Bradford and Bingley is taking legal action against solicitors who, it alleges, encouraged buy to let investors to practice “same day remortgaging” and thereby reap quick profits.
Same day remortgaging happens when investors buy property from sellers who are under financial pressure to agree to a quick sale, or developers. The investor buys at below market value and then remortgages the property at the same time at the property’s open market value, thereby banking an immediate profit. Buy to let investment clubs keenly promoted this type of loan, and the bank alleges that solicitors acting for these buyers failed to follow anti-fraud guidelines by omitting to disclose crucial information to the mortgage provider.
Bradford and Bingley, nationalised in 2006 at the height of the financial crisis, has accused some solicitors’ firms of keeping information from Mortgage Express, its buy to let mortgage provider, who then accepted the loan applications in circumstances where the provider might otherwise have refused. Mortgage Express stopped offering the loans in 2008, but not before “countless property millionaires had been made”, according to Simon Zutshi, who recommended the loans to other property speculators before they were withdrawn.
Not all players in the market were happy to be associated with these kinds of deals. David Whittaker, a broker at The Mortgage Business, said that his company refused to offer same day remortgages. “Lenders and solicitors knew exactly what was going on,” he said. “Some firms had very big business in doing them. It was bound to unravel.”
The bank has stated that it will pursue firms where it believes that there has been a breach of the CML Handbook or its own lending policy, for example where solicitors have not revealed to the bank that the property has been purchased less than 6 months before the remortgaging. The bank believes that its potential losses will include the costs of repossession if borrowers default and the shortfall on its mortgage advance, as in most cases the value of the loan far outweighs that of the property.
We do not know which firms may be involved.