The FSA is to issue a warning on lease options, financially risky agreements whereby distressed sellers hand over the running of their property to an investor for a set period of time
A report by 5 Live Investigates at the weekend exposed a growing trend for this type of deal, in which struggling mortgage borrowers agree to lease their property to an investor for a specified period before selling it to them at a price based on its current worth.
The investor pays the mortgage over this period, normally bringing in tenants to do so. At the end of the period, they purchase the house for the agreed price and hope to sell it for a profit if house prices have risen.
But the programme revealed that the sellers can end up facing repossession and financial ruin if the investor fails to keep up the mortgage repayments, and brought the issue to the attention of the FSA, which says it will be publishing a warning to consumers on lease options in the next few days.
A spokesman for the FSA says: “The FSA is aware that some homeowners may be considering ‘lease options’ or ‘exchange with delayed completion’ deals as a way to help them reduce the strain on their finances.
“These products may not always put the homeowner in a better place than if they were to sell their house under normal circumstances, and to that end we will shortly be publishing information on our consumer information website to help explain how they work and what the risks are.”
John Charcol senior technical manager Ray Boulger says many rogue individuals who were operating in the sale-and-rent-back market before it was regulated have now moved into lease options.
He says: “The government needs to look at whether lease options should be regulated; if regulation was right for sale-and-rent-back, it is probably right for lease options too.”