'Sale And Rent Back' Property Market Closed

The financial watchdog has temporarily shut down the 'sale and rent back' property market after discovering widespread poor practice.

Sale and rent back (SRB) schemes buy properties from homeowners struggling to pay their mortgages and then rent it back to them.

The practice was hailed as revolutionary when it began several years ago, as it meant that people avoided repossession.

But a review by the Financial Services Authority (FSA) found that in most instances, SRB transactions were either unaffordable or unsuitable and never should have been sold.

The watchdog began regulating the market in July 2009, after an investigation by the Office of Fair Trading found that sale and rent back deals had the potential to cause serious harm to homeowners who were often already in a vulnerable position.

SRB providers were required to register with the FSA and offer a minimum tenancy term of five years after research found that the typical contract was between six and 12 months.

The most recent study by the FSA found multiple failings from providers, including instances of hard-selling, entering into a contract without taking into account whether an SRB is the right option for the customer and providing a shorter lease than five years.

Nausicaa Delfas from the FSA 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 focussed on their own commercial success rather than the welfare of the customers, with one firm even resorting to fraud."

The market has temporarily closed, with five firms voluntarily ceasing to continue SRB schemes and a number of companies agreeing to complete reviews of past business which could lead to further action from the regulator.

One firm has already been referred to the enforcement arm of the FSA and may be fined or even banned.

However, other firms will be allowed to enter the market if they abide by the watchdog's rules, a spokesman told Sky News.

Consumer campaigner Which?, which lobbied with other organisations like the homeless charity Shelter, to get the industry regulated said the FSA's action was "exactly the type of strong, proactive action" they wanted.

"It's welcome news that the FSA has taken action to stop people falling prey to shoddy advice from sale and rent back firms," chief executive Peter Vicary-Smith said.

"We now want to see redress for those consumers who have been given poor advice by SRB companies, and for this to happen quickly."