Sunday, May 25, 2008
Letters page - BTL newbie gets pwned!
Guardian: Instant Access ... to buy-to-let misery
I was sold a buy-to-let flat in Leeds in June 2005 after going to an impressive Inside Track seminar. This convinced me property was a safe route for my children's financial future.
But the figures never worked out - I am paying out some £240 a month more for my Birmingham Midshires loan than my rental income. And now I am behind with my mortgage. Instant Access will not buy the flat back or offer any material help. What are my options? Will I lose my home?
[Property was valued at £219k, with 40k "discount" and estimated rental income of £1050/month. It is now lying unrented even at £575/month, and the property is valued at £120,000. PWNED!!!]
Posted by little professor @ 10:09 AM (1873 views) Add Comment
27 Comments
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1. Orwell said...
I don't know why he doesn't live in it, as all properties are first and foremostly a property to live in surely?
2. taffee said...
and this is a few months into a slump!...............what in 2 years?
3. Mytimeisnigh said...
My heart bleeds.
4. confused76 said...
"Your letter is one of many sent to Capital Letters showing the perils of amateur landlordism - and over optimistic valuation certificates."
My my my !
5. Hard Cheese said...
Don't worry, I am sure that this government will bend over backwards to give you compensation
6. nubbers said...
I am very curious. This might not be a good place to ask, but is there any record of anyone making money, as promised or even at all, from an Inside Track purchase from about 2003 onwards? I am really asking if anyone knows anyone because Google hits are dominated by either horror stories about Inside Track or glowing recommendations from Inside Track's own website or similar.
7. confused76 said...
i guess those who bought in 2004 and sold in the first half of 2007 made some money, but after stamp duty and other transaction costs, and having the pound lost 20% last year... I think the answer to your question is no, noone made real money, maybe on paper...
8. uncle tom said...
The deliberate over-valuation of these properties should be the subject of a criminal investigation - conspiracy to commit fraud...
9. i remember the 90`s said...
My sister and her husband bought a 3 bed house to BTL in 2004 (i had been badgering them to sell it since 2005 )which they saw sense and sold it Nov 2007 and after taxes fees etc lost a couple of grand ,they were lucky that a buyer was looking for that type of property as house prices where we live on the Isle of Wight are down just like most of the country in fact over here wages are below the national average and it has really surprised me how folk could buy at these prices in the first place the only way i see any BTLer making money over here is the ones that bought in the late 90`s .
10. taffee said...
imagine having a portfolio of say 6 properties!
totally mullered for 15-20 years!
Could they please also stop quoting interest only mortgage repayments
11. Advokat said...
It is quite clear to me how you can make money on BTL...housing associations turn to the "Private Sector " for a bit of help...when off loading so termed"Vulnerable People".
12. stillthinking said...
Interesting that while the bank can repossess the BTL property they cannot force the sale of the original home, only obtain a charging order against a future sale. So the poor guy can't move, and has a growing debt charged against his home.
13. jack c said...
From the reply given to the ? - "If you can afford it, you could continue to finance your monthly shortfall in the hope Leeds flat prices move substantially upwards before 2010 when you need to remortgage"
Sadly LF, Lancashire who wrote in seeking guidance has (IMO) no chance at all of seeing Leeds flat prices move substantially upwards before 2010 - quite the reverse. In this instance the initials LF made me think "losta fortune"
If this person is looking to re-mortgage then the options will be severely restricted for example on the moneyfacts mortgage sourcing system there were a total of 660 products available (mid April 2008) compared with a peak figure of 3662 which included 1423 sub prime products from July 2007.
14. it_is_going_with_a_bang said...
Maybe just maybe the reader should have done his own research.
I'm no professor of economics but I could see this coming years ago.
I have no sympathy for him because it is precisely the willingness and actions of idiots like him that have pushed prices so high.
No doubt when he bought it he thought I was stupid for not doing so myself.
15. Stupid_boy_pike said...
Can these people move to Spain or the US or somewhere and just melt away, and never be found by the lender.
I have no sympathy either. I agree they were part of the greed machine that drives prices up at each British B&B (boob and bust)
16. uncle tom said...
