Banks face £15m shortfall on buy-to-let portfolio
A PAIR of banks are facing a shortfall of almost £15m on loans made to three companies which owned 305 buy-to-let properties in Lancashire and West Yorkshire, according to a new report.
The Burnley-based businesses, Manorcliff, Manorcliff Properties and Wayford Investments, were all placed into administration on October 2011. They were all owned by either jointly or individually by directors John Mulcahy and Michael Stone, and effectively traded as a single business.
Since 2003, the group had snapped up properties along the M65 corridor which were then let either to tenants on housing benefits or to the properties’ former owners through sale-and-leaseback schemes.
According to a new report by joint administrators Bill Dawson and Matthew Smith from Deloitte, the group grew quickly and in October 2006 it agreed a new £25m financing deal with Bank of Scotland secured via mortgages on 274 of the properties. Some £20m of the cash was drawn down immediately to finance more property purchases.
The bank also had a floating charge on the rest of the company’s assets, but 32 of the properties were mortgaged separately to Northern Rock, which was owed around £2.2m.
The report states that the ensuing property crash led to a “significant” decline in the value of the company’s portfolio.
“A factor contributing to this depression was the lack in geographical diversity, exposing the portfolio to regional fluctuations in property demand,” it adds.
This eventually led to the appointment of administrators in October last year, although they have retained the company’s staff and are continuing to trade it as a going concern – particularly since 95% of the properties remain occupied.
However, a statement of affairs prepared by the group’s directors estimates that administrators are only likely to recoup around £10m from the sale of the properties, leaving a shortfall of around £15m to its lenders.