Homeowners should avoid dubious lease option deals, say financial specialists
Experts are warning homeowners exposed to financial risk to watch for risky lease option agreements which might jeopardise their properties.
Many homeowners are falling victim to the expanding business of residential lease option contracts, where investors theoretically run a homeowner's property and pay the mortgage for a set period.
After this time the lease company has the option to buy the property and sell at a profit - if house prices have risen - or return it to the original owner if house prices have fallen.
However, with the market virtually unregulated, openings are being created for abuse by investors reneging on their promises.
Having outgrown their East Midlands 2-bedroom terrace and planning a 4th child, Martin and Trudy Angliss were keen to move to a larger house. For 5 years on and off their house had been for sale and the Anglisses were trapped in a stagnant market.
In May 2010 they signed a lease option agreement with Milton Keynes-based Rapid Property Buyers Ltd, which promised to pay the couple's mortgage, rent the property to new tenants and maintain it.
Martin and Trudy, who had no financial problems and were not looking to profit from their move, wanted only to make a fresh start in a larger house in a better area.
Martin, an NHS administrator, and Trudy, a medical student, realised something was going wrong 6 months after moving out.
"We found out that the lease company had missed 3 mortgage payments and the bank was on the brink of commencing legal proceedings," said Martin. "We knew nothing about that because all the correspondence from the bank was going directly to Rapid."
By this time Martin and Trudy could not afford to take on the mortgage payments as they were already paying rent for their new family home. And because the tenants signed by Rapid - who were not paying rent - were still living in the property, the couple could not move back.
The couple now face repossession and the prospect that when their house is sold at auction, they will still be responsible for a £30,000 - £40,000 shortfall on their mortgage.
Experts believe the same unexpected financial difficulties which have befallen Martin and Trudy could be faced by many other homeowners. Although lease option deals are common in the commercial property market they have not, until recently, been seen in the residential sector.
A BBC 5-Live investigation has discovered that the man who enticed the Anglisses - Phil Martin, head of Rapid Property Buyers - owes £3m and was recently declared bankrupt.
Ray Boulger of John Charcol mortgage brokers noted that "if potential vendors are not warned about the risks involved in lease options a major scandal could ensue".
Lyndon Campbell of Simpson Millar LLP agreed, warning of the dangers to homeowners of a volatile and deregulated market. "There are quite a few unscrupulous practitioners to whom the Financial Services Authority has refused authorisation," he said. "As homeowners could be in breach of their mortgage terms if they don't have permission from their mortgage lender, it is absolutely imperative that they check the finer details of their mortgage terms before signing any lease option deal."