Posts Tagged ‘Property Lease Options and Rent to Buy’

Property Lease Options The FSA Catches Up

Tuesday, October 25th, 2011

Synopsis: The media and the FSA catch up on an emerging scandal we first wrote about 2 years ago.

It’s nice when the media catches up on an emerging scandal that we at LettingFocus first wrote about almost 2 years earlier.

This is the summary of one such news story. Sound familiar?

“Property investors are willing to buy peoples’ homes. These are people who are often struggling with their mortgages or who need to sell fast. The investors pay the mortgage for them, let it to someone else and give the home owner the option to buy at a later date. Trouble is that if the investor defaults on the mortgage the previous owner loses out.”

This is a new scam according to BBC Radio 5 Live who did a piece on it the other day – the link to the programme is at the foot of this post – where you can listen to it.

BBC Radio 5 covered “all the bases” in what was a very good programme, which also uncovered a new and dangerous hole in mortgage lenders procedures. But a lot of it will be familiar if you have read my work over the years because we wrote about this right back in November 2009.

But back then, few in the media were interested.

Property Expert

If you listened to the Radio 5 piece, there is a quite funny bit when they ask “property expert” and David Cameron neighbour (rumoured to be in line for a peerage) Kirstie Allsop for her opinion. The trouble is she then rather lets the interviewer down by promptly admitting that she has never heard of property lease options.

Fortunately, whilst they didn’t ask me, the programme makers did at least ask another property expert, Richard Bowser for his views.

Richard has previously highlighted the more risky lease option variant called the “sandwich option” and he has done excellent explaining this to his readers at Property Investor News.

But he told me that even other property experts, including some featured on the show had little grasp of the newer, more exotic variants.

Risky

Property lease options are risky but they can work, providing all the risks are made clear.

However, quite a few “Get Rich Quick in Property Gurus” abused desperate house sellers and those wanting to get rich in property alike and that’s why Sale and Rent Back was finally controlled by the FSA.

Indeed, according to Richard Bowser there is now only one company left in the market and they can’t get wholesale funding, so any home owner, to whom they make an offer, might at best get 50% of the true market value.

The unusual thing about residential property is that organisations that ought to know about things like property lease options – e.g. some of the mortgage lenders who also stood to lose – were completely unaware about them for many years after they were first promoted.

And the supposed celebrity property experts often did not have a clue what’s really going on in the real world of property investment – even now, it seems in some cases.

In the Dark

To give another example of how suppliers of services and products to the private rental sector are often playing “catch up”, at a recent Mortgage Solutions event where I was the key note speaker, I highlighted how it was perverse that lenders would often not allow landlords to enter into guaranteed rent “Private Lease Schemes” with local authorities and housing associations. In these, the rent is underwritten, in effect, by the state – thus with nil real risk to the lender.

The mainly mortgage broker audience (some of whom also had a sideline as landlords) concurred fully whilst some of the lenders at the event busily scribbled notes to go away and have their underwriters look at whether they should allow private lease schemes, after all.

These two experiences over the last week show how far the mortgage lenders as well as the alleged “media experts” often still have to travel – one group to get their products dead right for the landlord market and the other to be “up to speed with” the new thinking in the private rental sector.

FSA Playing Catch Up Too

Since the BBC Five 5 story went out, Leah Milner in The Times also covered the same story in a great deal of useful detail, and this time quoted us too. According to the piece in The Times, the FSA are keeping a sort of watching brief of this “emerging” trend of property lease options.

Um, but we alerted them to this too – back in November 2009! Come on catch up guys, before many more people lose out.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector Consultancy and advice.

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We are consultants to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them develop and improve their services and products for private landlords.

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We also help landlords and property investors by showing how to make money in the private rented sector using ways which are fair to tenants and which involve minimal risk to the investor.

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Links Mentioned in This Blog Post

BBC Radio 5 Live programme on lease options:  http://www.bbc.co.uk/programmes/b015yqb1

Link to the piece at our old blog format from Nov 2009 about lease options: http://www.lettingfocus.com/2009/11/lease-option-schemes-and-let-to-buy-by.html

Video of my appearance at Mortgage Solutions Buy to Let Breakfast Briefing: http://www.mortgagesolutions.co.uk/mortgage-solutions/feature/2119188/-breakfast-briefing-watch-live

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Posted in FSA, Media and the Private Rented Sector, Property Clubs, Property Lease Options, Property Lease Options and Rent to Buy, Rent to Buy | Comments Off

Mortgage Fraud Buy to Let Lending and Property Clubs

Monday, February 7th, 2011

My blog post last week (about what mortgage companies could do to support landlords more), generated 27 emails from managers at buy to let mortgage lenders and ten from landlords.

One aspect that I referred to, in passing, was how the mortgage lenders had been “behind the play” in terms of understanding how bad buy to let mortgage lending and mortgage fraud was being carried out in respect of below market value (BMV) deals financed by techniques such as Bridging Loans and Next Day Remortgages.

I have written at length about this in other blog posts, so do not propose to go into it again here. All I will say here is that the mortgage companies could still do a lot more and do it a whole lot better.

To assist my understanding of what mortgage lending banks do today and how they assess risk, I now subscribe to “Mortgage Finance Gazette” – a publication widely read by those concerned with the business of making mortgage loans with a readership including mortgage companies, mortgage brokers, valuers and conveyancing solicitors.

