Wednesday, Sep 02, 2009
This is just the start !!!!
Press and Journal: Counting cost of high risk and aggressive lending
Think this story may have broke a week or two ago but still worth a read......
Posted by johnnyp @ 09:41 AM (238 views) Add Comment
3 Comments
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1. icarus said...
A widespread scam involving collusion between a lot of agents. And there was motive and opportunity. Yet the lenders were unaware of what was going on?
A rigged market can create false pricing for capital value, but how do you inflate achievable rents? Shill tenants? Even on a new development the rental can be estimated fairly correctly (that's what the developer has done). So could it be that the decision to lend was based more on capital value than on the rental income to repay the loans?
2. p. doff said...
''how do you inflate achievable rents?''
One method I have come across on several occasions is where the applicant submits an Assured Shorthold Tenancy document with his BTL application (signed by a 'tenant') as 'proof' of the rent achievable. The document is bogus of course, but if the inflated rent is not too wild, the valuer will probably 'go with it', particularly if the property is unusual. In one particular case I dealt with (barn conversion), the applicant was being too greedy and I ignored the AST document and put my own figure in based on available comparable rental evidence. The guy had the cheek to complain to the lender (as they often do). I responded to the lender advising them that not only was the stated rent unrealistic, but the 'tenant' was in fact related to (and worked for) the applicant. Always pays to tease out as much information as you can from persons connected with the case!
3. icarus said...
Thanks p. doff. but the major problems occur when the rent of every flat in a large development is inflated (250 flats in the e.g. cited in the article). Presumably the lenders aren't working backward (from inflated capital value to estimated yield/rent) and make an independent assessment based on rents achieved in similar developments, with a few adjustments for this'n'that.