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"Sale And Rent Back Schemes
- The Position Today"

(The Essential Guide For UK Property Owners)

© www.TheAdvisory.co.uk

Key Facts And Dates You Need To Know:

    Present Day:

    "Sale And Rent Back" (SRB) industry is "shut for business".

    There are NO regulated firms currently trading.

    Most local councils (and other advice resources - most notably the housing charity Shelter) are unaware of the current position, as many still reference SRB as a viable, if risky, option.

    Vulnerable homeowners are unaware the market is completely closed, and are currently at risk of being offered SRB illegally by unregulated firms advertising on the web.

    Feb 2012:

    FSA (now the Financial Conduct Authority - FCA) review all regulated firms. One firm is referred to their enforcement division; all other firms cease trading and / or cancel their permissions to trade.

    June 2010:

    Full regime implemented. Any firm wanting to offer SRB has to be authorised by FSA.

    June 2009:

    FSA given regulatory oversight by HM Treasury, interim regime implemented 1 month later.

    Nov/Dec 2008:

    OFT found SRB could cause "serious harm" to vulnerable homeowners and recommend the FSA regulate the industry.


    OFT announce intention to study the SRB industry due to worries over rogue operators.

    Anyone Offering You An SRB Contract
    Is Doing So Illegally:

    Initially, 36 entities applied for permission to "enter into regulated SRB agreements" (i.e. to be allowed to buy someone’s house and rent it back to them).

    Today only 17 are recognised by the FSA.

    Of the 17 recognised by the FSA - 15 are no longer authorised to enter into regulated SRB agreements.

    The final 2 entities (which are actually the same organisation) have confirmed they are not taking any new SRB business.

    The market is closed!

    Be mindful of the fact that companies do exist that have permission from the FSA to “advise” on SRB and even “arrange” SRB agreements.

    However, these companies are not allowed to actually buy your house and rent it back.

    At best they are allowed to introduce you to a fully regulated firm.

    Given that no regulated firm exists (that is still “open for business”), you have to ask what their motives are for still advertising a SRB service.

    You can check which activities a firm is authorised to carry out by looking them up on the FSA Register.

    A Brief History Of SRB:

    Sale and Rent Back (SRB), also known as Sale and Lease Back, is the name of a financial transaction which involves the sale of someone’s property to another party, but rather than the seller moving out of the property, they are allowed to remain in it and rent it back from the new owners.

    These sorts of schemes were typically aimed at homeowners who were facing the threat of repossession, or who were over indebted and saw this as a way out of their financial problems. The amount paid for the property was always a lot less than the full market value, typically 60% – 70%.

    However, the amount of rent charged was usually consistent with local rates.

    It is very difficult to know how long this has gone on for, but early in 2008 the Office of Fair Trading (OFT) announced that they were to study the industry in more detail to understand how many of these transactions were taking place, and under what terms and conditions.

    It is understood that during their investigations they estimated that as many as 50,000 such deals had taken place, and that there were around 1,000 firms involved.

    SRB, Unemployment Benefit And The DWP:

    In principle, the concept of SRB seemed to solve a problem to someone facing financial hardship. The idea that someone could remain in their home paying rent rather than a mortgage appealed to many.

    With the support of the Department of Work and Pensions (DWP), tenants get faster support via the local housing allowance scheme if they are unable to work, and therefore becoming a tenant instead of a homeowner had financial benefit also.

    Many of the prospective clients may well have purchased their properties via the local councils' “Right to Buy” scheme, so essentially they were simply reverting back to that position, albeit with a private landlord rather than the security of the council.

    SRB And Mortgage Fraud:

    Prior to regulation it is widely reported that some firms saw SRB as a way of building property portfolios and targeted financially distressed people.

    They were only involved in it to make money, and were often able to acquire the properties by using buy to let mortgages, often without the lenders knowledge that the person selling the property would remain in it as a tenant.

    Property prices were often inflated to the mortgage company to allow the purchase to be funded without any form of deposit (100% mortgage) and were then often refinanced soon after allowing the investor to withdraw further monies from the house value.

    SRB Scams And Dirty Tricks:

    Purchase prices that had been agreed were often chipped away at the closer they got to completion and because the individuals were desperate to get out of the situation they were in, they often just went ahead anyway.

    Promises were made about the seller’s ability to remain in the property for a very long time after completion. However, often only a short term tenancy agreement was given initially, with the promise of it being renewed on the same terms thereafter.

    In reality the original terms of the tenancy agreement were rarely adhered to and the tenants were often faced with an increase in rent payments or in some cases simply asked to move out.

    In extreme circumstances rents were paid to the new landlord but they in turn did not pay the mortgage used to purchase the property.

    Eventually the tenant would be evicted by the lender for non payment of the mortgage, but the lender was unaware that the person they were kicking out used to be the homeowner who had a valid tenancy agreement, often lasting years.

    The Road To Regulation:

    By the end of 2008, OFT found that SRB could cause “serious harm” to vulnerable homeowners and recommended to the Financial Services Authority (FSA) that they regulate the industry.

    The FSA was given regulatory oversight of SRB by HM Treasury in June 2009 and implemented an interim regime one month later.

