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FACE THE FACTS
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Face the Facts
Transcript : Face the Facts - 25 July 2008
THIS TRANSCRIPT WAS TYPED FROM A RECORDING AND NOT COPIED FROM AN ORIGINAL SCRIPT. BECAUSE OF THE RISK OF MISHEARING AND THE DIFFICULTY IN SOME CASES OF IDENTIFYING INDIVIDUAL SPEAKERS THE BBC CANNOT VOUCH FOR ITS COMPLETE ACCURACY.

Face the Facts: Bye Buy-to-Let

Presenter: John Waite

TRANSMISSION: Friday 25th July 2008 1230-1300 BBC RADIO 4
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Promotional video extract
When it comes down to it no matter who we are our needs are very similar. Financial security is the basis for providing for our needs in so many areas of our lives. The money we need to enjoy a good standard of living, the ability to afford the holidays we need, the means to cover hospital and medical bills.

Waite
That's an extract from a promotional video for a company which claimed it could make its clients rich. The company's founder Jim Moore is certainly wealthy. A man who was once broke and working for a pittance says he ended up with the car of his dreams and a house to match. So how would he make his clients wealthy? Back to the promotional video.

Promotional video extract
In the United Kingdom there's one area of investment that has out performed every other area over the past 50 years - property.

Waite
Today on Face the Facts we investigate Inside Track Seminars Limited, a company which specialised in buy-to-let investment, whose website claims to have helped over a hundred thousand people to invest at least two and a half billion pounds in property and supposedly in the process created hundreds of property millionaires.

Promotional video extract
Consider that to own a £100,000 worth of shares you need to invest £100,000 but to own a £100,000 worth of property typically you need to invest just £10,000. Now if your shares went up by 10% you would have made a 10% return on your £100,000 but if your property went up by 10% you would have made a 100% return on your £10,000 investment. See the difference?

Waite
Yet the difference some of these investors have experienced is of seeing their hopes of a comfortable retirement income disappear. They feel they were misled about the true value of the homes they were sold.

Anne Brohn
Well here we are John at the back of our property in Brighouse. It gives the feel that you're actually in the countryside because there's a lovely little babbling brook just down by there, all the leaves and trees are absolutely beautiful.

Waite
Well it is a special spot isn't it.

Anne Brohn
It's a very special spot indeed and ...

Waite
Look at all the ferns and all the trees ...

Anne Brohn
I know and you can hear the water can't you.

Waite
And here we are but it's in the middle of Brighouse - it's so quiet.

Anne Brohn
I know, that's exactly it and the main road is just far enough away I think - you can't hear the traffic or - all you can hear is all this lovely water.

Waite
Maurice and Anne Brohn from Manchester bought two flats via Inside Track in June 2005 - one in Florida and the one I visited in Yorkshire. Not to live in but to rent to tenants to provide the retired couple with an income.

Anne Brohn
We thought that this was the ideal way of doing it rather than investing it in the money market we just thought that this would be more of a challenge, much more fun to be involved with.

Maurice Brohn
I think most people are aware that over the decades property's always gone up in value. So it made sense.

Waite
But it didn't turn out like that.

Maurice Brohn
Well the American one the alarm bells were ringing because initially you had to put - have a deposit in a US bank of say $10,000 to cover the first six months. Well that just went very quickly and then we realised, as the time was progressing, we were just having to feed it and feed it and feed it because the rentals just weren't covering the mortgage payments.

Anne Brohn
The American one, John, was - we invested in that because that was a holiday let in a popular Orlando resort, obviously ...

Waite
And you were led to believe it was going to be easily lettable?

Anne Brohn
Exactly and it then transpired you never got 365 days rental. If it was a 100 days you were lucky.

Waite
And the Brohns haven't been much luckier with their Brighouse flat, even though it's been easier to let all year round than their Florida investment. Although it was suggested the Yorkshire property would realise a monthly rent of between £500 and £550 the most rental income it has ever generated is £475. Once the Brohns have paid a letting agency its fee they're left with less than £420 which doesn't even cover their monthly mortgage outlay of about £525. So far from getting richer the Brohns are actually getting poorer.

