Buy-to-let clubs in crisis as prices fall

FEARS of a collapse in the price of new flats have created the risk of a 'dangerous wobble' in the buy-to-let market. The average price of a new flat has fallen 17.2% across the country in the past 12 months.

Syndicates have been buying huge numbers of new flats in the past two years. It is claimed that as many as one in four of those built in 2004 were sold to such property clubs.

But a number of the schemes, which often promise to turn anyone into a property millionaire, have been wound up, casting a cloud over the sector. Now developers fear these investors will stop buying or decide to flood the market, thus driving down prices.

Dominic Grace of estate agents Savills said yesterday there were serious doubts about the credibility of some syndicates and warned of a 'dangerous wobble' in the market if schemes start to unravel.

Earlier this week, the Government wound up five syndicates which had taken up to £50,000 a time from investors then left many of them with nothing.

One operation, Practical Property Portfolio, was wound up last year, leaving thousands of members an estimated £100m out of pocket in total.

The Royal Institution of Chartered Surveyors welcomed the Government's action. Its vice-president Graham Chase said: 'When a property investment scheme or training course is offering easy access to vast riches, consumers should immediately look for the catch.'

Stuart Law, managing director-of one firm in the sector, Assetz, said: 'I urge the Government to crack down on the frightening numbers of cowboy investment companies still trading. They bring the entire sector of property investment into disrepute.'

A recent survey claimed as many as 250,000 homeowners have remortgaged in the past two years to buy rental property or join a syndicate.

A study by the Council of Mortgage Lenders said 20% of buy-to-let landlords derived a significant amount of their income from their portfolio.

For 11% it was their main income.

The number of complaints upheld against estate agents has jumped 25%. The Ombudsman for Estate Agents upheld 271 out of 5,500 complaints last year. However, these figures are regarded as just the tip of the iceberg.

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