Crackdown on buy-to-let

THE Government is seeking to close down six buy-to-let investment companies in the High Court today in a crackdown on get-rich-quick property schemes.

The Department for Productivity, Energy and Industry, formerly the DTI, is targeting companies that offer syndicate deals to residential property investors, usually advertised at 'free' seminars with the promise of creating property millionaires.

The DPEI is concerned investors are building up huge levels of debt and putting themselves at risk of negative equity by investing in the schemes. The department said it had the sector under heavy scrutiny and would seek to wind up companies it believed was duping investors.

The syndicates often seduce investors, many of whom are inexperienced in the buy-to-let market, with lavish seminars where they are offered new flats at a discount, usually before they have been built.

Many of the those targeted do not have the resources to pay for the flats and often have to use credit cards to pay deposits.

They also face the risk of negative equity as the price of new flats has floundered in recent months due to a softening housing market and over-supply. Around 56,000 new properties were built last year, but developers have been forced to offer generous incentives this year, including large discounts, cashback deals or free furniture, to help shift new builds.

Among the companies targeted by the DPEI are Sterling Mansion and Mansion Investments, which offered to help clients build up £1m property portfolios within a year for a fee of up to £33,000.

Turningpoint Seminars, another company potentially facing a winding up order this afternoon, operated £6,000 courses for potential investors. Other firms named are SMI (overseas), SM2 Services and Portfolios of Distinction.

The department said there are no plans to regulate the industry as there are already sufficient powers to shut down offenders.

Yesterday, the Financial Services Authority issued its first fine on a property-related investment promoted by a financial adviser. Courtover was fined £20,000 after it approved a 'misleading property advertisement' for the issue of unlisted shares in a company selling overseas residences and promising returns of 20%.