FSA Publishes Damning Report on Sale and Rent Back Firms

The Financial Services Authority (FSA) has published a report which reveals that most sale and rent back (SRB) transactions were either unaffordable or unsuitable, and should never have been sold.

Firms in the SRB sector faced floods of complaints for offering last-chance below market value deals to home owners facing bankruptcy and repossession.

The firms proposed cut-price deals to the home owners, often at 30% less than the market value, while promising to let them stay in their homes as tenants.

The review looked at all regulated SRB firms, a sum of 22.  Since the FSA began regulating the SRB market back in 2009, only 9 of the 22 SRB businesses have been active, and only 60 transactions have taken place.  Of the 9 regulated SRB firms, 5 have stopped doing SRB transactions, 2 have kept their regulatory permissions but have decided to cease SRB transactions, five have agreed to have their past business reviewed, one now only purchases second-hand SRB contracts from other firms, and one is under investigation for buy to let fraud.  In effect, the entire SRB market is currently inactive.

A study by consumer group Which? in February 2011 found advice to SRB customers to be ‘woefully inadequate’.

In March 2011, the FSA commenced a review of the sales practices of the 22 authorised SRB firms.  The review found a plethora of faults in the practices of SRB firms, which led to customers being unable to afford their debts or mortgages, failing to pay rents and being evicted.

Nausicaa Delfas, the FSA’s head of mortgage and general insurance supervision, said “Sale and 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 FSA are now working with firms conducting past business reviews to ensure any affected customers are treated fairly.

It is advised that customers with existing SRB agreements who are concerned about their agreement should contact their SRB provider, or seek professional advice.