Buy to let investors in SA1 development should be afraid, very afraid!!
I always follow the property market with great interest and noticed that Swansea for some reason does not follow the trend of Cardiff but does seem to have the same direction as some of the larger northern towns like Leeds, Manchester, Sheffield etc. Where they go Swansea seems to follow.
Chatting to a friend or more like an acquaintance who has an EA in the marina and opened another in Oystermouth to take advantage of the BOOM, Seemingly the Mumblies have a different approach to property marketing than other Jacks. They put their houses on the market for silly prices simply to say to their chums "Mine's on at £745.000" when they know it's only worth £450.000 on a good day. They love to see it featured in the Post and carry a copy around with them to show. If the EA tells them he will have to market the property at it's true value then they simply take it off his books.
If they put a property on the rental market at a certain price and are advised by the EA to reduce the rental iin order to get a good tenant, they would rather stand firm and pay the council tax than reduce their rental. It's all a matter of their perception or how they perceive themselves. They will be hoisted by their own petard! There will be a knashing of teeth and wailing in Verdies soon.
"Buy-to-let investors who fear they may be left homeless
They face personal ruin after losing the properties they thought would be their pension. As Tony Levene reports, their story is far from unique
* Tony Levene
* The Guardian,
* Saturday March 22 2008
* Article history
About this article
This article appeared in the Guardian on Saturday March 22 2008 on p4 of the Money news & features section. It was last updated at 00:02 on March 22 2008.
Buy-to-let investors are facing their hardest times since amateur landlords first hit the scene in force a decade ago. Property values are falling, rents are static, and interest rates are on the way up - assuming buy-to-letters can find mortgages now that many lenders have toughened up their criteria.
But for many investors - including Chris Miller and Geoff Morris - it's more than belt-tightening that's needed. Unless they can pull out a last-minute rabbit, it's game over and personal ruin.
They have already lost the properties they believed would provide them with riches. Now they also risk their own homes and other assets.
Their stories are far from unique. Thousands of would-be amateur landlords are in a similar position.
The two men are not after sympathy. While both say they were deceived by developers, lenders, lawyers and, above all, valuers, they accept that ultimately they have only themselves to blame.
Just months ago, Miller and Morris believed they had buy-to-let portfolios valued in millions - Miller's came with a £7.5m tag. Morris had contracted to buy flats developers valued at £3m.
Now Miller owes a variety of lenders some £3.5m, while Morris is living on benefits, fearing the repossession knock on his own front door. Miller accepts he has no excuses. "I was a director of a company selling new-build flats to investors that we found through newspaper adverts.
"Between May 2006 and November 2006, I believed what we told them, and I bought 31 new two-bedroom flats, which, I was told, were worth £7.5m - 10 in Cardiff, eight in Manchester, six in Burslem, Staffordshire with the other seven spread around England."
Miller, 52, a qualified solicitor who specialised in property work, lives in Bedford. He says: "I bought into this as everyone else was doing it, including the other directors. Even as a director of a firm selling flats, I could not see the game being played. And if I could not see it, then how could you expect the investors we attracted in with our marketing, to understand what was going on?"
He now alleges the expected rents - and hence the valuations based on them - were grossly over-optimistic. Valuers told him to expect monthly rents as high as £855 for a one-bed flat, when, in reality, they never got more than £400-£500.
A valuation survey for a one bedroom flat in Cardiff in August 2006 showed a £209,800 price tag. Yet the valuer said that similar flats in the same block were selling at £177,000.
"The gap of around 15% was a 'gifted deposit'. The value was pushed up artificially so I could get an 85% mortgage on the £209,800. The reality was that I got 100% of what I actually spent - around £177,000. The gifted deposit scheme meant I did not need to put down a penny of my own money."
The valuer quoted an expected £855 a month rental income on the Cardiff flat if "let to a corporate client", less to an individual. The £855 was almost exactly the monthly mortgage interest on the buy-to-let loan.
Agents in Cardiff now cite rents in a similar flat in the same block at £475 a month - little more than half Miller's promised income.
Miller also used gifted deposits on the other 30 properties, almost all with loans from buy-to-let specialist GMAC.
"In all, I owed GMAC £6.4m. My monthly interest was £29,252 but all I ever cleared a month after costs was around £15,000. What we had expected was that interest would be covered by the rent - while the capital values would produce profits when we sold."
GMAC passed most of the loans on to others including offshoots of Bradford & Bingley and Britannia.
The monthly loss from the low rents was unsustainable. Now two properties have been sold; 28 repossessed; and the other flat is in the repossession process. "When the flats are sold at auction, they are unlikely to fetch much more than £3m, leaving me with debts of about £3.5m. The others who bought similar portfolios are in the same position.
" I was stupid to do this. The valuations were unrealistic. My only chance is to sue the valuers - I am exploring that via a class action.
"The lenders could make me bankrupt but that would get them nothing. Their only hope is, if I pursue a successful legal case."
Geoff Morris, 61, who lives in St Neots, Cambridgeshire, had had enough of stockmarket speculation by 2003.
"I decided to try property. I went to a free workshop, was very impressed, and signed up for the full course. I aimed to get as many properties as I could, as quickly as possible.
"I admit I threw all caution to the wind. I assumed others would do the due diligence for me - after all I was paying," he says. "I put deposits down on properties still to be built in places like Manchester, Middlesbrough and Leeds, even though I had never been to any of them. And I bought into Florida - again, totally sight unseen."
Then he started to purchase the flats.
"All this was to be my pension. Everyone selling property told me I could not rely on the government or insurance companies. But this was the most expensive mistake of my life. I had to put money down on these properties as they were not on a gifted deposit basis.
"I managed to get the cash using a mix of zero-interest credit cards, personal loans, and when that ran out, remortgaging my house. Now I realise I substantially overpaid."
Morris is today living on £157 a week in benefits, owes £100,000 on credit cards and personal loans, is in £200,000 negative equity, and Northern Rock has a suspended repossession order on his home for the £200,000 he owes it.
"I never made the money I was promised. The rents never matched the interest payments. Buy-to-let was a fantasy for me because I never checked anything.
"I was so enthusiastic I just went ahead. Some of my properties were never built even though I had put down deposits. Others have been repossessed. I now have nothing. I am currently part of a class action against a number of firms involved. Others include doctors, lawyers, and retired people - all normal people trying to make money".