Watch on sale and rent back schemes

Property Investors that target distressed home sellers are to be regulated by the City watchdog.

Property investors who buy homes, usually at a heft discount, and then rent them back to their previous owners at agreed levels for a period of time. The market has grown rapidly as more homeowners have been forced to sell their properties quickly to generate cash, putting them in a potentially vulnerable position.

The urgency of concerns about this previously unmonitored market, the
Financial Services Authority has taken the unusual step of creating a temporary regime for sale and rent back companies before full regulation begins next year.
The FSA is consulting on its proposals before a July start date.

Property Investors will need ‘interim permission’ to continue operating, provided that they meet certain requirements and rules, although these will be less detailed than would be the case for a full regulatory regime.

Threshold conditions would include a requirement for companies to be ‘fit and proper’ as well as applying FSA endorsed principles for businesses and a number systems and controls rules. They would need to provide a range of information, such as funding details and sales procedures. There would need to be independent valuations.

The FSA’s decision to consult so quickly on the new regime comes in response to a study by the Office of Fair Trading highlighting potential abuse by sale and rent back companies. It found that some have misled consumers as to the value of their property or how long they may stay in it.

The big issue that I see is that there is little reliable data on the size of the industry, but it is likely that there are more than 1,000 companies together with an unknown number of non-professional landlords, who have conducted about 50,000 transactions to date.

Rhett Lewis
www.rhettlewis.com