The interim regulation of controversial ‘sale and rent back’ schemes begins today.
From 1 July 2009, sale and rent back (SRB) landlords and companies will have only one month to submit a complete application for interim permission to continue their SRB business activities.
Sale and rent back schemes work by allowing someone to sell their home at a reduced price, while retaining the right to live in their property at a reduced rent. The schemes have been criticised by consumer groups such as Which?, as many only provide short-term letting contracts. This has meant that in some cases, former home owners have found themselves with nowhere to live only months after signing up to an SRB plan.
Under the new rules, SRB will become a regulated activity and applicants 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 homeowners make their final decision on whether to sell.
However,Which? advises consumers to avoid sale and rent back schemes if possible, until they’re properly regulated and instead to seek independent advice from an organisation such as Citizens Advice or from an independent financial adviser.
Details of interim regulation
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 Financial Services Authority (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 so 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.
National Landlords Association backs ‘ethical’ sale and rent back
Speaking about the interim regime, John Socha, vice chairman of the National Landlords Association said: ‘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.
‘In the current economic climate, more and more people will be facing financial difficulty including keeping up their mortgage repayments and 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.’
Although the interim regime will be begin from 1 July 2009, the start date of the full regulatory regime is 30 June 2010.
Which? Money when you need it
You can follow @WhichMoney on Twitter to keep up-to-date with our Best Rates and Recommended Provider product and service reviews.
Sign up for the latest money news, best rates and recommended providers in your newsletter every Friday.
Or for money-saving tips, and news of how what’s going on in the world of finance affects you, join Melanie Dowding and James Daley for the Which? Money weekly money podcast
For daily consumer news, subscribe to the Which? news RSS feed here. And to find out how we work for you on money issues, visit our personal finance campaigns pages.