Archive for the ‘Sell and Rent back’ Category

Extra rules to regulate “sale and rent back” property deals are going to be brought in by the Financial Services Authority (FSA) next year.

The FSA will ban “exploitative advertising and high-pressure sales techniques”, it said.

It wants to protect financially troubled home owners who consider selling their homes and becoming tenants in them instead.

The FSA started regulating “sale and rent back” firms in July 2009.

An enquiry by the Office of Fair Trading (OFT) last year found that some firms offering these deals were devious and dishonest, luring people into selling their homes at a discount, only to evict the former owners within months so their homes could then be sold at a large profit.

“Many of the people typically targeted are financially vulnerable and have been badly hit by the experience,” said Ed Harley, the FSA’s head of mortgage policy.

“We want to prevent high-pressure and inappropriate sales, and help consumers understand sale and rent back products, so they only enter into sale and rent back where it is an appropriate and sustainable solution for them.”

New rules

Firms offering these sorts of arrangements, typically aimed at people under threat of repossession, are required to be authorised by the FSA and to be run by people who are “fit and proper”.

The extra regulations, which will come into force on 30 June 2010, will:

• bring in a cooling-off period to give consumers more time to make decisions

• ban cold calling and prohibit firms from dropping promotional leaflets through letter boxes

• prohibit the use of emotive terms like “fast sale”, “mortgage rescue” and “cash quickly” in promotional literature

• ensure consumers have security of tenure; and

• require that in every sale, firms check that the consumer can afford the deal and it is right for them.

So far, just 80 firms have applied for FSA authorisation, even though the OFT found there were more than 1,000 companies selling these deals last year.

Firms or individuals that break the rules can be fined or prosecuted, with individuals facing possible imprisonment.

Source: news.bbc.co.uk

Twelve firms offering sale and rent back services have agreed to change their adverts or take down their websites completely after the OFT challenged some of their statements made to consumers

The OFT issued formal notifications to the firms in January about advertising for sale and rent back services, which involves buying homes from individuals, usually at a significant discount, and renting them back to the previous owners. The OFT asked the firms to substantiate claims made in their adverts or change them – typical statements included that residents are able to live in properties for life after they have sold them, benefit from low rent or buy back their homes at any point.

The firms have agreed to stop or amend publicity:

• six companies have taken down their websites – propertysaleforcash.com, myhomerescue.co.uk, UKsaleandrentback.com, skpropertysolutions.com, fullhouseuk.com and quicksalefast.co.uk
• three businesses no longer offer sale and rent back – n-and-b-property-buyers.co.uk, sell-your-house-quick-help.com, and rapidhomesale.org, and
• three firms’ websites have been amended – sell-quick.co.uk, nationalpropertybuyers.co.uk, and quickpurchase.co.uk.

This action follows a market study by the OFT which recommended that the sale and rentback sector was regulated. One objective of the OFT’s action was to ensure that consumer protection enforcement was effective while the Government implemented the OFT’s recommendations. The FSA implemented an interim regime in July.

The OFT has drawn a further two firms to the Financial Services Authority’s attention.

Heather Clayton, OFT Senior Director of Consumer Protection, said: “The unsubstantiated claims used by some sale and rent back firms have been particularly concerning since they were targeting consumers suffering financial difficulties and at risk of losing their homes. We are pleased that these firms have agreed to change or remove their advertising.”

Source:  Mortgage Introducer

We have had an anxious wait since 1 July and daily checking of the FSA Register to see how the FSA were going to treat new applicants to the Sale and Rentback interim regime.

I am sure it won’t be long before we are reporting on other successful applicants with Wright & Wright and our other compliance partner firms. 

In the first court ruling of its kind, the judge branded the sale and rent back company Repossessions Stopped ‘dishonest’ for promising the family they could stay in their home for life.

Paul and Amanda Jackson were terrified of losing the home they had occupied since 1984 after falling into arrears with their mortgage, and in desperation answered a newspaper advertisement by a company called Repossessions Stopped.

The company told the couple it would buy their home, pay off their mortgage and let them rent it back indefinitely.

But within two years the Jacksons were threatened with eviction after the property’s new owner defaulted on her mortgage and was herself repossessed.

In a landmark decision, His Honour Judge Worster ruled that the family can either revert to being owner-occupiers, or rent the property for the rest of their lives, with their daughter inheriting the tenancy.

Shelter’s principal solicitor John Gallagher said:

‘This is a huge and important victory for not only the Jackson family but everyone who is tempted by these sale and rent back schemes.

‘I would urge anyone having mortgage difficulties to seek independent advice from Shelter, a Citizens Advice Bureau or other debt counselling organisations before contacting these kind of companies.’

Source: Shelter

As you will be aware the window for applications for interim permission to operate an SRB business opened on 1 July 2009. If you intend to continue carrying out SRB business it is important that you complete an application by the end of July otherwise you may be subject to sanctions by the FSA.

