A property developer has won a High Court case against property investors forcing one to pay £133,000 after they backed out of an agreement to purchase flats “off plan”.

The High Court, in Bristol, has ordered the person to pay a whopping £133,282 in damages, costs and interest to Plymouth’s Prestige Homes South West Ltd, after pulling out of a deal to buy two Zero 4 flats in Plymouth.

This is one of a number of cases that this property developer is pursuing against people who paid deposits on a number of flats but then walked away from the deals once property prices started to fall.

It would appear that in addition to deposits being paid, contracts were exchanged on an “off plan” basis.  This was common practice during the height of the property boom where investors were agreeing to purchase a property (often at a discount) before the development had started.  The property developer would then secure ongoing finance against the security of knowing that the sales would complete.

The challenge for the hapless investors was that the property values were declining, loan to values were following and many of them were faced with no option other than to pull out of the deal.  Sadly for them, once you have exchanged contracts you are committed to the sale and liable for consequential loss if you fail to complete.

This is not the only case of its kind, among the developers reported to have filed claims are Ballymore, which has lodged more than 130 claims, Trelford Homes, which has filed 50, and Imagine Homes which issued 40 before it went into administration.

There appears to be two types of purchaser affected by this situation; the would be homeowner and the property investor.

However some would be purchasers are putting up a fight. One group has formed the Berkeley Homes Collective. They say they are private purchasers only and that they were ‘mugged by slick sales staff’. They claim Berkeley Homes used “high-pressure sales techniques”.

This could well turn out to be a tough lesson for property investors, one that could end up with many resorting to bankruptcy.

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Anyone who has a Commercial Mortgage will (or should) be familiar with LIBOR.  So they should also be quite pleased that LIBOR has reached a record low.

LIBOR is the rate which determines the cost of most commercial mortgages and many other forms of borrowing.  The rate coming down may bring good news in that interest rates on mortgages and other loans may follow suit.

Having said that, a recent Moneyfacts article reported that:

On an unsecured loan the rate is set at outset and repayments are fixed. Most secured loan repayments move with base rate or LIBOR, but despite being in a low interest rate environment the average rate has increased from 9.9% to 12.4% in the last two years

Just before things started to go badly wrong some of the independent Commercial Mortgage lenders were starting to offer variable rate mortgages.  Good example would be Commercial First – although they have shut-up shop for new business they had a significant market share of small commercial loans.  Many of the later loans were sold on variable rates.

Anything that reduces outgoings for businesses right now is going to be good news, but anything that gives banks good reason to start selling commercial mortgages again is going to be even better news.

Sadly, the majority of Second Charge loans (homeowner loans) were sold on fixed rates – at the peak of the property boom Second Charge loans were being sold at an incredible rate, and by a market that faced no significant regulation.

Second Charge loans on homes are very often linked to LIBOR ( which often comes as a shock to homeowners) and are notoriously slow to change with the main rate – if at all.

Are you on a LIBOR loan? – have you seen a change in rates?

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