The Financial Services Authority has released full regulation of Sale and Rent Back – particularly the much stricter conditions on promoting these schemes and making sure that people in debt trouble are not abused.

Sale and Rent Back is targeted at those who are in financial difficulties who may be vulnerable to selling techniques which obscure the downsides. The last thing those who are struggling need to hear is a cowboy pouring honey into their ear, telling them that they should sell their home to pay off their secured and unsecured debts.

As a result, the FSA says it will be banning cold-calling, leaflet dropping and the use of emotive phrases in promotional material will be crucial, along with tighter monitoring of the activities of these firms.

Adam Phillips, chairman of the Financial Services Consumer Panel says: “Sale and Rent Back 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.

“However, 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 1000 firms undertaking sale and rent back, means the FSA must watch the authorisation boundary carefully.”

If you are at your wits end, only ever consider selling your home and renting it back after your have spoken to financial advisers, your lenders, debt charities and your family. It can be a sensible option, but only to a small minority – for the other struggling secured borrowers there are always less severe options.

SOURCE: FSA, FSCS, 29/01/10

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The Financial Services Authority, the Government’s watchdog, says exploitative advertising and high-pressure sales techniques by sale and rent back firms will be banned by 2010.

Sale and rent back is the scheme whereby people who simply cannot afford to keep their mortgage sell their property, pay their debts and then rent it back from the firm. The practice has been regulated by the FSA, but it is now making sure no vultures use pressure to get people to sell up.

The new proposals will include giving people a cooling-off period to give consumers more time to make decisions,
banning firms cold calling and prohibiting firms from dropping promotional leaflets through letter boxes.

The FSA will also be prohibiting the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature – it wants to make sure people have considered every other avenue before they make such a desperate decision.

Ed Harley, FSA head of mortgage policy, says: “Sale and rent back can be the right solution for some consumers, but many of the people typically targeted are financially vulnerable and have been badly hit by the experience. The FSA’s proposed new rules will help to protect consumers.

“We want to prevent high-pressure and inappropriate sales, and help consumers understand sale and rent back products, so they only enter into sale and rent back where it is an appropriate and sustainable solution for them.”

SOURCE: FSA, 28/09/09

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Sale and rentback is a system where people who cannot afford to hold onto their house sell the property to a company, who then allows them to pay rent to stay in the property. Unfortunately this has been abused, and many people have had their homes effectively stolen away from them. The Financial Services Authority has published the details of the regime that it aims to introduce on July 1 to tackle immediate problems for customers in this market.

This follows the recommendation made last year by the Office of Fair Trading, following a market study which found that sale and rent back deals had the potential to cause serious harm to homeowners who are often already in a vulnerable position.

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

Under the new 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.

Peter Tutton, Citizens Advice social policy officer says: “We have seen where the sale and rentback sector has caused considerable detriment in the past. While sale and rentback agreements might be the right thing for some people, Citizens Advice Bureaux have reported numerous cases where bad practice has resulted in people losing both substantial sums of money and where they were not permitted to remain in their home in the longer term, finding themselves homeless within a year.

“This will provide much needed protection for consumers, stop cowboys and provide controls on who can provide these agreements and what they can do.”

SOURCE: FSA, Citizens Advice, 03/06/09

To keep up with the latest news and comments on current financial affairs please visit the Secured Loan Blog.