Anne Brohn
All our money's been eaten away and it's resulted in - we've just lost our house, we've just had to sell our house. We lived in a very nice part of Manchester - four bed detached house - in a very nice area and we've had to sell it and we now live in a rented property.

Waite
The couple have also been forced to cut their losses and sell the Florida apartment for $130,000, around £33,000 less than they paid for it. It's a situation which makes the get rich tone of the promotional material of Inside Track, the company which persuaded the Brohns into buy-to-let in the first place, ring a little hollow.

Extract from Inside Track leaflet
Do you think the purpose of life is to slave for 45 years, pay off a mortgage on some pitiful little house and then huddle in front of a one bar electric fire struggling to make ends meet? I don't know whether to laugh or cry at people's complete lack of financial savvy. They're heading for a lifetime of drudgery and lack and a poverty stricken miserable old age.

Waite
An extract from an Inside Track leaflet in 2006 which earned the company a reprimand from the Advertising Standards Authority for exaggerating the ease of making lots of money from property.

Robert Hole
We felt that it was a good idea because it would bring us in a certain amount of income and that would obviously be a good idea when we were in retirement, as we are.

Maria Hole
We quite like travelling and of course we were hoping that we could actually travel in comfort by having a little bit more income. In fact it turned out to be not to be so.

Waite
Robert Hole and his wife Maria from West London bought three properties in Yorkshire via Inside Track - a flat in Leeds and two others near by - between October 2004 and February 2005. None of their flats bring in the rents the couple were led to believe they would. In the case of one of the flats the monthly rent is nearly £300 less than they'd been told to expect.

Robert Hole
They suggested that we should be able to get figures which were completely unrealistic. And that's why when it comes down to it you haven't a hope. And the worse thing, in a way, was that these were not said to be estimates or guesses, these were said to be comparables with other incomes from other equivalent places in the same areas.

Maria Hole
At the moment all three of the properties together we're losing about £500 a month and that we have to find from elsewhere to cover the mortgages.

Waite
Like Maurice and Anne in Brighouse Robert and Maria bought off plan via Inside Track, committing before the homes were completed and without ever having seen them for themselves.

Alastair Stewart, building analyst with bank Dresdner Kleinwert says both couples fit the profile of a new generation of buy-to-let investors.

Stewart
They really took off about five years ago. The number of buy-to-let mortgages increased significantly mainly with a lot of amateur buy-to-let people coming in first of all, typically they tended to buy one a year maybe but when it really, really took off it was fuelled by the rise of so-called investor clubs and they really did grow like topsy for quite some time. And Inside Track was probably the most high profile of those.

Waite
Indeed, we have come across over 40 cases of people who feel they were misled. In one case the owners of 25 flats in a single development in Manchester have clubbed together and are hoping to make a legal claim. The common complaint is not just that the rent suggested their investments would earn were too optimistic but also that the properties they bought were overpriced. For instance Maurice and Anne's Brighouse flat that I visited was originally priced at £142,000 but offered to them at a special discount of £125,000. Two estate agents independently told us that their flat would only have sold for around the discounted prince in 2005 and never the supposed full price.

So how were intelligent professionals persuaded to place their faith in the buy-to-let property market.

Maurice Brohn
Well initially we received a mail shot for a free seminar, two hour seminar, and it was held up near Accrington in Lancashire. We went up there - and it was free - it was very well presented and it extolled the virtues of buying property as an investment.

Waite
These seminars were the key to the Inside Track operation. After that free seminar those attending who were interested in learning more paid around two and a half thousand pounds to go to a weekend seminar at a nice hotel where they would listen to a series of talks on the virtues of property investment. This is a recording of one such seminar in 2003 and the man speaking is Inside Track's founder Jim Moore.

Inside Track seminar
One of the things that we're going to talk about this weekend - it's very, very important for you to make money in this - is what we do is extremely, extremely unconventional - okay? Everything we do - a lot of the approaches that we've got to property extremely unconventional. Does that mean it doesn't work? No it doesn't. Does that mean there's anything wrong with it? No it doesn't. Does that mean you can't be successful? No it doesn't. But you know what we do? We're going to teach you this weekend to take all your - all your perceptions of property in the way that you see it, the way you normally used to imagining that you've got to buy property Peter or get involved in property and we're going to show you how we can turn that sideways, on its head, upside down, you can go under it, over it, through it. About the only way you'll probably not go kiwi is the way you were going to go in the first place.

Anne Brohn
The atmosphere was great, it was very Americanised and I've been to all these sales training where they throw their arms about and they say you're an idiot if you don't do it, you can't miss this opportunity because it's just so good and look we're so successful and I personally have got all these properties all over the UK, I haven't seen seven eighths of them but I leave it to such a person to look after it for me and the rent just rolls in.

Inside Track seminar
What do we know about property again? It always goes up over a period of time. Question: In the last hundred years well there have been a lot of changes in the property market Mick do you think? Absolutely no question and in spite of the changes it's still gone up and up and up and up and up David hasn't it?

Maurice Brohn
People getting excited, you know and it all made sense and they had everything to hand - they could source you the financing, they could source the properties eventually at discounts, they could source you the legal side of it. So everything added up.

Inside Track seminar
This wealth plan is predicated on something that just is there and exists - property. You see it, you buy it, done, market carries on. Makes sense - that's the great thing about it. So it's easy but not simple.

Waite
One of the features of these seminars was the presence of so-called cuddlers - people paid by Inside Track who helped sell the idea of investing in buy-to-let by mingling with the paying visitors. Nick Tadd worked as one.

Tadd
During the breaks when the power speakers weren't speaking then it was down to the cuddlers to sort of do their bit and chit chat away with them saying this is great, this is what we've done, this is what we've done so far, this is where we're going, this is our goal, this is how we structured our portfolio so to speak and of course it's incessant - it just goes on and on and on and on. What happens is you're going through 48 hours of intense - not pressure so much as intense learning and intense enthusiasm. And of course by the end of it you'll pretty much buy whatever's put in front of you because that's what you're just enthused to do that. It's like they're in trance really, the people left there in a trance, it was like I don't believe it - I never came here with the intention of buying a million quid's worth of property and they ended up walking out on Sunday afternoon after doing it. If you're going to buy a new car you go and test drive a few and then you go and have all the deal and you go home and you think about it and you go back and do ... that's how normal consumers work isn't it. However, it's rather perplexing that on a Sunday afternoon you might go and sign yourself away to a million pounds worth of property without even seeing it.

Waite
Also in between those sessions by those power speakers came the chance to reserve a buy-to-let property of your choice usually at a so-called discount price, providing buyers singed up that very day. The purchase was not actually organised through Inside Track Seminar Limited, which technically was responsible only for the seminars but through a sister company - Instant Access Properties Ltd.

Anne and Maurice Brohn, who we heard from earlier, paid a fee of over £4,000 to reserve their £125,000 flat in Brighouse.

Inside Track went into administration last April blaming the credit crunch for its demise. But Instant Access now stages its own seminars and I went to one, undercover, last week in Kingston-upon-Thames in Surrey, to see if there were any similarities between what those investors, who feel cheated say about Inside Track seminars, and those currently being staged by its sister enterprise.

A consultant I and a colleague spoke to there told us about a two bedroom flat available in Clapham in London which would be built by 2010.

Waite
The two bedroom, yeah, well I'm quite interested in that.

Abbott
What's a two bedroom flat ...

Marketa
Around £300 - sorry £414,000 - around that price. There is 15% which our team managed to negotiate as well.

Abbott
So you end up paying how much?

Marketa
Around £352,000.

Waite
So that's a 15% discount is it?

Marketa
That's right, that's right.

Waite
So it brings it down to ...

Abbott
It seems like quite a good discount.

Waite
Yeah, 414 down to 352, yeah that's a good discount.

There was little evidence of the razzamatazz of those earlier seminars we heard about but I decided, anyway, to put those valuations to some estate agents in Clapham. Instant Access said I could get the flat at a discounted price of £352,000 but that it was actually worth over £414,000.

Wells
My name is Catherine Wells, I work at Kinleigh, Folkard and Hayward in Clapham. In light of current market movements I think the prices do seem incredibly high, what they're looking for, even the discounted prices seem slightly over the top to me today. The valuation I put on the property today would be between three two five and three three five.

Lampert
My name is Gavin Lampert, I am the branch manager of Bairstow Eves Estate Agents in Clapham. There appears to be no market evidence to justify the current asking prices. I think you're looking towards £300,000 for a two bedroom flat.