    This was replaced by a full regime in June 2010 which meant that any firm wanting to continue had to be authorised by the FSA to be able to carry out any ongoing activities.

    Permissions were split into various categories depending upon the role that the individual company wanted to carry out.

    These included: arranging the deal, advising on the asuitability of the transaction, providing the funds to purchase the property, and administrating the transaction and the property/tenant post completion.

    The strict rules that firms had to adhere to included:

    1. No direct marketing such as promotional leaflets being dropped through prospective clients doors.

    2. Full affordability checks ensuring that a potential client could afford the proposed rent.

    3. Gauging whether completion of the transaction would affect any entitlement to benefits.

    4. A fixed term tenancy that had to last at least 5 years.

    5. An independent valuation of the property in question.

    6. The introduction of a cooling-off period of 14 days to enable more time to decide if the offer is suitable.

    SRB Industry “Shut For Business”:

    In February 2012, the FSA reviewed all regulated SRB firms and published a report that showed most SRB transactions that had been completed since regulation in June 2010 were either unaffordable or unsuitable and should never have been allowed.

    It confirmed that of all the SRB regulated firms, the FSA had referred one firm to its enforcement division while others had simply closed for new business and/or cancelled their permissions.

    This effectively means that the industry is now shut.

    Customers with existing SRB agreements that have concerns about the way they were dealt with, should contact their SRB provider initially, or seek professional advice.

    The most common failings identified by the FSA include:

    1. Firms did not correctly assess people’s circumstances and the appropriateness of SRB.

    2. Customers were not given enough time to consider the agreement properly.

    3. Incorrect disclosure of the “key facts” of the SRB agreement.

    4. Firm’s sales processes were inadequate and not enough client information was gathered.

    5. Tenancy agreements contained incorrect information and did not meet FSA standards.

    6. Financial promotions breached FSA rules.

    The FSA are now focussing on working with firms in conducting reviews of past business to ensure any affected customers are treated fairly.

    They expected struggling homeowners to be treated much better initially and claimed that the temporary closure of SRB could have been avoided if SRB firms had taken the time to fully understand their regulatory responsibilities and their customer’s needs.

    They suggested that most firms were focused on their own commercial success rather than the welfare of their customers, with one firm even resorting to fraud.

    The Next Disaster Waiting To Happen:

    Whilst the regulated SRB market is now effectively “shut for business” for the foreseeable future, the FSA has further concerns that firms are looking for alternative solutions in place of SRB.

    Currently the OFT have their sights set on the "Quick House Sale" market, however far more dangerous are schemes such as “Lease Options” or “Exchange with Delayed Completion” (EDC’s) which are being openly offered to home owners with negative equity, first time buyers with insufficient deposits, and property investors looking to buy more properties.

    Both these transactions involve an “up front” price being agreed in advance for the sale of a property, with the completion happening a number of years afterwards. The FSA are aware of these schemes and believe that these unregulated products may not live up to the expectations of participants.

    Thankfully they have issued a number of warnings in the past 12 months as they've noticed a rise in companies advertising for this type of business – aspiring homeowners who might be priced out of properties in future, investors looking to build their portfolio in time but at a fixed price now, and offers of financial help to home owners who are financially distressed.

    FSA Manager of Mortgage Policy Lynda Blackwell says “From our point of view, the main concern for lenders around Lease Options and EDC’s is where they are being used to disguise rent-back, which is a regulated activity.

    This could be where the property seller is in trouble with mortgage arrears or trying to avoid repossession and enters into a Lease Option but remains in the property. In this case someone else is agreeing to buy the property in the future and may be offering a lump sum to help clear the arrears or other financial help.

    In our view this meets the definition of a regulated rent-back agreement and the buyer would need our permission to carry out this kind of arrangement.

    The main danger of these schemes for home owners will be that the buyer defaults on maintaining mortgage payments.

    The homeowner would still remain responsible for the debt and this situation would compound their financial difficulties. It would be very difficult for home owners to unwind this type of arrangement and regain control of the property.

    From the buyer’s perspective there is a real risk that the contract will not be properly drafted and becomes unenforceable when they try to exercise their option to buy.

    Furthermore, even if the contract has been properly executed, if the seller changes their mind the property buyer would have to consider legal action to exercise their right to buy and run up large legal bills in the process.

    Because these schemes are unregulated, clients do not have redress available to them under the Financial Ombudsman or the Financial Services Compensation Scheme.

    Related Links And Resources:

    Financial Conduct Authority (formally the FSA):

    Current Status of Regulated SRB Firms:

    FSA Register of Regulated Firms:

    2008 Study of SRB Market By FSA:

    Real Life Example of Interest In SRB:

    Court Ruling On Tennant Vulnerbility:

    2012 Finding By The FSA On SRB Market:

    2013 OFT Study "Quick Sale" Market:

    BBC Reports On Dangers of "Lease Option" Deals:

    FSA Guidance On "Exchange with Delayed Completion" and "Lease Options" Contracts:

    Financial Ombudsman Website:

    Financial Services Compensation Scheme:


    Wishing you complete success with your sale,

    Gavin Brazg (Editor)


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