From today, 1 July 2009, the interim regulation for firms operating in sale and rent back (SRB) begins.
Ed Harley, FSA head of mortgage policy, said: “Firms entering our regime will need to run their business in a way that means customers are treated fairly. This includes making clear to customers important details, such as the length of time they can stay in the property, before they enter into the arrangement."
Under the interim regime firms will need to meet FSA threshold conditions including the requirement to have adequate resources and to be run by fit and proper people.
Firms will also have to comply with the Principles for Businesses and meet a number of systems and controls and conduct of business rules.
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 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. Therefore, 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.
John Socha, vice chairman of the National Landlords Association, commented: “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.”
Andrea Rozario, director general of Safe Home Income Plans (SHIP), welcomes the launch of the first stage of SRB regulation.
She said: “This is something that we have been urging the government to adopt for several years now and we believe this move will benefit consumers greatly.
“In the past, we have been very concerned about the lack of information given to customers about the practicalities and risks associated with SRB products. However, with the current economic downturn, it is inevitable that more and more consumers are looking to their housing equity to relieve financial pressures.”
Although SHIP welcomes this regulation, it points out that there are still significant differences between equity release plans and SRB schemes. It says there are two main differences.
Firstly, security of tenure - all regulated equity release products provided by SHIP members give the customer the right to live in their homes for life. And secondly, there is no monthly rent to pay.
Date: 1st, July, 2009
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