Thompson
Hello my name's Tania Thompson, I work for Douglas and Gordon in Abbeville Road. I am one of the senior negotiators here. I think four fourteen is probably quite a high price, £350 I think is definitely a realistic value. We sold one last year very close to the new development that went for three three five. This year we've got one under offer on St Luke's Avenue and that got three ten.

Waite
If those estate agents are right, and it's difficult to know what property prices will be in two years time when the flats are finished, there may be more disgruntled investors who'll find they're out of pocket.

One man, who has managed to get some financial redress for money he intended to invest in the buy-to-let market with Instant Access is Simon Bunce. At one of their two and a half thousand pound seminars in 2004 he reserved a waterside apartment in Gainsborough in Lincolnshire off plan or as it turned out in his case no plan.

Bunce
A couple of days after the seminar had completed I was in Lincolnshire on business and I visited Gainsborough, just to check the town out. And I found the disused property that they were going to knock down and redevelop and I noticed there was no building work and no signs up and I thought that was a little strange.

Waite
Even stranger was Mr Bunce's subsequent conversation with the planning department of West Lindsey District Council. They told him that the planning application for the development had been withdrawn, yet Instant Access Properties had clearly stated that planning permission had been granted. The council says it finally gave permission in 2005 but that was several months after Mr Bunce had been assured that the development would go ahead.

Bunce
At that point I realised that they were trying to sell me something that they weren't able to build. I immediately contacted the company and asked for my money back and it took about a year before I received my settlement.

Waite
That was only achieved, however, by threatening legal proceedings against Instant Access Properties Limited, though the company finally settled out of court.

So what do we know about Inside Track and its sister company Instant Access Properties? Inside Track Seminars starting operating in 2003, based in an office in Kingston-upon-Thames in Surrey, although it was under the control of a "Foundation" registered in the Panama Republic. Anthony McKay is named as a director, he's also director of four other companies based at the same address, including Instant Access Properties, where he's group managing director. We asked him to answer the criticism that Instant Access and Inside Track had presented a one-sided view of property as an investment, that projected rents presented to would be investors were overly optimistic and that properties were overvalued. And were those highly charged seminar the right place to make cool investment decisions? Weren't these gatherings just a form of pressure selling?

McKay
It's very difficult to believe that people can be pressure sold properties. They come along to an educational event, the educational event leads them right through the process, talks about risk, talks about a whole host of different things and the fact of the matter is is they still have to take their own individual advice, they still have to take professional advice, they can reserve a unit or they can take papers home and then reserve a unit, at which stage there's a legal process that will take anywhere up to four weeks or 45 days overseas in which they have a legally binding contract that they exchange with the developer.

Waite
But what about the atmosphere created at these seminars?

McKay
The atmosphere created is as a result of people wishing to acquire property and as a result of us wanting to sell them property but the right property on which due diligence is carried out and on which we recommended those investments whilst not guaranteeing anything but providing with them a lot of information so that they can invest sensibly.

Waite
Is it sensible? I mean we've spoken to Nick Tadd for the programme, one of your cuddlers, and he said people were like - almost in a trance, he said, they tended to float out on cloud nine and even he said well you just wouldn't buy such large investments under such circumstances anywhere else.

McKay
The fact of the matter is is our clients leave those seminars with a whole host of knowledge, they then have an eight day cooling off period in which they can pull off. They then have a period of time between the reservation of the property and the exchange of the property which can take anywhere between four and six weeks or longer at which stage they're not legally obliged to complete anything, they've got an offer that they've made on a property.

Waite
But I mean property values and rent predictions are very difficult to gauge with any accuracy and what we're led to understand is that they were inaccurate.

McKay
We always have an RSCS valuation carried out on property before it is sold, not an estate agent because we all know estate agents will value properties as they see it, depending on what they've got on their books at that time because they're driven by the fact that they wish to sell a property at that moment in time.

Waite
Well they're driven by the market and they're the experts for the locality and obviously when you come to sell that property its price will be driven by the market, you don't use estate agents.

McKay
If they were the experts in the market why would mortgage brokers use registered chartered surveyors to value their property for mortgage purposes?

