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FSA/PN/016/2010
29 January 2010

The Financial Services Authority (FSA) has today published new rules and guidance  which put in place a strong framework of consumer protection for vulnerable consumers in the sale and rent back (SRB) market.

The FSA adopted a two-stage approach to regulating the sale and rent back market.  To tackle the most immediate sale and rent back issues for consumers as quickly as possible, it implemented an interim regime from 1 July 2009. 

Today’s publication contains details of the full regime, which will provide consumers with greater protection 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;
• 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.

Ed Harley, FSA head of mortgage policy, said:

"For some people in financial difficulty, staying in their home remains very important. Selling their home and renting it back in this way can be right for them. But we are aware of some firms exploiting vulnerable consumers at a difficult time. So, it is right that we introduce these further protections, and we will take swift action where they are not met."

The FSA has also published proposals for the data it will expect firms to supply for use in the supervision of sale and rent back firms.

All firms active in the sale and rent back market must be authorised otherwise they face potential fines or imprisonment. The FSA is proactively monitoring the SRB market for unauthorised activity, and will take action if necessary.

Consumers should ensure that they only deal with authorised firms and be aware of the risks involved in sale and rent back schemes. Consumers are encouraged to call 0300 500 5000 immediately if they are aware of sale and rent back firms who continue to trade without being authorised.

More information about SRB schemes can be found on the FSA’s Moneymadeclear Website.

 

Notes for editors

1. The Consultation Paper.
2. SRB schemes involve individuals selling their home, usually at a discount, and obtaining an agreement to remain in the property for a set period - typically through an assured shorthold tenancy of six to 12 months.
3. The full regime will add full capital and authorisation requirements for firms, additional conduct of business rules including the introduction of a single selling standard and a cooling-off period, and the inclusion of the activities of advising on and arranging SRB products into the Financial Services Compensation Scheme.
4. The recommendation made in 2008 by the Office of Fair Trading, followed 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.
5. The interim regime will end at midnight on 29 June 2010 and the full regime will begin on 30 June 2010. All firms will need to apply for authorisation in order to undertake SRB business in the full regime, including those that have been permitted to carry on SRB activities under the interim regime.
6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime