Rent to Buy and Property Lease Options

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 buy viagra online england 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

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the top right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  – Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell. (If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates (which are lower than Amazon)).

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to [email protected] – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

For my random thoughts on property plus occasional comments on things as diverse as football, 1980s indy music and the size of Curly Wurlys, please see our TWITTER PAGE: Twitter

To reads old COMMENTS and to write your own COMMENT on this blog post, please page to the bottom of this post and click on Comments to open the form. Spammers please note that all spam is automatically deleted.

Copyright of Blog: David Lawrenson 2010.