As of the 30th of June 2010 the FSA began the new full regulatory regime for the sale and rent back sector.
The new format is said to be an extension and strengthening of the existing interim regime, which has been in force since June 2009.
This supports the recommendation made last year by the Office of Fair Trading (OFT), 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.
All firms with permission under the interim regime must re-apply, and have their application approved under the new tighter regulations, in order to continue regulated sale and rent back activities such as advising on, entering into, or arranging a sale and rent back agreement.
The FSA’s aim is to ensure protection for the consumer through the Financial Ombudsman’s scheme and to make sure anyone considering sale and rent back is aware of the risks and other possible alternatives. Governing all the regulations is the idea of Treating Customers Fairly.
Under the new Sale and Rent Back rules, firms must make any tenancy agreements fixed for five years in order for consumers to have better security of tenure and are prohibited from using high-pressure sales techniques and cold calling, exploitative advertising and the use of emotive terms, such as ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’.
Lesley Titcomb, FSA director responsible for the mortgage sector, said: “With cases of vulnerable homeowners evicted from their homes after 6-12 months after selling to unscrupulous sale and rent back companies, tighter controls were vital.
“Sale and rent back is often used by those who want to sell in a hurry to stay in their home, and so it is vital that they are better protected during what is usually a difficult period financially.”
The number of players in the sale and rent back sector has been reduced dramatically from the pre-regulated days when estimates ranged from 1,000 to 3,000.
Approximately 80 firms were on the interim register and now that full regulation has been introduced the early indications are that the number of authorised firms is in single figures.
One of the first companies to achieve authorisation under the new regime, DFB Housing Solutions, the specialist provider to the intermediary market, spoke out about the new regulation. Daniel Lowerson, a partner of DFB, said: “We fully support the FSA’s stance, which we feel marks another big step forward for the sector and confirms sale and rent back’s status as a legitimate and valuable financial product for a range of consumers.
“DFB Housing will be continuing to promote the benefits of SRB to financial intermediaries, debt professionals and mortgage companies.”
For intermediaries, under the new regulatory regime they will still be able to introduce clients to regulated sale and rent back providers, if they feel they may benefit from more information about sale and rent back opportunities.