Many of us believed that once the FSA got its teeth into the sale and rentback market, it would be cleaned up and become effectively a residual (perhaps forgotten) backwater of the impact of debt on home owners. Unregulated transactions have given rise to complicated issues of property law as a result of the unfortunate ways in which the transactions progressed and which have (so far) been decided against the seller/renters. But surely the regulated market would be clean and proper. Not so: the FSA has completed its review of the market and effectively shut it down. Its findings make for grim reading and regulated sales look likely to produce as much misery as unregulated ones, leading to complaints to the Financial Ombudsman Service and/or end up in the courts. The picture presented by this review (and its FSA forebears) is that sale and rentback is a mess: don’t touch it; there are better alternatives.
The FSA reviewed 22 firms and its overall assessment pulls no punches from the outset:
The review identified widespread poor practice among SRB firms. The main conclusion is that the majority of SRB sales were either unaffordable or inappropriate. This means consumers have entered into agreements that have either already led to a detrimental outcome, or are highly likely to in the future. This is unacceptable, and we are taking immediate action to address this. (para 1.3)
For property lawyers, the key findings are likely to be as follows:
a) Most files examined did not show that the lender had agreed to the letting to the seller (para 2.4; grrrrrrrrr);
b) The contract documents did not comply with the UTCCRs and the FSA’s MCOB requirements (para 2.6);
c) “Some tenancy agreements contained a term that gave the landlord a broad discretion to terminate the agreement if the tenant breached of any of the terms. In our view, such a broad discretion may indicate that a term is likely to be unfair and could mislead consumers about their rights” (id, fourth bullet);
d) The tenancy agreements contained: broad discretion to vary the rent; financial penalties; no provision for the seller/tenant to determine the tenancy on three months notice with no other conditions;
e) inadequate fact-finding processes by the seller to determine if the transaction was appropriate;
f) the involvement of unauthorised private investors which gave rise to additional risks (eg unafforability, shorter tenancy terms than required) (paras 2.18-22).
For welfare lawyers, the key finding will be that some firms based their projection of affordability on entitlement to housing benefit (para 2.1(f)).