Manchester-based law firm Berg has warned that thousands of property businesses have been targeted by banks who mis-sold complex interest rate protection agreements known as “swaps”.
The law firm, which also has offices in London, has said banks were regularly selling swaps, which hedged against rising interest rates, to property businesses as a result of rising property valuations before the 2008 financial crash.
Berg said approximately one third of the 100 cases it dealt with for mis-sold interest rate swaps involved property firms, which suggests that banks were targeting these types of companies in particular.
Against its own experiences, the firm estimates that as many as 10,000 real estate companies across the UK may have fallen victim to mis-selling, while some experts have estimated around 80,000 UK businesses overall may have been affected.
According to Berg, banks frequently and aggressively targeted property firms and even brought real estate firms to businesses during the ‘boom’ years to increase their loan value ratio.
When the financial crisis hit, however, property firms did not have the sufficient funds to cover the fees imposed by swaps, which led to a decimation of the loan value ratio.
Swaps were presented as low risk products and hedged against the risk of rising interest rates. Massive charges were then imposed when rates were lowered to 0.5% by the Bank of England in 2009.
Among those affected was Manchester student accommodation provider, Opal Property Group, who has blamed an interest rate swap for its collapse into administration and debts of over £900m.
Alison Loveday, managing partner at Berg, commented: “It has become clear to us as the interest-rate swaps scandal has unfolded that property businesses were very deliberately targeted by banks.
“Many saw them as ‘dead certs’ for easy fees from these products because property valuations were rising.
“However, the financial crisis changed all that. The interest rate swap products imposed huge exit fees or breakage penalties on the businesses that had bought the swaps, if they wanted to refinance.
“Many companies did not have ability to pay these exit fees, and so they are stuck with the swap.
“This is one of the reasons why we are now seeing so many real estate companies going to the wall.
“The guidance from us to property firms is to seek professional advice immediately. We will investigate if there is a case for an interest-rate swap being mis-sold by a bank which if pursued could result in a significant damages claim and assist in opening up a dialogue with the bank concerned.”
Source: http://bdaily.co.uk/finance/19-04-2013/property-firms-targeted-by-interest-rate-swaps-warns-berg/
The law firm, which also has offices in London, has said banks were regularly selling swaps, which hedged against rising interest rates, to property businesses as a result of rising property valuations before the 2008 financial crash.
Berg said approximately one third of the 100 cases it dealt with for mis-sold interest rate swaps involved property firms, which suggests that banks were targeting these types of companies in particular.
Against its own experiences, the firm estimates that as many as 10,000 real estate companies across the UK may have fallen victim to mis-selling, while some experts have estimated around 80,000 UK businesses overall may have been affected.
According to Berg, banks frequently and aggressively targeted property firms and even brought real estate firms to businesses during the ‘boom’ years to increase their loan value ratio.
When the financial crisis hit, however, property firms did not have the sufficient funds to cover the fees imposed by swaps, which led to a decimation of the loan value ratio.
Swaps were presented as low risk products and hedged against the risk of rising interest rates. Massive charges were then imposed when rates were lowered to 0.5% by the Bank of England in 2009.
Among those affected was Manchester student accommodation provider, Opal Property Group, who has blamed an interest rate swap for its collapse into administration and debts of over £900m.
Alison Loveday, managing partner at Berg, commented: “It has become clear to us as the interest-rate swaps scandal has unfolded that property businesses were very deliberately targeted by banks.
“Many saw them as ‘dead certs’ for easy fees from these products because property valuations were rising.
“However, the financial crisis changed all that. The interest rate swap products imposed huge exit fees or breakage penalties on the businesses that had bought the swaps, if they wanted to refinance.
“Many companies did not have ability to pay these exit fees, and so they are stuck with the swap.
“This is one of the reasons why we are now seeing so many real estate companies going to the wall.
“The guidance from us to property firms is to seek professional advice immediately. We will investigate if there is a case for an interest-rate swap being mis-sold by a bank which if pursued could result in a significant damages claim and assist in opening up a dialogue with the bank concerned.”
Source: http://bdaily.co.uk/finance/19-04-2013/property-firms-targeted-by-interest-rate-swaps-warns-berg/
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