FSA closes sale and rent back market citing ‘poor practice’

The Financial Services Authority has today (3 February) published a review that shows most sale and rent back transactions were either unaffordable or unsuitable and should never have been sold.

Following a review of all regulated SRB firms, the FSA has referred one firm to its enforcement division while others have either stopped taking on new business or cancelled their permissions. Effectively, the FSa said, this means the entire SRB market is temporarily shut.

Of the 22 firms reviewed, only nine had been active since the FSA began regulating SRB. Of these, five have now stopped doing SRB business, three have kept their permissions but decided not to use them for the foreseeable future, five have agreed to undertake past business reviews, which may result in consumer redress, and one will only purchase second-hand contracts.

The FSA says that if customers with existing SRB agreements have concerns about their agreement they should in the first instance contact their SRB provider, or seek professional advice.

The FSA had previously identified and published areas of concern regarding financial promotions targeting vulnerable consumers.

The regulator said it had also received intelligence from a lender alleging that one firm was arranging SRB transactions as buy-to-let mortgages, where the properties were purchased by the firm at below market value then inflating purchase prices to defraud the lender.

Additionally, a study by consumer group Which? in February 2011 found advice to SRB customers to be ‘woefully inadequate’.

In March 2011, the FSA commenced a review of the sales practices of the 22 authorised SRB firms. The most common failings identified by the FSA were:

• SRB firms did not correctly assess appropriateness and affordability, and customers were not given enough time to consider the agreement;

• disclosure of the key facts of an SRB agreement did not follow the correct order, was insufficient and not given at the right time;

• agreements contained incorrect information and did not meet the FSA’s requirements for tenancy agreements;

• sales processes were inadequate and did not allow firms to gather enough information to assess appropriateness;

• financial promotions breached FSA rules; and

• training and competence, compliance monitoring, and record keeping were all inadequate.

The FSA will now focus on working with firms conducting past business reviews to ensure any affected customers are treated fairly.

Nausicaa Delfas, head of mortgage and general insurance supervision at the FSA, emphasised that as SRB is often the last resort for struggling homeowners, the regulators expected to see firms treating their customers much better than this report suggests.