A lot of the talk in this magazine these days is about mortgage fraud and bad lending – who was responsible for it happening in the past, who is going to pay for the past mistakes and how to avoid making mistakes in the future.

Of course, this is all rather late in the day, but “better late than never” I guess. But there seems to me to still be a long way for the mortgage lenders to travel.

The Latest Wheeze

I’m not a fraud expert but I have said many times that if the mortgage companies want to see how they might be taken to the cleaners in the future, they really ought to tear themselves out of their offices and get down to see the latest wheeze the “Get Rich Quick in Property” advisors are coming up with at the various “free events” that they put on to attract the more “hands off” (some would say, lazy) investor.

Of course property advice from property clubs is not regulated and at these events there seems a never ending stream of “investors” ready to hand over large amounts of cash to advisors who claim they can source “Below Market Value” properties for them. At least four of these firms have now gone bust taking a lot of the “investors” cash with them. (If you are an “investor” and you wish to buy property this way, please check out the trading position of the “advisor” at Companies House first and never hand over large amounts of money to an advisor to source a portfolio of properties for you. If you really are tempted, at least do it on a “one property at a time basis” only.)

Strange Financing Techniques

Why should the mortgage lenders attend these types of events?

Because a lot of the time the deals the “advisers” propose using strange financing techniques which they sometimes try to run in parallel with a straight mortgage application.

Not all the property advisors are bad. Far from it. But if I was a lender I would like to know about such techniques and yet, mortgage lenders are conspicuous by their absence at the events.

In the last edition of Mortgage Finance Gazette, one expert was still talking about Next Day Remortgages and Back to Back Bridging Loans, but the game has already moved on – to Lease Options and other techniques.

And yet, how many lenders and their advisors are even aware of these new techniques?

My local building society had to be bailed out and is now in the process of changing its name – and it had to do it primarily because of bad lending on buy to let (which also included some fraud.)

All mortgage lenders need to sharpen up their game to avoid the same fate in the future.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector expertise and Landlord Information and I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold (to Jan 2011).

Services to Businesses and the Public Sector

Primarily we are  consultants to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them with their landlord facing or buy to let product strategies, marketing and services.

This work includes helping banks improve their buy to let mortgage lending practices and helping housing associations / local authorities procure supply of properties from private landlords (private rented access schemes, local letting agency models etc.)

We also write for property websites and we are regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Information on a coaching basis.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

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Posted in BMV, Below Market Value Property, Buy to Let Mortgage Fraud, Buy to Let Mortgage Regulation, Buy to Let Mortgage Strategy, Buy to Let Mortgages, Get Rich in Property, Property Clubs, Property Lease Options, Property Lease Options and Rent to Buy, Same And Next Day Remortgages | Comments Off

Rent to Buy and Property Lease Options

Thursday, September 2nd, 2010

Our brief comment in past blogs on the topic of property lease options (or Rent to Buy) schemes which were quoted in last weekends’ “Financial Times” Money section have been taken up by a number of other websites.

In some cases they have used some of the article in the FT and reproduced it without quoting us properly.

Just to clarify, in the FT we said just this, ” The danger (with these schemes) is that the tenant turned possible buyer has no real security at all over the property.”

This lack of real security is our concern.

In our view, some types of property lease options and rent to buy schemes in the private market may be dangerous for would-be first time buyers, who as tenants, pay a premium for a lease option (on top of the rent under their tenancy agreement) to a landlord to give themselves an option to buy the property from the same landlord at some future date or dates.

It seems to us that the majority of the risk is usually on the tenant’s side, because in the event the landlord defaults on his mortgage, the lender (if there is one) will ultimately recover the property and the lease option would have to take second place. In this scenario, there is a real likelihood that the tenant’s lease premium would expire worthless and they would find themselves homeless at worst, or, at best, having to pay rent to the mortgage lender (who would normally ultimately seek repossession anyway.)

Also, in some versions we have seen, if the tenant misses just one payment under the lease option, the lease option could expire too.

We feel that much tighter controls should be in place to make would-be first time buyers aware of the risks and would strongly urge property buyers to take INDEPENDENT legal advice before entering into such arrangements.

We would hope the FSA, Citizens Advice Bureau and the Council of Mortgage Lenders were aware of how such deals can be used too – but I doubt they are currently.

Of course, these schemes are attractive to some property investors as it potentially gives them an additional income stream (from the lease option)   and may be very especially attractive when used in connection with what are called “sandwich lease option” deals.

However, whilst they are usually good for investors and landlords, we worry about the risks some tenant-buyers are taking on with these schemes which can, in the worst cases, prove worthless for them.

Other types of property lease options may be more ethical and fair and if the lease option is worded fairly even the types we are concerned about may be OK too (though we and the Council Of  Mortgage Lenders cannot see a way around the repossession problem should the landlords default on the mortgage and the lender repossesses.)

We have nothing against property lease options. In some cases they may present good solutions to property buyers and investors.

But we would hope all property investors look to get involved in schemes like these only if the schemes are fair and transparent and if the risks to the other party have been clearly explained.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our (very occasional) group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

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Posted in Get Rich in Property, Property Lease Options, Property Lease Options and Rent to Buy, Rent to Buy | Comments Off