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A buy-to-let property club return is looming

by: Bob Young
  • 09/07/2015
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A buy-to-let property club return is looming
The buy-to-let market is seeing evidence of a property club return, and it is worrying, writes Bob Young, CEO of Fleet Mortgages.

When looking at the future of the buy-to-let market I do see positive times ahead, but I’m not so ‘glass half-full’ to think that problems won’t occur. One of the major headaches that could return to full migraine status comes with the potential return of the dreaded property club.

Now, immediately post-2008/9 you would have thought the demise of the property club was full and complete; after all, let’s consider the incredible damage wrought by these ‘businesses’ and the arrears and repossessions that were racked up, and the considerable losses on many lenders’ balance sheets because of their ‘work’.

Back in those days, with many lenders fixated on business volume, rather than quality, there were those who simply did not understand the extent to which property clubs were active, and the potential damage they could inflict. Immediately post-credit crunch I don’t think anyone involved in a buy-to-let lender would be in any doubt, however time moves on and, being back actively lending in this market, we are already seeing evidence of a property club return.

It worries me. Not just for the customers who might get stung again, but also advisers and especially lenders. Is there enough experience within existing buy-to-let lenders to spot such activity and to translate this into a flashing red warning light for all concerned? This is especially relevant in the new-build sector where there was a whole gamut of, quite frankly, dubious behavior back in the day with, for example, incentives offered up and disguised, plus considerable losses hidden.

Once again, there is the potential for considerable damage from these entities if lenders either miss this activity because of a lack of experience or a blind-eye turned in order to secure the business. The new breed of property clubs will undoubtedly look to exploit this, as their forefathers did before them, and the result is likely to be the same again.

So, let’s not repeat the mistakes of the past. For a sector which is under considerable scrutiny anyway, further cause should not be given to induce more intervention or censure. These practices should have been banished for good however I suspect that, in a market which is attracting major headlines and interest, there will always be those looking to use the old ways to secure new business.

Bob Young is CEO of Fleet Mortgages

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