Please Note: This Article is 4 years old. This increases the likelihood that some or all of it's content is now outdated.

The Financial Conduct Authority (FCA) has fined a Sale and Rent Back (SRB) firm, “Quick Purchase”, a total of £26,600 for regulatory failures and given its sole director shareholder a public dressing down.

The firm was also ordered to pay redress totalling more than £200,000 to 11 of its affected customers. These same abused customers were each to be offered by Quick Purchase, a new assured 5-year short-hold tenancy (AST) at an affordable market rent fixed for three years.

In fining the firm and ordering the redress the authority said that Steven James Martin, the director at Quick Purchase “failed to exercise due skill, care and diligence in managing the firm”.

Between 14 July 2010 to 17 May 2011 Quick Purchase had entered into 14 regulated SRB arrangements with customers, without making sure that each of those deals was ‘appropriate and affordable’ for those customers concerned.

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Of these 14 SRB transactions, 11 were found to be either “inappropriate, unaffordable or both”. The FCA regards these inappropriate and/or unaffordable sales as serious breaches of their regulation rules because they led to “significant consumer detriment”, causing the customers involved potentially to forgo between 29-38% of the equity values in their homes.

Martin was found to have breached “Statement of Principle 6”, in managing the business of Quick Purchase as it failed to treat customers fairly, and this confirmed by the FCA.

Martin and Quick Purchase had failed to keep proper records to show how and why these transactions were affordable. They also breached the Mortgage Conduct of Business (MCOB) rules as they failed to ensure in all cases that valuations for the purposes of the SRB transactions were “carried out by a valuer owing a duty of care to the customer”.

The firm Quick Purchase describes itself in its literature as a “specialist SRB buying company, enabling homeowners to sell homes at a discount, but stay in their house on an assured short hold tenancy and rent it back”.

Mark Steward, director of enforcement and market oversight at the Financial Conduct Authority, has said of the matter:

“This case highlights the importance of protecting consumers even when regulated financial services are only part of your business. The regulations which govern sale and rent-back are designed to protect customers in financial difficulty and to guard them from unsuitable deals. The extensive redress package which we have asked Quick Purchase to implement will address the detriment Quick Purchase’s customers have suffered.”

Sale and rent back (SRB) companies grew very popular during the “credit crunch” years, dealing with those in distress and facing having their property repossessed because they could not keep up with the mortgage payments on their home.  SRB companies gave people a way out of this bind by offering to take the property off their hands (settle the mortgage debt) usually at a huge discount to the property’s true value, and allow the occupants to remain in the property, typically on an assured shorthold tenancy (AST).

Some of the companies involved failed to honour the long-term stay promised on an AST, removing tenants at fairly short notice and realising the full value of the property with as sale. This brought this industry practise to the attention of the then Financial Services Authority (FSA), now the FCA.

Since 30 June 2010 the FCA has regulated firms that offer sale and rent back (SRB) to consumers. This replaced an earlier interim regime, which ran from 1 July 2009. SRB now involves people selling their home, usually at a discount, in exchange for the right to remain in the property for a minimum of five years.

The main FCA requirements are rules designed to protect consumers. They aim to prevent high-pressure and inappropriate sales to distressed and vulnerable people at a time when they are probably least able to rationally assess and decide their own situation.

The full SRB regime is designed to protect consumers by:

  • ensuring consumers have better security of tenure through a fixed-term tenancy agreement of at least five years
  • requiring that firms always check the consumer can afford the deal and it is right for them
  • requiring firms to make sure the consumer has checked their on-going entitlement to benefits
  • introducing a cooling-off period of 14 days to give consumers more time to make decisions
  • banning cold calling and prohibiting firms from dropping promotional leaflets through letter boxes
  • prohibiting the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature
  • requiring firms to provide consumers with a consumer factsheet and other additional information to help them make informed decisions
  • ensuring that an independent valuation is carried out where the valuer owes a duty of care to the consumer in all sales

Firms have to meet strict rules on the amount of capital they hold. They must also have professional indemnity insurance and effective systems and controls in place.

The FCA approved persons regime also applies to sale and rent back firms, to make sure that the individuals involved in the firms are ‘fit and proper’.

Please Note: This Article is 4 years old. This increases the likelihood that some or all of it's content is now outdated.

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