Property Lease Options The FSA Catches Up
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.
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.
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.
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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