The sale and rent back (SRB) market has been temporarily shut down and slammed for widespread poor practice by its own regulator.
A review of the market has concluded that most SRB transactions were either unaffordable or unsuitable and never should have been sold.
Publishing the review today the Financial Services Authority (FSA), which regulates the industry, said it had referred one firm to its enforcement division while others have either stopped taking on new business or cancelled their permissions.
Effectively, this means the entire SRB market is temporarily shut.
The review follows concerns expressed by the FSA over financial promotions targeting vulnerable consumers in this market.
The FSA was also tipped off that one firm was apparently 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.
Of the 22 firms reviewed, only nine had been active since the FSA began regulating SRB.
Of this nine, five firms have now stopped doing SRB business, three have kept their regulatory 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 SRB contracts from other firms.
Nausicaa Delfas, FSA head of mortgage and general insurance supervision, said: “Sale and rent back is often the last resort for struggling homeowners so we expected to see firms treating their customers much better than this report suggests.
“The resulting temporary closure of this market could have been avoided if sale and rent back firms had taken the time to fully understand their regulatory responsibilities and customers’ needs. It seems most were more focussed on their own commercial success rather than the welfare of the customers, with one firm even resorting to fraud.”
SRB transactions involve companies buying someone’s home at a low because the homeowner can no longer afford their mortgage.
The SRB firms then snap up these homes at a fraction of their worth, and sells them for profit. In exchange, the homeowner gets to stay in their home.
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