Live and Buy-To-Let Die

Leeds buy-to-let boss defends controversial scheme:

Property magnate Simon Morris has defended himself over his controversial buy-to-let schemes and vowed he’s done nothing wrong.

Dozens who bought properties from SRM Holdings subsidiary Morris Properties claim they were sold at inflated prices and then they failed to cover monthly mortgage repayments and the homes were repossessed.

Attempts to cut losses by selling the properties showed some had depreciated by up to £100,000 [!!]

The article itself offers a fascinating insight into the world of greed and bubble-blowing that much of Leeds has existed in over the last few years:

The Morris Properties business model was to buy homes, renovate them, then offer them for sale as a buy-to-let investment where tenants’ rent would cover monthly mortgage payments.

Buyers were offered an incentive – if they could secure an 85 per cent buy-to-let mortgage, Morris Properties would “gift” them a 15 per cent deposit.

By 2004, it was selling around 200 properties, mainly in the student areas of Burley, Woodhouse and Hyde Park, and netting £10m in profits a year. But the incentive scheme led to accusations the properties were overvalued.

It’s worth considering that last sentence for a moment and then asking what it means for something to be “overvalued”?

Firstly, we need to distinguish between a thing’s ‘value’ and its ‘price’.

The ‘value’ of something is a relative measure, relying as it does on an individual’s personal assesment of that thing’s worth at a given moment in time (and space, if you want to get pedantic).

So were properties ‘overvalued’ in Leeds in 2004? Well, in hindsight, of course they were. But given the UK culture was in the grips of a property investment obsession  – fueled by shows such as Propety Ladder,  Location Location Location, etc – you can hardly blame Simon Morris. Yes, he opportunistically exploited the situation – but that was his job, and that is (unfortunately) how this ‘system’ works.

So, we come onto the more meaningful question: were the properties ‘overpriced’? And the answer is obviously ‘No, not if people were willing to stump up the cash for them”.

Now, it is argued that one of the reasons that people were willing to accept these prices is that there were ‘incentives’ to be had (read: they thought they were getting a bargain) but in order to get the most of this offer “the company advised customers to use lawyers it recommended”!

So what the system essentially boils  down to is a form of Greed Tax. Some people in this city were apparently so overcome by the prospect of making some easy money by investing in property that they failed to smell a large (though sharply-dressed) rat.

You would think that for most people alarm bells would start ringing upon finding out that the level of incentive they were offered was contingent on them using a certain lawyer – but it would seem that warning chimes seems they were mistaken for ‘ker-chings!”. If love is blind, it seems greed is hopelessly myopic.

As for Morris himself, well he “remains defiant” :

“If things went wrong after I bought a property – for which I had all the time in the world to do the due diligence, as well as the choice not to buy – who would I blame? I would blame myself.”

Which, though Tiberius realises many won’t appreciate hearing it,  is all too true.

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Published in: on April 13, 2009 at 11:34 pm  Leave a Comment  
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