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FSA shuts down sale and rent-back market

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The FSA has today published a report that shows most sale-and-rent-back transactions were either unaffordable or unsuitable and never should have been sold.

Following a review of all regulated rent-back firms, the FSA has referred one firm to its enforcement division while others have either stopped taking on new business or cancelled their permissions.

The FSA says effectively, 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.

Of this nine, five firms have now stopped doing rent-back business, three have kept their regulatory permissions but decided not to use them for the foreseeable future, five have agreed to undertake past business reviews (which may result in consumer redress), and one will only purchase second-hand SRB contracts from other firms.

The FSA says if customers with existing SRB agreements have concerns about their agreement they should in the first instance contact their SRB provider, or seek professional advice.

The FSA had previously identified and published areas of concern regarding financial promotions targeting vulnerable consumers. It had also received intelligence from a lender alleging that one firm was arranging rent-back transactions as buy-to-let mortgages where the properties were purchased by the firm at below market value then inflating purchase prices to defraud the lender.

Additionally, a study by consumer group Which? in February 2011 found advice to rent-back customers to be ‘woefully inadequate’.

In March 2011, the FSA commenced a review of the sales practices of the 22 authorised SRB firms. The most common failings identified by the FSA were:

  • SRB firms did not correctly assess appropriateness and affordability, and customers were not given enough time to consider the agreement;
  • Disclosure of the key facts of an SRB agreement did not follow the correct order, was insufficient and not given at the right time;
  • agreements contained incorrect information and did not meet the FSA’s requirements for tenancy agreements;
  • Sales processes were inadequate and did not allow firms to gather enough information to assess appropriateness;
  • Financial promotions breached FSA rules; and
  • Training and competence, compliance monitoring, and record keeping were all inadequate.

The FSA will now focus on working with firms conducting past business reviews to ensure any affected customers are treated fairly.

FSA head of mortgage and general insurance supervision Nausicaa Delfas says: “Rent-back is often the last resort for struggling homeowners so we expected to see firms treating their customers much better than this report suggests.

“The resulting temporary closure of this market could have been avoided if sale and 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.

“This is an example of the type of action that the FSA, and in future the FCA, will increasingly be taking to protect consumers.”

The FSA was given regulatory oversight of SRB 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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Readers' comments (7)

  • Sounds like a few out to make a quick buck at the expense of vulnerable people!

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  • Is this again another incident of too little too late by the regulater who have had three years to close this mis-selling scandal. We need our regulater to be more pro-active rather than a knee jerk reactive.

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  • It comes as no surprise that the SRB market is effectively dead. That the providers openly advertised their wares as an equity release solution grated with genuine providers and bona fide specialist advisers alike. Good riddance to bad rubbish!

    Simon Chalk, Equity Release Planner, Bower Retirement Services.

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  • Many of the individuals involved in this field were previously from the sub-prime lending arena - they will probably re-emerge as ambulance chasers now.

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  • ABOUT TIME

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  • Clang. The sound of a stable door closing.

    It was obvious for a very long time that this sleazy market could only cause weak and vulnerable customers harm.

    The perpetrators should be forced to provide redress to those affected.

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  • After following the market closely for several years, and working with 3 major Sell and Rent back companies I cannot disagree more with the above comments.

    The way in which the FSA regulated the SRB market was indeed 'too little too late'. However, the services which the fully regulated companies provided in my view were much needed, offering a very viable and valid solution to peoples debt, repossession and other underlying issues.

    I am fully aware that some rogue companies had been using the system, especially pre-regulation, to make money from vulnerable people.

    The way in which the FSA handled the regulation process and their current 'reviews' are absurd.

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