Few things make me angry enough to demand an increase in regulation but property-pushing is one of them.
I refer of course to the estate agents, ‘property shops’ and the like which sucker householders, most of them unsophisticated by the regulatory definition, into borrowing against their family homes to buy additional properties as ‘investments’ and holiday homes.
Around five years ago some clients of ours, an elderly couples in their sixties, fell for a property company’s pitch to buy an off-plan apartment in Leeds. Sadly, as is often the case, they did not consult us first but rushed in and put down £15,000 from their savings as a deposit. Or rather the husband did and he was suffering from early-stage Alzheimer’s, his judgement obviously impaired.
His wife was staggered at his actions but only found out after money had changed hands. The property company was run by a since-jailed ‘property tycoon’. Come the time to complete, all the flats turned out to have been vastly over-valued and nobody would lend the balance due. Litigation ensued which goes on to this day. Their retirement has been blighted and their savings are gone. The promised ‘high rental income’ was a fantasy.
Another couple in West Yorkshire came to me referred by a mutual friend, desperate to help them find a way back from the brink of financial ruin. They’d had a lovely £300,000 home with no mortgage in a picturesque part of Summer Wine country.
One day they took a stroll into the nearby town centre and looked in a ‘property shop’ selling overseas holiday homes. By the time they came home they’d put down deposits on three apartments in Bulgaria. Their house was subsequently mortgaged with the help of the pusher’s in-house ‘adviser’. The apartments, they were assured, would rent out to sun-seekers in summer and skiers in winter. The same agent would be only too glad to organise the bookings for them.
From then on everything went wrong. Costs escalated, the furniture packs they’d paid for as part of the deal turned out to be junk and the location just wasn’t attractive as a summer or winter location. The promised rentals never materialised. The property shop closed. They were left bankrupt, lost their home and ended up living in a grace and favour apartment provided by a church. The husband had a nervous breakdown and has not worked since.
The home income plan scandals of the 1980s established the principle that it’s generally bad advice to advise somebody to mortgage their home to invest the money borrowed and then rely on the investment to pay the mortgage. So what’s the difference using it to buy holiday property?
As these people found to their cost, property prices can fall as well as rise just like share prices. As a former IFA colleague of mine also found out, property ‘investments’ abroad can also vanish completely if you’re daft enough not to use a UK based solicitor and you rely on the pusher’s own legals – but that’s another story.
Geared investment is risky – whatever the investment. If you or I encouraged unsophisticated clients to risk health hearth and home we would no doubt be cleaned out and closed down, and rightly so.
So where is the regulation for property pushers?
Memo to Martin Wheatley: there is a whole new area where FCA regulators could be employed and where for once they might actually do some good. How about it?
Neil Liversidge is managing director at West Riding Personal Financial Solutions