FSA's findings endorse our views on sale-and-rent-back
Published: 7 August 2012 | Author: Bernard Clarke
Publication by the Financial Services Authority (FSA) of the findings of its thematic review of the sale-and-rent-back market have reinforced our long-held view that there are potentially significant risks for consumers considering this type of product. The findings reinforce our belief that these - and similar - products should be properly regulated.
We have favoured reinforced regulation in this area for a number of years, and supported the FSA's decision to move quickly to introduce interim rules to address concerns about sale-and-rent-back in 2009. A year later, the regulator implemented permanent rules to strengthen protection for consumers.
Sale-and-rent-back emerged a few years ago as an option for borrowers who were finding it difficult to maintain their mortgage payments. Under the schemes on offer, providers agreed to buy the home from the borrower, with an agreement that the customer could continue to live in the property as a tenant.
But publication at the end of last month of the findings of a thematic review of the sector by the FSA reinforces the case for effective regulation to target a series of weaknesses associated with firms offering sale-and-rent-back. The FSA, which launched its review in March 2011, said it had "highlighted widespread poor practice among sale-and-rent-back firms." The most common failings identified by the review included:
- failure to assess correctly whether sale-and-rent-back was appropriate or affordable for the consumer;
- problems with the disclosure of information to consumers, which was often insufficient or not provided at the right time or in the right way;
- record-keeping that was often not good enough to confirm that the regulator’s requirements had been met;
- sale-and-rent-back agreements that contained incorrect information and did not fulfil FSA requirements for tenancy agreements;
- financial promotions that did not comply with the rules;
- sales processes that failed to follow the structures set out in rules or allow firms to collect enough information from customers to determine whether sale-and-rent-back was an appropriate option;
- failure to give customers enough time to consider the product presented to them; and
- inadequate monitoring of training and competence of staff, and compliance.
The clampdown on sale-and-rent-back, while welcome, has led to the emergence of similar products or agreements, which also appear to enable borrowers to stay in their former properties and pay rent to prospective buyers. Two variants of this – exchange and delayed completion, and lease option agreements – are, in some cases, sale-and-rent-back by another name. They have similar potential to present risks to borrowers in much the same way as sale-and-rent-back schemes. The terms of some agreements also appear to put borrowers in breach of their existing mortgage contracts.
We believe there should be adequate protection for consumers considering products that are similar to sale-and-rent-back, and others that may emerge. We would like to see the extension of regulatory protection, so that it captures all quasi sale-and-rent-back schemes, products and options.
For many years, we have urged borrowers experiencing problems with their mortgage commitments to seek independent advice to explore their options and help determine what is best in their individual circumstances. We continue to advise borrowers in this position to speak to their lender at the earliest opportunity. Lenders will help them explore and understand their options, and help ensure they get proper advice.