Business Law: Victoria Spellman on how a foreign property investment did not prove as safe as houses

Victoria Spellman of Gotelee Solicitors

Victoria Spellman of Gotelee Solicitors - Credit: Archant

WHILE foreign property investments have been popular, some investors have been victims of financial mis-selling. However, a recent case may improve the chances of being compensated.

Foreign property investments were usually sold as low risk “arm chair” investments, ideal for prudent investors who wanted to bolster their pension fund. The bubble burst with the onset of the global recession and the collapse of various foreign property markets.

Each foreign investment scheme has its own nuances but, broadly, the investor is presented with a “can’t lose” opportunity to invest in a foreign development. The developer needs funds to build the scheme and offers the opportunity to invest in properties with a rental guarantee and other incentives and tax breaks.

The investor takes a mortgage to purchase the property, assured that the guaranteed rental will cover the repayments. The mortgage funds are drawn down by the developer to fund the development.

It sounded attractive, but then the recession took hold. Property prices fell, developers went bust, rental income plummeted and rental guarantees evaporated. Those “safe as houses” investments crumbled. Investors were left with a sizable mortgages and, usually, negative equity.


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In many cases investors were not informed of the investment risks. When concerns were raised they were brushed aside. Sometimes investors were not just negligently advised, but were actively misled. In short, a lot of investors have a mis-selling claim. If the adviser has professional indemnity insurance or sufficient assets to satisfy the claim then it is worth pursuing the advisor, but what if the advisor is uninsured and broke?

Small businesses and individuals may be able to claim under the Financial Services Compensation Scheme (FSCS). The FSCS is a compensation fund for customers of authorised financial services firms. Historically, such compensation was relatively low but the recent case of Charmaine Emptage v FSCS should have improved matters.

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Ms Emptage wanted advice on early repayment of her mortgage of £39,633. She was negligently advised to take a larger £110,000 interest only mortgage, repay her original mortgage, use the balance to buy a Spanish investment property and generate income to cover her new mortgage repayments. Unfortunately the Spanish property market collapsed and she was left with an increased mortgage which she could not pay.

FSCS upheld Ms Emptage’s claim but awarded just £11,522. This was successfully challenged and resulted in a higher award as it was found that the FSCS should have provided compensation to return her, if possible, to the position she would have been in if the negligence had not occurred.

: : Victoria Spellman is a partner at Gotelee Solicitors. If you think you may have been affected by financial misselling, please contact Victoria Spellman or Howard Catherall.

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