New rules to protect vulnerable homeowners
Homeowners who enter into sale and rent back schemes will be told upfront how long they can stay in their former homes, under new proposed rules due to come into force next summer.
Regulator the Financial Services Authority (FSA) has announced a series of measures to protect vulnerable homeowners, including the banning of high-pressure sales tactics, exploitative advertising and cold-calling. The new rules, if approved, will come into effect on 30 June 2010.
Sale and rent back schemes, which can be operated by a company or individual, buy property directly from owners, often at under market value. In return, the owner is allowed to rent back the property for a pre-agreed period of time.
An investigation by the Office of Fair Trading (OFT) found that many homeowners are given promises that they can stay in their home long-term only to be booted out earlier.
|Measures the FSA wants to implement next summer:|
|Ensuring consumers have security of tenure|
|Introducing a 14-day cooling-off period to give consumers time to make a decision|
|Prohibiting firms from dropping promotional leaflets through letter boxes|
|Banning terms such as ‘equity release’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature|
|Firms must ensure sale and rent back is affordable and the right option for homeowners|
“Sale and rent back can be the right solution for some consumers, but many of the people typically targeted are financially vulnerable and have been badly hit by the experience,” says Ed Harley, head of mortgage policy at the FSA.
“We want to prevent high-pressure and inappropriate sales, and help consumers understand sale and rent back products, so they only enter into sale and rent back where it is an appropriate and sustainable solution for them.”
Ensuring that homeowners are able to stay in their former homes is an essential aim of regulating sale and rent back. The OFT’s investigation found that while many schemes promise long-term security of tenure, this is often over stated or not fully explained. .
Although the FSA has rejected setting a minimum length of time consumers should be allowed to stay in their homes, it does want to introduce more security. From next June, it proposes that sale and rent back schemes should be forced to clearly state the minimum tenancy period.
Another problem plaguing the sale and rent back sector is unscrupulous firms making below-market value offers to homeowners who are desperate to sell. The FSA wants to make independent valuations a compulsory part of the sale and rent back sales process, with the firm – rather than the homeowner – responsible for meeting the cost of this survey.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
A term to describe financial products or ‘plans’ that help older homeowners turn some of the value (equity) of their homes into cash – a lump sum, regular extra income, or sometimes both – and still live in the home. There are two main types of equity release: lifetime mortgages and home reversion plans (see separate entries for both). Whichever type you choose, you borrow money against the value of your property, on which interest is charged, and the loan is repaid when the house is sold after your death.
The period of time you’re allowed, after signing an agreement, to cancel it without incurring a financial penalty. Financial products including banking, credit, insurance, personal pensions and investments are subject to a 14-day cooling-off period (this is 30 days in the case of life insurance and personal pensions). The insurer or broker must refund any money paid by you within 30 days, although it has the right to deduct a reasonable admin charge, and a sum proportionate to the number of days’ cover you had. If you have any related credit agreements, these will also be cancelled.