Lenders want property club clampdown
MORTGAGE lenders have called for property investment clubs to face sterner regulation over fears that consumers are falling foul to sophisticated selling techniques.
The Council of Mortgage Lenders wants the financial advice these firms give to consumers and the inducements they offer to be regulated by the Financial Services Authority.
Currently, property investment clubs, which can charge consumers over £6,000 to gain access to off-plan property, are unregulated, despite numerous cases of consumers losing out.
It would need the Department of Trade and Industry or the Treasury to introduce new legislation before the FSA could regulate the schemes.
The syndicates often seduce investors, many of whom are inexperienced in the buy-to-let market, with lavish seminars where they are offered new flats at a discount, usually before they have been built.
Many of the those targeted do not have the resources to pay for the flats and often have to use credit cards to pay deposits.
They also face the risk of negative equity as the price of new flats has floundered in recent months due to a softening housing market and over-supply. Around 56,000 new properties were built last year, but developers have been forced to offer generous incentives this year, including large discounts, cashback deals or free furniture, to help shift new builds.
The CML claims the proposition put forward by investment clubs is vastly different than mainstream buy-to-let where investors place the emphasis on rental income potential.
The group wants further discussions with the Royal Institution of Chartered Surveyors and Home Builders Federation to ensure the valuations placed on new build properties by these scheme are both transparent and fair.
The DTI recently closed down a number of property investment clubs after inexperienced investors were duped into spending thousands on properties that were worthless or were never going to be built.
The DTI is concerned investors are building up huge levels of debt and putting themselves at risk of negative equity by investing in the schemes. The department said it had the sector under heavy scrutiny and would seek to wind up companies it believed was duping investors.
CML senior policy adviser Andrew Heywood said: 'The unfortunate activities of a number of PICs have attracted speculative investors who are distinct from the bulk of buy-to-let landlords.'Research shows that most buy-to-let landlords are in the market for the long term.'
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