10:14 AM, 7th February 2012, About 10 years ago
Firms buying homes and renting them back to struggling home owners who are often trying to avoid repossession have stopped trading after a Financial Services Authority investigation.
The FSA says most of the schemes should never have been sold as they were either unaffordable or unsuitable solutions for homeowners.
The schemes were marketed under several different labels – below-market-value deals, sale and rent back or sale and leaseback.
Typically, the firm advertised to stop repossessions by buying a property that the owner could rent back as a tenant.
Many tenants who could not afford their mortgage also could not afford to pay the rent and were given notice to quit or evicted.
The FSA said many sale and leaseback firms charged valuations of up to £500 for home owners only to find the offer for their home was around 30% below market value.
The inquiry covered 22 regulated sale and leaseback firms. One continues to face inquiries while the rest have withdrawn from the market by agreeing not to accept new business or cancelling their licenses.
“Effectively, this means the entire sale and rent back market is temporarily shut,” said the FSA.
One buy to let lender has claimed one of the firms was fraudulently setting up sale and rent back deals as rental property investments by buying below market value and then stating the purchase price was more than the actual price paid.
The FSA investigation revealed a catalogue of poor practise and standards – including:
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.”
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