Friday, February 17, 2006

Property investment clubs and inflated valuations

Property Article | Reuters.co.ukClick here for full article
Thu Feb 16, 2006 8:40 AM GMT

By Lorna Bourke
LONDON (Citywire) - Buy-to-let valuations on new properties face increasing scrutiny and investors could soon find it more difficult to arrange a loan. However, a well informed adviser can make all the difference.

Last December Matthew Wyles, director of Mortgage Works, pulled out of buy-to-let lending on new property developments, with the immortal words: 'Owing to the current oversupply of newly built property, valuation in this sector is more of an art than a science.'

Wyles was dropping a heavy hint that questionable practices were being used to inflate the true value of this type of property.

The surprise was not that Mortgage Works was withdrawing from new build lending, but that Wyles was reacting to what everyone in the market knew had been going on for a long time.

The Council of Mortgage Lenders (CML) and the Royal Institution of Chartered Surveyors (RICS) are still locked in debate about how to solve what has been described as a valuation problem rather than a buy-to-let issue, but no one wants to admit that anyone is at fault.

'The reality of the situation is that lenders have to lend and some cannot afford to pull out of this market,' says a broker who does not wish to be identified. 'While the market was rising, the lenders were not concerned.'

The lenders deny contributing to the situation by accepting inflated valuations and turning a blind eye to what only became a problem when house prices slowed.

'There are issues clearly in the property investment club area but they have not flowed through into the buy-to-let and main residential mortgage market," says John Heron of buy-to-let lender Paragon."

Take care with property investment club offerings - as you should whenever someone appears to be offering you guaranteed profis on a plate.

Chris Bell

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