FSA cracks down on sale and rent back schemes

Over the past few years an increasing number of people have had to turn to sale and rent back companies to try and get themselves out of a sticky situation with their homes.

The credit crisis coupled with the recession has resulted in many homeowners coming across huge hurdles, ranging from being unable to sell their homes on the open market or falling into negative equity to falling behind with mortgage repayments and risking repossession. In many of these cases, and in various other cases, consumers have turned to sale and rent back firms which have emerged with a vengeance over the past couple of years.

In theory the way in which these sale and rent back firms are supposed to work is by purchasing the property from the homeowners and then renting it back to them on an indefinite basis at market rent. This means that the homeowner can get themselves out of the financial mess that they may be in and can sell the property and avoid repossession without actually having to uproot and move home.

However, in reality there are many homeowners who have been stung by sale and rent back firms, which has given the industry something of a bad reputation. In most cases these sale and rent back firms will only pay a percentage of the property value to purchase the property from the homeowner, and this is typically around 60 percent of the property value. However, some desperate homeowners have accepted this amount only to find that the sale and rent back firm them evicts them from the former home once the deal has been made.

This practice amongst more unscrupulous sale and rent back firms has caused a lot of concern amongst officials and consumers, and the UK’s financial regulator, the Financial Services Authority, has now decided to take decisive action to provide consumers with more protection should then end up selling their home to a sale and rent back company. The new regulations are set to come into play in June of this year, and could provide homeowners with additional peace of mind should they find that they have to sell their home to one of these companies.

Under the new regulations sale and rent back companies will have to provide a guarantee that the former homeowner will be able to stay on in the property as a tenant for a minimum of five years. The new rules have come following proposals that were made last year, and the FSA hopes that they will reduce the number of homeowners that have fallen victim to predatory practices from some sale and rent back firms.

A Financial Services Authority spokesperson, Ed Harley, stated: “For some people in financial difficulty, staying in their home remains very important and 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.”

Tags: finance, Financial Services Authority, Real property law, Real estate, home insurance, Economy of the United Kingdom, Renting, sale and rent back, mortgage