UK Lenders face £15m shortfall after buy-to-let firm collapses

Bank of Scotland and Northern Rock are together facing a shortfall of almost £15m on loans made to three buy-to-let property companies which have since gone into administration.

Between them, they own 305 buy-to-let properties in Lancashire and West Yorkshire. The properties, along the M65 corridor, had been bought since 2003 and let either to housing benefit tenants or back to their former owners on sale and rent-back schemes.?

The Burnley-based businesses, Manorcliff, Manorcliff Properties and Wayford Investments, were all placed into administration last October. The firms are continuing to trade, with 95% of the properties still occupied.

The firms had all been owned, jointly or individually, by directors John Mulcahy and Michael Stone, and effectively traded as a single business.

According to a new report by joint administrators Bill Dawson and Matthew Smith of Deloitte, the group had expanded quickly as the property market boomed.

In October 2006, the firms agreed a £25m financing deal with Bank of Scotland, with mortgages on 274 of the properties. Some £20m was drawn down immediately to finance more property purchases.

A further 32 properties were mortgaged separately to Northern Rock, which is owed around £2.2m.

The administrators’ report says that the ensuing property crash sparked a significant decline in the value of the company's portfolio.

The administrators now say that they are only likely to recoup around £10m from the sale of the properties, leaving a shortfall of around £15m to the lenders.