an interim regime will be brought in to address the most immediate problems when statutory changes come into force on 1st July. This will be followed by a more comprehensive regime commencing on 30th June 2010. Under the interim regime, firms will need to meet FSA threshold conditions including the requirement to have adequate resources and to be run by fit and proper people.

Ed Harley, FSA head of mortgage policy, said:

“We know that some consumers enter into sale and rent back arrangements without understanding the costs and risks involved. This can be a source of real distress for people in already difficult circumstances. Firms entering our regime will need to run their business in a way that means customers are treated fairly. This includes making clear to customers important details, such as the length of time they can stay in the property, before they enter into the arrangement.”

Citizens Advice social policy officer Peter Tutton said:

“We have been calling for regulation of sale and rent back agreements since 2006 and are relieved that action is being taken quickly, especially considering the impact of current climate where more people are struggling with mortgage arrears, facing the threat of repossession and may be attracted by what appears to be a solution. This will provide much needed protection for consumers, stop cowboys and provide controls on who can provide these agreements and what they can do.”

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