EXCLUSIVE: Property investment firms will go bust
She claimed that since property investment – which includes buy-to-let – is largely unregulated, the balance of power is skewed in comparison to the pensions market, as advisers from property investment firms are able to make outlandish claims regarding house price growth.
In the March Budget the government announced that pensioners will be able to withdraw their pension funds flexibly from April 2015.
But Faulkner said: “[Property investment firms] will all go bust. They think property prices will go up forever.
“They can say the consumer is ‘guaranteed’ a certain amount of income because they are unregulated while the pension guys aren’t.
“I think anybody giving buy-to-let mortgage advice has to be able to assess property investment versus the needs of that person.”
Faulkner compared the situation to the £200m banking mis-selling scandal, effectively predicting a repeat.
David Whittaker managing director of Mortgages for Business agreed and added: “These property investment clubs are the underbelly of the mortgage industry.
“This is a totally unregulated part of the market. If it looks too good to be true it probably is too good to be true.”
But Ray Withers, chief executive of property investment firm Property Frontiers, reckoned that while Faulkner’s comments would have been valid prior to the recession, firms offering poor advice have now largely been weeded out.
He said: “The dynamics are different today. The shady firms that made unreasonable promises and the clients that went for it have largely left the market.
“It might not be regulated but, in the UK at least, the legal process means that investing in property is very open.
“That is perhaps part of the reason people invest in property so regularly; despite regulation the pensions and regulated investment market is very opaque. People are mistrustful of it and that pushes them towards property.”
Withers also dismissed the view that property firms can have such a sway on people.
He said: “In my view people decide of their own volition that they want property to form part of their portfolio. They are rarely persuaded into it by a property firm.
“People have their own view on the property market and they seek out a property that best suits them.”
In 2006 Withers co-founded self-regulatory body the Association of Property Professionals, in his own words to “try and bring some regulation into the marketplace”.
Simon Zutshi, founder of Property Investors Network, felt Faulkner has a case, but only in rare instances.
He said: “We would welcome it if there was regulation as often companies make false promises and don’t deliver what they promised to do.
“However we believe it is important not to tar everyone with the same brush. We have an excellent reputation in the industry.”
Faulkner added that based on returns, the property market is not as hot as some people think.
She said: “My analysis says capital growth in property is not too bad when you’re talking 25-years plus, but for the next five or 10 years it’s not quite as rosy as people make out.
“I don’t think lenders have an appreciation that property prices are not going to go up necessarily as much as they have in the past.
“Your rents and property price rates have to beat inflation and neither prices nor rents are beating inflation.”
But Withers added: “The fact is that property, in many areas, is undersupplied and so reasonable yields of 5% to 8% and capital growth are realistic expectations that investors have.
“Whilst that exists there will be property investment firms to service their needs.
“If the government built half a million new homes and the regulated investment industry cleaned up then they may well be a lot less property investors around.
“I don’t see that happening and so reputable property investment firms will continue.”