Sale and rent back (SRB) involves individuals—often those facing financial difficulties—selling their home at a discount in return for the right to remain as a tenant for a set period. Following an investigation by the Office of Fair Trading, which confirmed that many SRB consumers were not being treated fairly, the government asked the Financial Services Authority (FSA) to regulate the market.
Regulation has been in place since last year but the full regulation system will come into force on 1st July 2010.
The key provisions of the new regime are as follows:
SRB customers must be given security of tenure for a minimum of five years, through the use of a fixed-term, assured shorthold tenancy agreement.
Firms offering SRB products must meet capital resources requirements and have professional indemnity insurance.
There will be a 14-day cooling-off period to give consumers more time to make decisions and seek advice on sale and rent back.
A valuation must be carried out by a competent valuer who is independent of the SRB provider.
The valuer will be liable to the customer as well as to the SRB firm.
The firm must carry out an "affordability and appropriateness" check for all SRB sales to make sure that the SRB deal is right for the consumer.
Cold calling and dropping promotional leaflets through letter boxes will be banned.
The use of terms like "fast sale", "rescue" and "cash quickly" are prohibited in promotional literature.
A risk warning must be used in SRB adverts.
This is good news for consumers who are thinking of using these products and may be desperate to stay in their homes at any cost - the system should ensure that the deal isn't entirely in the SRB company's favour.
Anyone considering one of these products should seek legal advice before signing any documentation.
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