Mortgage customers entering into a sale and rent back (SRB) agreement will have greater protection under new rules we have set out for firms to follow.
If you are having financial difficulties such as meeting your mortgage repayments, a firm may offer to help you by buying your home and allowing you to continue living in it as a rent-paying tenant for a fixed term. This would require a sale and rent back agreement.
This may help you clear your mortgage or other debts, but a SRB scheme can involve selling your property for less than its market value so in most cases should only be considered as a last resort.
We regulate the sale of these schemes and have introduced new rules to protect consumers and make it easier to understand SRB products. These rules apply from 30 June 2010 and should mean you only enter into a SRB agreement where it is appropriate and affordable for you.
New SRB rules
If you enter a SRB agreement a firm must now:
- make any tenancy agreement fixed for at least five years so you have better security of tenure
- check that you can afford the deal and that it is right for you
- make sure you have checked your ongoing entitlement to benefits, which may be affected by a change in your living arrangements
- confirm during the sales process that all risks are clear to you, including providing a consumer factsheet and other information to help you make informed decisions
- give a 14-day cooling-off period for you to consider the agreement
- ensure there is an independent valuation, where the surveyor owes a duty of care to the consumer in all sales; and
- avoid high-pressure sales techniques and cold calling, exploitative advertising and the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’
Lesley Titcomb, the FSA director responsible for the mortgage sector, said: ‘With cases of vulnerable homeowners evicted from their homes 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.’
If you think a firm is not following any of these rules you should first discuss it with them. Our Consumer Helpline may also be able to assist you.
For further information on dealing with debt, meeting your mortgage repayments and SRB schemes visit Money Advice Service. For independent advice you can contact Citizens Advice.
Meanwhile, we have also looked at our rules to better protect
borrowers in arrears.
