The Financial Services Authority has warned against fast-buy, no money down deals, saying these could land both the buyer and the seller in trouble.
It is specifically telling householders in financial difficulties who are looking to sell their home to a fast-buy specialist to be careful that they are not complicit in fraud.
The FSA says some below market value property sales involve fraud because the buyer wants a ‘no money down’ deal.
No money down deals and below market value deals are still ‘taught’ by some so-called buy-to-let property investment specialists. But the FSA is now saying that it has evidence that some of these deals are fraudulent.
The fraud happens when the seller – which might be a company or an individual – asks the buyer to state that the property has been sold for more than the agreed price.
Prices offered by fast-buy specialists are well under market value, typically a 20-35% discount, said the FSA. The attraction for the seller is a quick sale, often within 48 hours or in cash, and with no estate agency fees to pay.
The FSA said: “Some home owners facing financial difficulties may want to sell their property quickly to ease distress, or perhaps avoid repossession, and put the problems behind them.”
The FSA says that over-stating the sales price means the buyer can borrow the full amount they have agreed to pay for the property. The borrower also benefits by being able to get a cheaper mortgage, because the lender believes that the borrower has put up a sizeable deposit.
For example, a buyer might tell the lender they are paying £150,000 for a property and require a £120,000 mortgage, when they are actually buying it for £120,000.
The FSA says: “Misleading the lender in this way is fraud, and both the buyer and seller could face prosecution.”
The FSA also warns sellers who are in financial difficulty and getting assistance from the state that they could risk losing their benefits payments if they say their property went for more that it actually did.
The FSA is also warning against unauthorised sale and rent-back providers and firms providing lease options.