For further information about who needs to apply and how to go about completing an application please visit the FSA SRB Guidance.

In addition with the FSA’s interim regime for sale and rent back coming into force on 1 July 2009, firms applying for authorisation need to be aware that FSA authorisation automatically makes them subject to both:

•             the FSA’s rules about dealing with complaints; and

•             the compulsory jurisdiction of the Financial Ombudsman Service (FOS)

The ombudsman service is the independent body set up by law to settle complaints between consumers and businesses providing financial services. For more information about this element of FSA regulation please take a moment to read this message from the FOS [PDF 53KB].

Source: National Landlords Association

The SRB interim regime commenced on 1 July 2009.

We have now published our final rules [PDF] for the SRB interim regime.

What do SRB firms need to do?

We are inviting firms who were active in the SRB market before 1 July 2009 to apply for interim authorisation from this date. These firms must submit their applications by 1 August 2009.

Firms must submit the following application forms:

• SRB application for interim authorisation form (this will capture details about the applicant – its structure, systems and controls, processes, documentation, etc).
• Each director/partner of the applicant must submit an SRB Individuals form, which will capture employment history, addresses and other information to allow us to perform background checks and to ensure that the individual is ‘fit and proper’ to be operating in the SRB market.
• Any other individuals/entities, who hold a controlling interest (10% or greater) in the applicant, should submit a controllers form.

Applicants will also be required to pay a non-refundable application fee (either £1,000 or £3,000 depending on the activities you will be undertaking) which will need to accompany the application.

Please note that under the terms of the Treasury’s legislation, interim authorisation is only available to unauthorised persons who have carried on SRB activities before 1 July 2009. Unauthorised persons who don’t meet this criteria will have to wait until the full regime is implemented to carry on SRB activities. The full regime is scheduled to start on 30 June 2010.

How we assess applications

Before any applicant that seeks authorisation from us can carry on a regulated activity we must be satisfied under the Financial Services and Markets Act 2000 that the applicant can meet and continue to meet the minimum standards, called Threshold Conditions, and that the persons running the applicant are fit and proper. Applicants can get further guidance on the Threshold Conditions in the COND section of our Handbook (the document that sets out our rules and guidance).

Applicants should review these carefully to ensure that you meet these criteria.

Existing authorised firms wishing to undertake sale and rent back activities

Current FSA-authorised firms can seek permission to undertake SRB transactions even if they have not previously been operating in this market. This is because these firms will already be subject to a full FSA regulatory regime, and so will already be meeting the threshold conditions regarding their business.

Rather than making a fresh application for interim permission, these firms can instead apply for an interim Variation of Permission. We will not be designing a bespoke form for this; firms should submit a Home Finance variation of permission form and complete sections one, four, five, seven, eight and nine.

Firms will also need to complete sections three, five and six of the SRB Interim Authorisation form (see above).

Firms will need to pay a non-refundable application fee (£250 for firms currently undertaking other home finance activities, or 50% of the relevant interim authorisation application fee for firms not currently active in the home finance market).

Conducting regulated SRB activities during the interim regime

We have three months from receiving a completed application to assess it. Firms lawfully trading on 1 July 2009 can carry on trading from this date and once we have received a completed application form, we will treat firms as having, on 1 July 2009, permission to carry on SRB activities.

Applicants may withdraw their application with our consent.

Diary of a UK Property Investor – www.hbfinvestments.co.uk

Property investors must by now be aware that the interim regulations for Sale and Rent Back come into force on 1st July.  These regulations effectively prevent property investors buying SARB investment properties unless they are applying to become fully regulated.

Very few companies will be able to achieve regulation due to the application and set up costs and more importantly the financial clout required.  Of the three companies I know who are applying for regulation; all have access to funding that is not reliant on mortgages from UK lenders.  This is a key requirement as most lenders refuse to offer mortgages to property investors who are buying investment properties and renting them back to the current homeowner.  Other sources of funding are simply out of reach to the majority so it will be a very limited number of companies who are able to offer SARB services and this lack of choice may not offer the best deals for homeowners.

HOWEVER, it appears that if investors do not own a SARB property then they may be able to purchase ONE ’sale and rent back’ property without needing to be regulated.  This is in ‘black and white’ in the FSA guidelines but we are seeking legal clarification on this. 

If this proves to be the case it would be a welcome option for many vendors as most of the regulated companies are limiting the price they will pay for a SARB property to 65% of the property value.  Many individual investors [for example family and friends] may be able to afford to pay far more than this.

I would welcome homeowners having the choice between selling to a fully regulated company paying just 65% and getting the most cash for their property.  Nobody would question homeowners having the option to obtain the best price they can when selling their properties, even if they are renting them back.  This would especially be appropriate in examples when homeowners may only wish to rent back their property for a short time; for example, when they want the house sold and their cash in the bank but have the benefit of remaining settled in their home for a year until their move abroad is finalised!

