Buy-to-Let Property Fraud - Why the Law Must Be Changed...

Like its counterpart in the States - the Sub-prime mortgage scandal - buy to let property fraud in the UK has badly damaged not just the investors involved, but the whole financial fabric of the Global Economy. As the front page article in the Sunday Times last December exposed, thousands of innocent investors have had their savings cruelly savaged due to falling victims of massive Buy To Let property frauds in the UK.

Literally dozens of similar frauds are now being exposed as the credit crunch continues to bite, and old practices come to light. For the last ten years or so, the UK government has been advocating that due to the effects of the 'Baby Boomer' population growth, nobody could rely on State pensions being able to really provide anywhere near a decent standard of existence for retirees, and in fact with its crippling tax changes in the late 90's it virtually destroyed many a good private pension plan as well. So what was the alternative - investment property? With the advent of the Buy To Let mortgages at about the same time, government attitude was that if you wanted to look after your future, then you would have to do it yourself, and advocated we all become property landlords to be able to buy into our own financial security.

The introduction of a Buy To Let mortgage, where the concept was that you could now get a mortgage on an investment property, not like a mortgage for you own house, where you would be granted a mortgage based on your ability to afford it, but was based on whether the income (rental) from the investment property would cover its mortgage costs. Couple this with the government and the popular attitude towards debt -that is - go for it, meant that thousands of people would remortgage their homes, become serial zero percent credit card users, and plunder their savings in this new bonanza of buying an investment property. After all, with only a 15% deposit on an asset that was increasing in value by around 10% every year, the leverage in people's investments was sky high!

But with all this so-called 'easy money growth' came a slacking off in regulatory controls. Unlike a domestic mortgage, a Buy To Let mortgage was not regulated. So any investor (and to a certain extent , the banks) had to rely on the conduct of professional bodies, such as solicitors and valuers, to make sure nothing untoward happened in this unregulated investment spree.

As always where masses of money was involved, inevitably, corners got cut, standards dropped, and the activities of a number of unscrupulous property developers, and property investment clubs, went on with less and less regard to the rules.

The result was that countless thousands of property investments were never financial viable. That is, they were sold at an over-inflated value; the rentals anticipated never met the mortgage repayments, and checks by the banks seemed to be so relaxed that their own lending rules were sometimes flouted.

A great number of investors caught in this trap actually complained to a number of UK lending banks as long ago as March 2006, that the valuations on their properties had been vastly inflated by professional valuers, but did they do anything?

Did they tighten up their rules?

Did they STOP LENDING?

No, the old profit motive was too strong. The result - not only are thousands of people trying to better themselves wiped out financially - but the banks too, are sitting with masses of bad mortgages on their hands, just like their US Sub-Prime market lenders.

And now what - well look at the mess the whole global economy is facing, not to mention the number of banks that are no longer in existence, or in government hands.

Interestingly, I put this scenario to my Member of Parliament in 2006, and his comment was 'The Banks need less regulation - not more!

Eat your heart out Jonathan!

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