Next Day Remortgages Legal Questions and Another Property Investment Firm Bites the Dust

Next Property Investment Seminar and Networking Event

One of my mentors in property investment is Richard Bowser of “Property Investor News.” He’s been around property investing even longer than me, wears a white hat and really knows his stuff in the residential property investment sector. Also, like me, he’s seen lots of the “Get Rich Quick in Property” people come and go.

In the last issue of his magazine he refers to how he went to one “seminar” where the chap claimed on the blurb about how you could become a “property billionaire, achieve financial freedom and escape wage slavery” in no time at all. Er yes, that’s right, “billionaire” not even “millionaire.” As Mr. Bowser noted in his editorial, that’s quite a claim even by the usual wildly optimistic standards of the property advice industry!

Crash and Burn

This man with the billionaire seminars (no, I won’t name him because perhaps he had the best of intentions after all) has now apparently crashed and burned – taking lots of his “investors” cash with him.

Well, I guess he won’t be billing himself as a billionaire (or even a mere millionaire) from now on then. Of course, many of you will wonder why would a property billionaire / millionaire want to spend his time running expensive seminars anyway – why not just go on and make more money or give it to charity or back to the community. And that’s a fair question but I’m sure you can work out the answer yourself.

The latest faller from grace is following a well trodden path used by the likes of Inside Track and many others who, having claimed fast riches in property were just sitting waiting to be plucked from the tree, crashed themselves. (Actually, I must clarify this, Inside Track did not as far as I am aware actually take folks’ money and simply not buy property with it, but they did charge pretty hefty fees with three naughts on them for weekend “education seminars” where novice buyers were told that the way to riches was via new build flats. Alas, buying over hyped over priced new build flats that all too often wouldn’t fetch the rent Inside Track promised, usually wasn’t a route to riches as most of these “investors” later found out!)

With property being largely unregulated and a rich minefield for the “Get Rich Quick While Sitting In Your Armchair” type of advisor, this latest failure will not be the last property entrepreneur advocating “passive investment” strategies who ends up taking their mainly novice investors to the cleaners.

The Great Next Day Re-Mortgage Deals   – What Did The Lenders Know

Talking of skullduggery in buy to let, those of you who have been around long enough will recall the “Great Next Day Re-mortgage Deals.”

Well, not so much a scam, more a strange and clever finance system that used bridging loans to allow people who sometimes didn’t have a bean to their name to buy property using a mortgage taken out on the property the same day, or more usually the next day – hence the terms “Same or Next Day Re-Mortgages” and “No Money Down” property investing.

Back in the day, various advisors liked promoting these techniques because they often got a cut from the bridging loan company and maybe another from their own friendly solicitors who were the only ones who understood the structure of the deals. (Your local high street solicitor with their beloved 1950s furniture and badly cleaned office wouldn’t have a clue. Why is the local solicitor’s furniture always so old, but I digress?)

This way of buying property worked because there was always a rich vein of people who liked the idea of “financial freedom” from their Godawful day job and the idea of getting rich as a property investor but unfortunately didn’t have enough cash for a deposit.

The bridging loan technique was clever and some of the investors did OK using this method of finance and purchase. Usually, they were the switched on types who also learnt who to be good landlords too. But the “passive investor” types who used bridging loans and next day remortgages and then didn’t bother to learn the nitty gritty of being a landlord often didn’t.

Legal Action

Anyway, I hear that at least one of the lenders who wrote lots of this business – i.e. provided the mortgages – is taking legal action against the solicitors who, er, “did the business” on the conveyancing side.

The solicitors defence is that the mortgage lenders must have known that the borrower had only “owned” the property for a day and that it was bought via a bridging loan  – something that was actually against the lenders’ rules.  But the mortgage lenders are saying, “No, we didn’t have a clue.”

Don’t Believe You!

None of the brokers I spoke to believe the lenders for a minute. “They surely must have known” they all chime.

I agree  – all the lending banks needed to have done would have been to have come down to some property shows and seen advisors in action promoting “next day remortgages” and bridging loans as a way to get wealthy fast “with none of (the punters) own money down.”

No Bankers at The Big Property Shows

Of course at the property shows one never saw a mortgage lender – a few brokers sure, but no actual lenders. The lenders were (and many of them usually still are) much too aloof from the nitty gritty of what landlords want and do to attend a property show!

All the same, even allowing for their glaring omission not to bother to really know their business, they must still have surely known what was going on  – and the way their mortgage deals were being used (some would say abused.)

Anyway, my sources tell me that the solicitors who are under fire, have, it seems, hired other legal folks to try to get documentary evidence to prove that the lenders not only knew all this was going on but even positively sanctioned it. A big paper chase is on to find the proof. Indeed I was contacted by one of the law firms preparing the defence last week and by the FT, where we will be featured commenting on this on Saturday 21 August. All good stuff!

When Is an Index Tracker Bond Protected?

Still on the subject of dodgy viagra pills business, last week I was in a certain building society and noticed a huge poster in the branch which screamed “Protected” in big print but, alas, the small print seemed to say otherwise.

They were trying to sell one of these stock market linked bonds that quite a few of the building societies and banks seem to be trying to flog to death these days. It’s the latest wheeze dreamed up to drum up funds didn’t you know?

Now, I simply cannot understand how a leading high street brand can get away with what appears to be a misleading up front claim. I asked them, “Is it protected or not? And exactly what is protected because I have read all the small print in this and with my very clever expensively educated and big MBA head on and a lifetime in finance, I have to say I cannot work out even after reading all the small print, exactly what’s protected, so God help the average punter off the street.” It’s been a week now and I await their PRs reply.

New Nameplate

The particular building society will soon be changing the nameplate on its door after having been forced into a merger with a bigger society, largely as a result of a pretty hopeless foray into buy to let mortgage lending. I don’t know if they did next day re-mortgaging but they certainly did some duff lending.

Eight years ago I wrote to their Chief Exec and offered my services to help with their buy to let mortgage lending activities (having pointed out that in my humble opinion, they were going to lose a lot of money with the strategies they were employing at that time). But this society did not even acknowledge my letter. It’s a shame because w e could have helped them as we help some other lenders now – see this feature in Mortgage Finance Gazette about my work in this area:

http://www.mfgonline.co.uk/article/Advice-for-the-novice-landlord-230128.html

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2 comments

  • I think anyone who bought loads of properties at the wrong time obviously would get burned as a result. To put all your eggs in one basket (property) isn’t really what an investor should do because while you have/had potential for high rewards with that there was high risk. A diversified portfolio would have minimized risk.

    • Agree, you should always diversify risk into other asset classes (things other than property)
      Not sure I agree though with your other comments that rents will come down. Think they will increase but only slowly over next few years – they will be held back by low real income growth and more supply onto the lettings market, but will at same time be pressures of increased population and a general lack of overall supply of proeprty overall.

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