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February 9, 2010
New Regulations for Sale-and-Rent-Back Customers
Under the new Financial Services Authority (FSA) guidance, coming into force on 30th June, sale-and-rent-back customers will have a guaranteed tenure of at least five years. In addition they will also be given a two-week period at the point of sale in which they can reconsider their decision.
This new regulation has been designed, in attempt to give homeowners who are in financial distress a greater protection against the exploitation of “predatory” sale-and-rent-back firms which are offering to buy their homes below market value and allowing them to remain as tenants.
Unfortunately a number of these companies do not offer “residence guarantee”, which has led to many families being evicted after the initial 12-month tenancy or when the firm has ceased making mortgage repayments, leaving them homeless.
The FSA said its rules, which build on temporary regulations introduced in July 2009, would:
• Ban exploitative advertising, high-pressure sales techniques and stop the use of emotive terms like “fast sale”, “mortgage rescue” and “cash quickly” in their company’s promotion
• Introduce a 14 day cooling-off period so customers can reconsider their decision
• Ban cold calling and dropping promotional leaflets through letter boxes
• Ensure people have security of tenure for a minimum of five years
• Bring in affordability and appropriateness check across all sales to ensure the sale and rent back deal is right for the consumer.
These new regulations will prevent non regulatory firms from luring vulnerable people into deals which they later regret when the rent rises or they lose their home. Furthermore the FSA stated that from now on all sale-and-rent back firms will be FSA-regulated and the fact that only 80 companies applied for authorization, when it is believed that prior to the new regulations there were around 1000, proved how vulnerable distressed homeowners were.