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Beware the housing black market

Beware the housing black market

It has been called the housing black market and with good reason: dodgy schemes that promise to put you in your own home without a credit or history check.

For struggling Aussies, these schemes may seem like a dream come true but as a new report by Consumer Action has shown, they generally end with the buyer paying thousands of dollars to the vendor with no home to show for it.

The report looked at two types of schemes that have been rising in popularity as housing costs have also been increasing.

The first is the rent-to-buy scheme that sees a buyer agree to an inflated property price which they pay in rent instalments. On top of this there are also an ‘option fee’ to have the option of purchasing the property at the end of the term, a required deposit and potentially more fees at the vendor’s discretion.

The buyer is then expected to refinance the loan to a mainstream lender in order to complete the purchase before the rent-to-buy term expires.

The trouble with this is that the buyers who have entered into these schemes often do so as they are unable to gain financing for mainstream lenders and are therefore extremely unlikely to be able to refinance their loan when the time comes. This leaves them with no property and thousands of dollars out of pocket with the report unable to find evidence of a single buyer in who’s favour the scheme had worked.

The second kind of scheme outlined in the report is the vendor finance scheme in which a buyer agrees to an inflated property price and the must pay a deposit, instalments, outgoings and in some cases even their First Home Owners Grant. Similar to the rent-to-buy scheme the buyer will eventually have to refinance the loan which is generally impossible due to the inflated property price and financial circumstances of the individual.

These black market housing schemes promise the Australian dream of home ownership without a bank loan,” said Gerard Brody, Consumer Action CEO.

“The operators in this industry target people who are locked out of the housing market. Compared to a mortgage, these deals are high-cost and extremely risky. We’ve seen people left much worse off – financially ruined and under unbearable stress.”

The case studies in the report read like horror stories of the great Australian dream gone wrong. Well-meaning buyers who want to provide a home for their families, but who do not have the financial means to go to a bank, being preyed on by un-ethical “businesses” promising to help them.


“These deals are pitched as an easy way to buy your own home without a mortgage, but when they come undone, we see how complicated and dangerous they really are. As Australia faces big questions about housing affordability, it’s vital that we crack down on these black market operators wrecking the Australian dream.” said Brody.  

If you are in a difficult financial situation that you think excludes you from going to a bank for a loan consider these tips before diving into deal and never sign a contract without receiving independent legal advice.  

Avoid anything that seems too good to be true

Is someone offering you the deal of a life time? Your chance to own your own property right now with no strings attached? There is a 99.99 per cent chance that this isn’t the selfless saviour you’ve been looking for but someone who is looking to make a quick buck at your expense.

Avoid these sort of schemes and if you do want to go investigate them further, then make sure you get independent legal advice first.

Work on improving your credit rating and building up your savings

If the issue is a poor credit rating or a lack of savings, and there is no immediate rush to own your own home, then try and solve your problems rather than creating new ones. Create a budget and use each pay to slowly pay down debts and contribute to a savings account. Collect a free report of your credit score online and make sure that any marks against your name are legitimate. If you do find an error that is bringing down your credit rating, then get in touch with the creditor to sort it out.

This approach will definitely take you longer to own a home than your average black market housing scheme promises but you will emerge in a much better position.

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