It's hard to save up money for a deposit on a home in today's high priced property market, so when someone comes along offering a deal that seems too good to be true, it's tempting to have a look.

However, many people are being caught up in what are called "black market housing schemes" and losing their life savings to unscrupulous operators.

The operators of these schemes promise a new way to own your home without a bank loan.

Rent and property prices typically inflated in rent-to-buy schemes

There are several versions of the schemes, but they are all aimed at vulnerable people who feel they have been locked out of the Australian dream of owning their own home because they can't raise the deposit or banks won't lend to them.

In rent-to-buy schemes a buyer agrees to an inflated property price then pays market rent – or more – with an "option fee" to buy the property in several years' time when they are supposed to be able to get a mainstream mortgage. The option fees are supposed to be credited to the final purchase.

Consumers have scant legal protection under rent-to-buy schemes

People sign up but find they still can't get a mainstream mortgage to refinance, and the property hasn't risen in value to the inflated sale price set by the operator of the scheme.

They still don't own the property despite all the money they have paid, and they find there is little they can do to get out of it. Miss a payment and they can lose the home and everything they paid towards it.

The confused legal situation of the deals means that it can be difficult for consumers to obtain protection under the law.

Don't trust "legal advice" provided by operators of black market schemes

Buying a home is usually the biggest investment a person makes in their lifetime, so it is wise to get independent legal advice before entering such a risky scheme to ensure your interests are protected.

Some operators of the black market schemes offer their own legal advice that the schemes are safe and legally correct, but it is absolutely crucial to get your own independent legal advice before entering into any such arrangement.

Consumer Action Law Centre calls for change in law governing rent-to-buy schemes

The Consumer Action Law Centre has recently investigated the schemes and produced a report, Fringe dwellings – The vendor finance and rent-to-buy housing black market, which states that the deals are high-cost and extremely risky, and that many people were left worse off or financially ruined.

The Centre has called for such schemes to be banned, or at least for a change in the law so that all vendor finance buyers are protected under the National Credit Code, and buyers' money is protected in the same way as home deposits.

Their investigation found that the deal brokers often disappeared when things went wrong or simply declared themselves insolvent.

Never forget the old adage – if it looks too good to be true, it probably is.

Tony Mitchell
Consumer claims
Stacks Law Firm

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.