Julian Sampson, partner at Wright & Wright, explains how the sale and rent back market works and how brokers can operate
It has been over 15 months since I was invited to Canary Wharf to comment on the FSA’s proposals and drafts to regulate the sale and rentback (SRB) market. Since then the industry is coming up to its fourth consultation/discussion paper as the FSA prepares to implement the final regulations applicable from 30 June 2010.
These have been trying times for the SRB market as it has learned to evolve from the mindset of property speculation to financial services. It has moved from pure investment opportunity to treating customers fairly. It has progressed away from caveat emptor(buyer beware) to full disclosure.
The principle concerns of the SRB market in its unregulated state were the transparency of valuation the sales tactics employed the security of tenure and, from a lender’s perspective, the abuse of buy-to-let mortgages not designed for (and eventually expressly prohibiting) this purpose. In addition the FSA considered the issue of affordability and appropriateness.
So how does this affect the introducing broker, or the first time broker who finds themselves unable to avoid SRB (because let’s face it there will be many for whom advising on SRB will never appeal, just as there have been many who would never entertain advising on non-status or equity release). Well, as an adviser, SRB has evolved within regulatory parameters into a viable proposition for the consumer. There is choice, and therefore a valuable place for the broker to place themselves in the advice circle.
Importantly, even if SRB is the very last option, it therefore remains an option- and there are ultimately always going to be circumstances where SRB can be best advice. I am not a financial adviser, but I am a member of the Solicitors for the Elderly. In advising elderly clients I recently came across a situation where a wife desperately needed to buy her house from her aggressive husband. He did not live there but refused to sell at a price which might have been viable for equity release and she was too old for a mortgage and in receipt of benefits. She was not mentally vulnerable but vulnerable by virtue of her situation. SRB was not suitably developed as a proposition at that time but in a meeting with an equity release representative we both agreed that SRB could quite easily have been a consideration.
So what makes SRB a more professional and appropriate proposition in 2010? Well, let us review the concerns originally expressed for SRB (and which have been well versed by charities such as Shelter and the CAB.
The valuation must be independent and it must be disclosed – the consumer must understand the basis upon which a valuer has been instructed and, further, the basis upon which any discount has been applied. In the full regime, the consumer will be given a cooling off period following an initial offer and built within this process has been apparent buy-in from the Ministry of Justice to enable consumers the opportunity to suspend possession proceedings if they are within the cooling-off timeline. The initial offer will contain details of the price, rental term and rent together with copies of all the documents proposed (such as the tenancy agreement). The FSA have taken a long hard look at the fact that (subject to certain offers) a SRB is irreversible, and thus the cooling off period is pivotal to the new regime.
This natural break in the process also prevents hard sales tactics, backed up by the FSA’s ban on the use of emotive language and even some standard stock phrases such as “fast sale””.
