The British Property Fedration is convinced that the existing arrangements for the DTI to close down the worst buy-to-let investment syndicates is insufficient to protect consumers and the reputation of the wider property investment sector.

In a call for the Financial Services Authority to take a more proactive approach to regulating buy-to-let syndicates, Ian Fletcher, director of residential policy at the BPF said: "A simple internet search illustrates the phenomenal growth in the number of these syndicates."

"Picking off the worst on a one-by-one basis is a losing battle, which only protects those investors that have not already invested funds, and only affects those syndicates that have been formed as companies and not other structures."

"Consumers, who are primarily small investors, could be protected far better simply by getting the FSA to enforce existing rules on Collective Investment Schemes."

In current slower market conditions the BPF is also concerned with the lending criteria of some buy-to-let mortgage lenders. The Federation is therefore calling for the buy-to-let mortgage sector to self-regulate a minimum rent-to-interest cover of 130 per cent.

Fletcher explains: "During the phenomenal growth in the buy-to-let sector the vast majority of lenders have followed the prudent policy of not lending at ratios below 130 per cent gross rent to interest cover. Recently, however, we have seen ratios as low as parity being offered by some lenders in the national press, this at a time when market conditions are less favourable."

"We do not consider it prudent to be lending at levels which only cover lenders’ interest payments and leave nothing for when the property is vacant, for repair and maintenance, or letting agents’ fees. That is bad for the borrower and bad for the sector."

"The FSA has recently taken responsibility for regulating domestic mortgages. It seems unusual that buy-to-let mortgages are not also covered. We would normally prefer to see the sector self-regulate, but if it does not, it will only require secondary legislation to bring buy-to-let mortgages within the FSA’s control."

"…the activities of some buy-to-let investment syndicates, out to make speculative gains, in combination with some inappropriate lending policies, broaden the scope for misselling and ultimately scandal. Our proposals are easy to implement and we believe necessary to protect consumers and the reputation of the sector."

Some of the concerns:

Buy-to-let syndicates are responsible for acquiring large numbers of units in individual buildings. Some of the buyers are intending to let their flats and hold them as investments for the medium to long term, others are intending to try to sell on the units before they are completed and have to be paid for.

When a block of flats is completed large numbers of units become available at the same time. This can result in lengthy initial voids and lower than expected initial rents. An investor must factor this into their cashflow.

The speculative buyer is dependent upon either an investor or an owner occupier wanting to buy their unit at a higher price, so that the contract can be "sold on". Although all normal home buyers will get a mortgage offer before exchanging contracts not all speculative buyers do so. This exposes them to the risk that, if values do not rise and they are unsuccessful in selling their contract to someone else, they can be forced to complete, or sued for damages by the developer if they do not complete. It is not a matter of just "losing the deposit" as some buyers believe.

There is also no obligation on developers to reveal to individual buyers that part of the development has been bought by a syndicate. When individual buyers see ‘phase one sold out’ they often wrongly assume that it is as a result of many separate deals, rather than one syndicated deal. In the knowledge of such a fact individual home buyers/investors might make different decisions. The BPF believes there should be an obligation on developers and their agents to reveal bulk purchases.