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FSA warns of ‘serious problems’ in lease options market

The FSA has warned about the emerging lease options market and said in most cases it considered it to be akin to sale-and-rent-back, a market it has effectively regulated out of existence.

The FSA’s head of financial conduct and chief executive designate of the Financial Conduct Authority Martin Wheatley made the comments at the regulators annual public meeting yesterday.

It was prompted by a question from the floor at the event requesting an update on the sale-and-rent-back market and whether the regulator was aware that lease options firms were now replacing sale-and-rent-back firms.

In response Wheatley said the regulator was aware of lease option firms and that this was a sector that was starting to emerge.

A lease option, more formally known as a lease with the option to purchase, is a type of contract used in both residential and commercial property deals. In a lease-option, a property owner and tenant agree that, at the end of a specified rental period for a given property, the renter has the option of purchasing the property.

A lease option is different from a lease purchase, in that a lease purchase binds both parties to the sale, whereas in a lease-option the buyer has the option but the seller does not.

Wheatley says: “In many cases we consider the lease option formula to be the same as a sale-and-rent-back, therefore it requires permission and has to go through our authorisation process.

“If the questioner or anyone else has intelligence on the development of this lease option market we’d be keen to know, but we think there are serious problems in this market and we don’t like what we see.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. John Rawicz-Szczerbo 4th July 2012 at 12:45 pm

    Oh, ‘serious problems in this market’ – what the @#~$ were you doing in the LIBOR market? Do you have ANY ideas?

    What a bunch of useless knobs!

  2. How on earth can Sale and Rent Back (SRB)be the same as a Lease Option?
    This is ludicrous, they are entirely different things, the only things they have in common are property, a willing buyer and a willing seller, oh and solicitors for both parties of course!

    In SRB the seller sells all or a substantial part of the property and rents the property back from the buyer or an associated company/ individual/ trust.

    In a Lease Option, the buyer/lessor rents/ leases the property from the seller for an agreed period of time and holds the exclusive option/right to buy the property during the agreement’s term, if the buyer/ lessor decides not to buy they can hand the property back to the homeowner/seller at the end of the agreement’s term.

    The homeowner/seller moves out, it will not work if they stays in occupancy for numerous basic economic reasons.

  3. In my opinion, the FSA is again the puppet for the CML who initially campaigned against SRB.
    In the words of the FSA SRB provided a good long term solution for many families facing repossession. Because it affected lender’s business however and reduced fear of repossession (which is all that keeps about 20% of homewoners paying mortagges) the CML despised it.

    Now the CML are lobbying the FSA against alternatives to conventional mortgages for homeowners, using the leverage that they are trying to offer more choice and liquidity and anything that threatens their monopoly is a risk to the UK economy.
    The level of technical knowledge or understanding of everyday homewoners circumstances in the FSA is, and has always been a disgrace.

  4. I wrote to the Fsa to enquire about their view of the legality of LO where the owner moves out as part of the deal. Usual non committal reply; my view as a transactional lawyer is that LO is not a regulated agreement if the vendor does not remain and the option buyer does not buy the freehold.

  5. If an agreement has been drawn up by a solicitor and given to the vendors solicitor to explain to them what their responsibilities are as well as ours, then another solicitor won’t get involved at a later stage if both parties stick to the agreement. It is only those people that try and wing it (cut corners), with pre-drawn up agreements and don’t go through solicitors, that will lay themselves open to a legal challenge being made by the vendor. This would then be a civil matter and quite simply, doesn’t need the FSA to waste their energy on a ‘Red Herring’ being thrown into the ring by lobyists for the banks, to deflect their complete disregard for the rules set up for them to adhere too!

    Also if the banks won’t help out people in negative equity, whom they gave 100% – 125% mortgages too, then an Option to purchase at a later point in time, when the market has hopefully regained confidence, is a great alternative for those people, unable to move on with their lives and frees up housing for people to rent in that area. A win win all round!

    So what’s the ‘Big Problem’ here? The ‘Big Problem’ that the FSA should be spending their limited resources on, is the banks not lending, fixing LIBOR rates, continuing to pay obscene bonuses on ill gotten gains, instead of paying the tax payers back! The (tip of the iceberg) list goes on….. 🙄


  6. Wilson Hendricks 8th July 2012 at 11:35 am

    Is the person who posted as Phil Martin above THE Phil Martin who, in December 2010 declared himself bankrupt, who apparently lost properties held under lease option and SRB deals and allegedly damaged the lives of vendors and tenants and then who was subject to a BBC documentary?

    It’s an ‘interesting’ criticism of an article that states concern about similarites in both markets, in that they involve generally vulnerable people in a market infested with unlicenced, unregulated and sometimes poorly qualified people who do not always have the vendors’ best interests in mind when influencing them that the deal offered is their only or best option.

    It’s also an interesting defence of two markets in which property deals involving Mr Martin went wrong in the way that the author of the article infers concern.

    Lease options remains unregulated whilst SRB has effectively been killed off by regulation – a sledgehammer to crack a nut, which has also detrimentally affected vulnerable people who could have been saved by decent, honest and regulated SRB dealers.

    Lease options need regulation and should only be accessible to property dealers or investors who are (a) licenced to do be involved, (b) have a long-term, sustainable financial resource that will not detrimentally affect either the vendor or any tenant who moves into the property and (c) who are a proven fit and proper person.

  7. Do you mean the Phil Martin that was in the BBC Radio 5 Live Investigates programme on lease options, or did he feature in another BBC documentary? Would be interested to know if there was another doc on this

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