The judgement from the appeal of Scullion v Colleys leaves no room for doubt that buy to let, in the judiciaries eyes at least, is a commercial investment and protection under the law is not guaranteed.
The judgement declared that Colleys could not have foreseen that a valuation prepared for the mortgage lender would be relied upon by the investor to make a commercial decision.
There is a distinction between commercial and residential purchasers that appears to have been defined as commercial savvy and wealth.
The conclusion was drawn that a commercial investor does not enjoy the same level of protection under English law.
Further supporting the court’s view was the fact that relying on the mortgage provider’s valuation in such commercial transactions was not (and should not be) the norm.
The mortgage valuation is a lender’s assessment of a property’s capital value. It is not a study in rental yields – a matter that a purchaser’s valuer should take a much keener interest in, as well as providing a purchaser’s capital valuation.
The lender’s interest is primarily in the re-sale value should the property need to be sold and the money paid back.
This case raises an important point. We know lenders are chasing amateur landlords, since big portfolios represent too much, often highly geared, risk.
First-time landlords are a growing sector that is being encouraged by the failure of other investments, such as pensions, to perform.
Do they recognise that they are expected to behave differently from residential homeowners?
At the very least they should be told this.
The quality of the advice they receive will matter even more with less legal protection.
Robin Johnson is managing director of Kinleigh, Folkard and Hayward Chartered Surveyors
