Sale and rent back/ sale and lease back companies

Some companies offer to help borrowers who get into financial difficulties with mortgage payments by buying the home and then renting it back for a fixed period of time.

These arrangements are known as 'sale and lease back', ‘sale and rent back’ or ‘sell-to-let’ schemes.  They are not the same as ‘home reversion’ or 'equity release' schemes which are for people who have paid off their mortgage and want to sell part or all of their home for cash and retain the right to live in it for a nominal rent.

The CML lobbied successfully for regulation of sale and rent back to be introduced. The Financial Services Authority (FSA) has been regulating this area on an interim basis since 1 July 2009.  It has now published its details of the full regulatory regime, which will apply from 30 June 2010. We have issued a supporting press release in response.

Selling the property through sale and rent back may allow mortgage debts to be cleared and borrowers to stay in their home. Until full statutory regulation is in place, consumers should consider very carefully whether sale and rent back is the right option for them and seek independent financial advice before entering into an agreement to sell their property. If you are having difficulties paying your mortgage, you should speak to your lender as soon as possible.

Details of the FSA's full regulatory regime - effective from 30 June 2010

On 29 January, the FSA published details of the full regulatory regime that will apply to sale and rent back, thereby providing consumers with greater protection. This full regime will come into force from 30 June 2010. In particular, the FSA has:

• banned exploitative advertising and high-pressure sales techniques and prohibited the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature;
• introduced a 14 day cooling-off period to give consumers more time to make decisions on sale and rent back;
• banned cold calling and prohibited firms from dropping promotional leaflets through letter boxes;
• confirmed rules to ensure consumers have a security of tenure for a minimum of five years; and
• introduced an affordability and appropriateness check across all sales to check that the sale and rent back deal is right for the consumer;
• and put in place measures to ensure all risks are clearly signposted to the customer, via FSA literature and during the sales process.

UPDATE 25 June 2010 - The FSA has published its policy statement PS10/8 outlining the final rules for sale and rent back. 

The reporting requirements for SRB firms have not changed from those proposed back in January. The FSA has made minor changes to the layout of the Mortgage Lending and Administration Return (MLAR) as well as a change concerning Product Sales Data (PSD) which firms will be required to collate and retain, but not submit n a regular basis. These changes do not alter the information the regulator requires, but are intended to make reporting and regulatory analysis of the data more effective.

Firms will be obliged to send a factsheet to consumers as part of the sales process. The factsheet is available on the FSA's website. 

CML's responses to sale and rent back consultations

The CML has issued several statements in support of sale and rent back regulation.

In October 2008, the CML welcomed the OFT's recommendation for statutory regulation.

In February 2009, the CML responded to an HMT consultation, broadly welcoming how the government intended to regulate sale and rent back. The CML also issued a  response to an FSA consultation, welcoming the interim regime but warning that the registration fees should not be too high and that the compliance function needed sufficient resource.