Waite
And I mean I came along to your Kingston offices and was told about a property in Clapham worth apparently £414,000, nearly £50,000 cheaper, I could buy it, because of your special discount but when we checked with local estate agents they all said, even with that £50,000 off, that was still overpriced.

McKay
As I said the estate agents tell you what a property is worth, what they think they can sell it at ...

Waite
But they were all agreed about what it was worth - they are the local estate agents, they should know shouldn't they?

McKay
Well if they should know why don't mortgage brokers and lenders don't use estate agents, they use chartered surveyors. In respect of the Clapham deal I know it was valued by a member of the Royal Institute of Chartered Surveyors because that's what we do before we market it.

Waite
Because we've heard from people making this programme that when they checked up on properties they bought with the local estate agents they found that they had been overvalued from the start and would never have achieved that price that you said they were worth.

McKay
John, I think that's the difference is that you're talking to an estate agent whereas we use Royal Institute of Chartered Surveyors who look at a number of things - those things include deals that are done, those things that include reference to land registry and the prices that are going in the market at that moment in time. It's not driven by what an estate agent thinks he can sell a property at because he will determine what he can sell a property at by what is listed on his website or what he may have available in his shop floor.

Waite
And what about the rental incomes? I mean we've met lots of people who've never achieved anything like the rental incomes they were led to believe they would receive.

McKay
The rental incomes, in addition to what is carried out with the chartered surveyor, we also then go to the markets with rental incomes and we find out from local estate agents, from local surveyors ...

Waite
Oh so you use local estate agents in this case?

McKay
Rent is quite a different market than capital values ...

Waite
How so?

McKay
.. because there's a lot of private rental, it's very difficult to get - I rented that flat for x - because no one really tells that information. But what we do is we go to estate agents in respect of rental, we'll go to surveyors in respect of rental and we'll get a whole host of comparables across comparable schemes so that we can say yes that unit is valued at x with respect of rental income.

Waite
And what about the man we've heard from on the programme who bought a property on which there was no planning permission?

McKay
John, you know how the planning process works, there is a lot of meetings held with planners about whether things are going to go through or not ...

Waite
It's a protracted process, so you don't cut it short by saying well we think it's going to get planning permission, yes it has, go ahead, where's your money.

McKay
Absolutely, absolutely.

Waite
But that's what happened.

McKay
But at the time when we were looking at the property we understood that the planning process was finished and it was going through.

Waite
Well no at the time, because he checked with the local council, the planning application had actually been withdrawn.

McKay
Because there was a subsequent application going in.

Waite
Yeah but it had been withdrawn, so not only was there not planning permission there wasn't even a planning application.

McKay
But subsequently to that the construction has gone on.

Waite
But I mean don't you owe a duty of care to these people we've heard from on the programme who feel they've lost out due to the over-inflated values, whether it's property or rental incomes, that this company provided for them?

McKay
John, property - if you had had gone the whole educational process, and unfortunately you didn't go the whole educational process, because it talks of the risk and about property being medium to long term investment. Yes the property market is tough at the moment, there's no question about that, and a number of clients are supplementing their investment portfolios by contributing extra income to them or extra capital to them. But in the medium to long term the property market in this country will be absolutely fine because of the imbalance between supply and demand.

Waite
Well what about those people who can't wait for the medium or long term because they're losing so much money now?

McKay
But our seminars talk about a 7 to 10 year time span of property. Our business was established in 2003 and as far as I'm concerned 7 to 10 years hasn't yet expired. Yes the market is tough and we're working with our clients and trying to assist them by looking at different ways they can finance their portfolio and different ways that they can work their portfolio through and yes we've sold 20,000-18,000 properties to 20,000 clients, we're going to have complaints and I'm sorry about that, I'm sorry about each and every one but we'll do our darndest to help them if they're getting - if they've got trouble and we need to see through the situation.

Waite
Anthony McKay.

There's no evidence that Inside Track has broken the law and none that it has broken industry rules because there are no rules for buy-to-let investment clubs. The market is completely unregulated. Liberal Democrat Shadow Chancellor Vince Cable says that has to change and he's critical of the Financial Services Authority for failing to take up the regulation of what he calls this important market. For its part the FSA told us it cannot regulate a new market without being told to do so by the government.
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