Sale and rent back market shut for serious failings

The sale and rent market has been temporarily shut down after an investigation revealed widespread failings.

The majority of transactions were either unaffordable or unsuitable and never should have been sold, according to the Financial Services Authority (FSA).

Sale and rent back firms buy homes from struggling mortgage borrowers for a low price, and in return allow the homeowner to remain in their house as a tenant. Following heavy criticism of the market only nine firms have remained active since the FSA started regulating the sector in 2009.

Of the 22 firms investigated, the FSA has referred one firm to its enforcement division for fraudulent activity, while others have stopped taking on new business or cancelled their permissions. One has agreed to only purchase second hand sale and rent back contracts from other firms.

Effectively, this means the entire market is temporarily shut, the FSA said.

Five firms have also agreed to review past business deals, which could see compensation paid to customers in the future.

The FSA urged any customers with concerns over existing sale and rent back agreements to contact their provider or seek professional advice.

Nausicaa Delfas, the FSA’s head of mortgage and general insurance supervision, said most sale and rent back firms seemed 'more focussed on their own commercial success rather than the welfare of the customers, with one firm even resorting to fraud'.

The most common failings identified by the FSA included:

• Failing to correctly assessing appropriateness and affordability
• Failing to give customers enough time to consider the agreement
• Failing to disclose key facts of the agreement in the correct order, at the right time or in enough detail
• Failing to meet the FSA’s requirements for tenancy agreements
• Failing to adhere to the FSA’s financial promotion rules
• Failing to provide adequate training, compliance monitoring and record keeping

A study by consumer group Which? last year, meanwhile, found advice to sale and rent back customers to be ‘woefully inadequate’.

Moving forward the FSA said it will now focus on working with firms conducting past business reviews to ensure any affected customers are treated fairly.

Peter Vicary-Smith, chief executive of Which?, said: 'We now want to see redress for these consumers who have been given poor advice by sale and rent back companies and for this to happen quickly'.