Mortgage problems – subprime mortgages time bomb and rogue “buy and rent back” companies.

As we head into the summer it is feared that thousands of homeowners with subprime mortgages are at risk of losing their homes. Subprime mortgages are aimed at those borrowers with a poor credit history and many of those with fixed rate deals are facing huge mortgage problems with the deals coming to an end this summer.

The main issue these families are facing is that due to the fall in house prices any equity may have been swallowed up or even moved to negative equity which will make it almost impossible to remortgage. It is estimated that approximately 166,000 homeowners with a subprime mortgage are either not meeting or struggling with their repayments. With rising unemployment a further 260,000 homeowners expressed their fear of facing mortgage problems and not being able to meet the required payments.

According to the housing charity Shelter many of the sub-prime lenders have refused to sign up to the government schemes which are there to help avoid repossessions and are now starting to take action against those falling behind.

Rogue buy and rent back companies to be regulated.

In the wake of rising repossessions unregulated buy and rent back companies have sprung up with scores falling foul to the rogue ones. These companies target the most vulnerable who are struggling financially by making an offer to buy their houses and let them continue there as tenants, often on an assured shorthold tenancy of 6 to 12 months. The homeowner pays a fee for a valuation and then finds they are offered a price well below market value.

From July 1^st the FSA will be able to immediately look into cases of those who have been treated unfairly and lost money or their homes. They will be able to take their case to the Financial Ombudsman if they do not receive acceptable redress from the companies themselves. The new rules will allow the FSA to stop, ban or impose fines on the firms that break the new rules. On June 30^th 2010 there will be full regulation of sale and rent back firms implemented.

“Some consumers enter into sale and rent back arrangements without understanding the costs and risks involved. This can be a source of distress for people in already difficult circumstances. Firms entering our regime will need to run their business in a way that means customers are treated fairly. This includes making clear to customers important details, such as the length of time they can stay in the property, before they enter into the arrangement.” said Ed Harley, the FSA’s head of mortgage policy.

In response the announcement on the 3^rd June of the new sale and rent back regulation the FSA will implement, chief executive of Shelter Sam Younger said:

“Shelter campaigned actively to highlight the problems of the industry, so we strongly welcome FSA regulation, which is long overdue.

“With 75,000 homes predicted to be repossessed this year, more and more struggling homeowners will be tempted by sale and rent back schemes in the hope they can offer a lifeline. However many schemes are exploitative, leaving people financially worse off and vulnerable to homelessness.

“It is vital that the FSA enforces the regulations fully and gets the whole industry signed up immediately. We look forward to working with them to ensure the comprehensive regime will better protect consumers and expose companies which don’t comply with the new guidelines.”

Anyone struggling with mortgage problems or falling foul of these schemes should seek the appropriate debt counseling and seek advice from the FSA and Shelter.

Related posts:

1. Mortgage help from the government
2. Repossessions on the rise?
3. Fixed Mortgage Rates – fixed mortgage rates and money printing