The FSA has shut down SARB as the watchdog says most sale and rent back transactions were either unaffordable or unsuitable and should never have been sold.
It has referred one sale and rent back firm to its enforcement division. Other firms are either shut to new business or have cancelled their permissions, meaning the market is effectively closed on a temporary basis.
The FSA started regulating the sale and rent back market in June 2009 and began a review of 22 authorised firms in March 2011. Of these only nine were operating at the time, and since then five have stopped doing SRB business, three have kept their permissions but stopped doing work for the time being, and one is only taking on SRB contracts from other firms.
The watchdog found customers were not being given enough time to consider agreements, agreements contained incorrect information, sales processes, training and general levels of competence were all inadequate, and promotions breached FSA rules.
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 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 focused on their own commercial success rather than the welfare of the customers, with one firm even resorting to fraud.’
The fraud refers to allegations that one firm was arranging SRB transactions as buy to let mortgages with the purchase at below market value, then inflating the price to defraud the lender.
The FSA is now working with the five firms that have stopped doing SRB work, conducting past business reviews. It is urging SRB customers that have concerns to contact their provider or seek professional advice, noting the reviews may result in ‘consumer redress’.
Is this justified?