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The Financial Conduct Authority (FCA) has warned landlords against providing financial advice related to loans and pension contributions to prospective shared owners during the sales process.
The FCA said firms should be wary of providing financial advice to shared owners during the buying process if they are not authorised to do so, as they could be in breach of the Financial Services and Markets Act (FSMA), and therefore subject to enforcement action.
The warning comes after Inside Housing spoke to one shared owner who bought a Notting Hill Genesis (NHG) property in 2014 in Limasol Street in Bermondsey, London. She was advised to cancel a loan taken out to cover travel expenses and cancel her pension contributions, in order to meet affordability criteria for the purchase.
Emails seen by Inside Housing between the shared owner and the NHG sales staff member show the advice given during the buying process.
Part of the email exchange states: “Thanks for the paperwork you have supplied, I have done the affordability schedule again and unfortunately after deducting your student loan, SIPP [self-invested personal pension] and the season ticket loan, the flat has become unaffordable, since this flat has the lower subsidised rent and following Southwark guidelines, your income can not breach the 40% household income ratio and currently this has been breached by 3%, the only way to make the property affordable is to pay off the season loan and also the SIPP.
“If you are not in the position to pay this off, we have to offer the flat to the next person on our waiting list, please confirm by close of business today.”
NHG said the advice was provided in “good faith”, but the FCA said there was a general prohibition under the FSMA about providing such advice. It states that only firms that are authorised or exempt can carry out such regulated activity.
The FCA explained that such advice would not necessarily breach its recently introduced Consumer Duty, as that is about communicating to people in the right way, with the right information, so they can make informed decisions.
However, if it was an authorised firm, the duty wouldn’t apply, as it would be a breach under the FSMA.
An NHG spokesperson said: “For this specific case, we are confident that the colleague in our sales team was trying to support the potential customer in good faith, aiming to help them secure their home and place on the housing ladder.
“That said, our sales staff should not be offering financial advice or urging potential customers to make any specific financial decisions and we will be reminding them of that.
“If someone needs advice on how and whether they can meet eligibility criteria, they should speak to a financial adviser. We can provide a list of authorised and regulated firms who can support those looking to benefit from shared ownership with us.
“Shared ownership is aimed at giving a helping hand to those who are priced out of the market and remains very popular with our customers. There are strict criteria to ensure people don’t put themselves in a financial position they cannot afford, or do not buy shared ownership when they can afford to buy privately. It is our responsibility to oversee that, but we always aim to do so fairly and professionally.”
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