Sale and Rent Back Agreements Axed

Limetree Financial Services Limited

Sale and Rent Back Agreements Axed

The Financial Services Authority (FSA) has closed the sale-and-rent-back markets temporarily due to widespread poor practice.

The FSA found that most sale-and-rent-back products, sometimes called sale and leaseback, were either unaffordable or unsuitable and should never have been sold in the first place. The decision came after a year-long review of 22 firms.

Sale-and-rent-back transactions allow struggling property owners to stay in their own homes, by selling them to a company at a discount price. The company then rents it back to them at market rate.

The most common failings found in the review included poor assessment of appropriateness and affordability, bad ordering and timing of disclosure and inadequate record keeping. The FSA also highlighted incorrect information in the rent-back agreements, financial promotions that broke FSA rules, and badly structured sales processes that did not give customers enough time.

A study by Which? In February last year criticised the advice given to sale-and-rent-back customers as ‘woefully inadequate’.

Not in the interest of the homeowner

As I recently commented in the Financial Adviser, the main problem with sale-and-rent-back is that homeowners’ interests are left far behind. A product that should have helped vulnerable households often ended up stinging them. They should have been treated better by the firms involved, but most sale-and-rent-back companies just sell the properties on to maximise their own interests.

The closure of the markets is a good move in that it will protect desperate households from being affected by a product that is not designed in their interests.

If you need any more information about the closure of sale-and-rent-backs, or advice about what to do in your financial situation, don’t hesitate to call us.

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