Maybe this exemption for property investors buying just one SARB investment property will allow homeowners this appropriate choice?  I will keep investors posted of developments.

Source: David Coughlin HBF Investments

A new interim regime for landlords that operate property sale and rent back businesses comes into force in the UK today.

SRB landlords and companies have one month to submit an application to the Financial Services Authority for permission to continue their business activities as full regulation kicks in.

Under the new rules, SRB operators will have to demonstrate they meet minimum standards and are fit and proper persons. The regime will require that businesses treat customers fairly, making clear important details, such as the length of time they can stay in the property, before they make their final decision on whether to sell.

The main part of the interim regime is the requirement on applicants to provide a sustainable business plan which shows funding streams and evidence that the funding will continue. More specifically, the FSA will be looking to see that applicants have access to funds in order to complete purchases.

One of the major criticisms of SRB has been the lack of transparency. Therefore, under the new rules, SRB operators will have to guarantee access to an independent valuation. In addition, the consumer must be fully aware of the level of discount being offered and that they understand their beneficial interest in the property will cease upon sale.

‘The clock is now ticking if companies or individuals want to continue with sale and rent back transactions. Ethical sale and rent back must be an option for some consumers. It provides flexible tenure and the ability to remain in their property for those who can no longer afford the costs of home ownership,’ said John Socha, Vice Chairman of the National Landlords Association.

‘In the current economic climate, more and more people will be facing financial difficulty including keeping up their mortgage repayments. Although sale and rent back will not stop repossessions, ethical sale and rent back could be a way for homeowners to remain in their properties but become tenants. Only when sale and rent back operators are within a more regulated environment can we be confident that consumers will be treated fairly,’ he added.

Although the interim regime began on the 1st of July 2009, the start date of the full regulatory regime is the 30th June 2010.

Source: Property Wire

Greetings! 

FSA to protect sale and rent back customers  – 03 June 2009 

The Financial Services Authority (FSA) has today published the details of the regime that it aims to introduce on 1 July to tackle immediate problems for customers in the sale and rent back (SRB) market.

This follows HM Treasury’s announcement yesterday that it is extending the scope of FSA regulation to include SRB, as it considers this to be the most appropriate way of ensuring consumer protection in this market.

This supports the recommendation made last year by the Office of Fair Trading (OFT), following 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.

A recent FSA survey of 2,006 adults aged 18 and over interviewed across Great Britain found that: 

• only 42% of those surveyed knew that SRB is currently unregulated (meaning that people who currently take part in these schemes do not benefit from the protection afforded by the Financial Ombudsman Service if needed);
• the majority thought they would be entitled to stay in their home for more than five years (whereas the typical contract is six to 12 months); and
• the majority (58%) surveyed thought SRB should be regulated.
• The FSA is taking a two stage approach to regulating the SRB market.  An interim regime will be brought in as soon as any statutory changes come into force (expected on 1 July) in order to address the most immediate problems for consumers, followed by a more comprehensive regime which will start on 30 June 2010.

 Ed Harley, FSA head of mortgage policy, said:

“We know that some consumers enter into sale and rent back arrangements without understanding the costs and risks involved.  This can be a source of real distress for people in already difficult circumstances.  Firms entering our regime will need to run their business in a way that means customers are treated fairly.  This includes making clear to customers important details, such as the length of time they can stay in the property, before they enter into the arrangement.”

Under the interim regime firms will need to meet FSA threshold conditions including the requirement to have adequate resources and to be run by fit and proper people.  Firms will also have to comply with the Principles for Businesses and meet a number of systems and controls and conduct of business rules. 

Firms that are currently unauthorised and that intend to carry on any of the new SRB regulated activities after the commencement of the interim regime will need to apply for interim permission.  Similarly, firms that are currently authorised for other activities will need to apply for interim variation of permission.  Firms are encouraged to start preparing now for authorisation and to apply as soon as the interim regime starts.  

Notes for editors

The policy statement ‘Regulating sale and rent back: an interim regime’ is available on the FSA website.

• 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.
• On 2 June HM Treasury published a response to its consultation document, ‘Regulating the sale and rent back market: a consultation’ (published in February). This can be found on its website www.hm-treasury.gov.uk
• The consumer research quoted was conducted by TNS with a representative sample of 2,006 adults aged 18+ interviewed across Great Britain between 1 and 5 April 2009.
• The FSA has published some information on its website to help firms prepare for interim authorisation and shall shortly publish sample application forms on its website to give firms additional help.  The key dates for the regulation of sale and rent back are as follows:
• 1 July 2009: interim regulation expected to begin and firms can start to submit applications for interim permission or interim variation of permission;
• 1 August 2009: the closing date for interim permission applications;
• September 2009: expected publication of Consultation Paper on full regime for sale and rent back; and
• 30 June 2010: SRB regulation under the full regime will begin.
• 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.
• The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.

Source: Financial Services Authority