"they cannot force the sale of the original home"
Not directly, unless the property was offered as security in the first instance.
However, they can get a charging order, which prevents the house from being sold until the debt (with interest) is paid, or serve a bankruptcy petition against the borrower which often results in them being obliged to sell their assets.
17. hpwatcher said...
tough sh*t.
18. jack c said...
I actually have some sympathy for this person - they have been persuaded to part with £30K redundancy money to act as a deposit - for those that are unfamiliar with the likes of Inside Track and their seminars etc.. they are VERY persuasive, very slick and have highly sucessful closing techniques and are of course unregulated.
19. taffee said...
they will also go through the original application to find ANY errors or fraudulant lies
20. montesquieu said...
Anyone who parts with this amount of cash and does no independent research into the business model they are buying into deserves all they get, IMO.
As for Inside Track, I'm astonished that there is no fraud investigation yet. Their clients may well be a bunch of morons, but there is no doubt their gullability was more than just taken advantage of: these people were conned into parting with large amounts of cash for a no-win bet, based on a truckload of deception. It's that simple.
21. Davip said...
Of dear -- paying £240 a month more for for his mortgage than he is making in rent. Heaven forbid this individual should have to pay anything for the house he owns! But then this is the mind-set of the BTL investor who profits from the inability of the rest of us to attain the first rung of the housing ladder -- the tenant pays his mortgage capital while the taxpayer pays the mortgage interest (because it's a 'business expense'). We heard nothing from these people when prices were shooting up and profits were going into pockets, but now the music is stopping these people are horrified and start writng to newspapers because they might have to contribute financially to the house they own. Welcome to the world you have made.
22. bilko said...
I tend to agree with you montesquieu (although I think these people were led up the garden path) but what I also find bewildering is that the people who've got themselves in this mess then believe that there should be someway of just walking away from it. After all, if I'd borrowed £160K and invested it in the stock market and the value had depreciated would anyone take me serious if I asked for a bail out? Of course not! But then why do people believe speculation on property should be treated differently? May be worth the letter write approaching Brown and Darling. If they can guarantee his vote they'll probably agree to buy up the flat for the benefit of the country!!
23. Davip said...
Postscript: I would have said home ownership for £240 / month is a bargain. If "...a safe route for my children's financial future" is his true goal, then he can set them a sound example -- the importance making your own way, rather than profiting by the misfortune of others.
24. jonb said...
A £120k valuation is a bit optimistic for a flat that is unable to get rent of £575/month.
A typical buy to let lender these days requires 125% rental cover on the interest payments. If it actually did get the £575/month, that would be £6,900 per year. So the lender would not allow interest payments to go above £5,520 per year. At a rate of 7.5%, this would mean the maximum loan would be £73,600. Add your 25% deposit to this, and you have a sale price of around £98,000.
A quick search through Rightmove suggests that £500/month is a more suitable rate for a new build flat in Leeds, so the sale price is going to be more like £85,250.
25. Hard Cheese said...
Doh! How daft are some people. Had they visited the local lettings agents, perhaps this may of given them some idea what realistic rental returns to expect.
On a positive note, two EA's have closed down in my area.
Hard Cheese!!!!
26. uncle tom said...
jonb,
As a benchmark in a market that has stabilised, with capital values rising in line with wage inflation, reckon on 7% of capital value gross rent p.a. as being sustainable.
e.g. property worth £120k - 7% = £8400 pa = £700 pm
Importantly, this assumes the property is owned outright. Add the costs of borrowing money and the return needed is higher.
Needless to say, the market is nowhere near stable at the moment, and buy-to-let mortgages should never have been conceived..
27. Tonys9168 said...
While the seminars are quite persuasive (according to documentaries I've seen), I have to say I saw these schemes some time ago and thought they were very suspicious. If a deal like this was a good way to earn money then the companies would have bought the properties themselves and offered equity in the company for investment by the clients. They obviously knew the risks and had to bulls1t the rental value so the clients could get loans. Take a cut with no risk, now that's a great business model, why are they going out of business? My guess is the clients dried up and various TV shows showed what they were up to, ...no money coming in , paid themselves big salaries.... hey presto..insolvent.