Many people aspire to own their own property.
Due to this desire, many banking and investment institutions have engaged in lending practices that could, at best, be described as unethical.
Some may even believe them to be involved in housing fraud.
THE PROPERTY BOOM
There are some suspicions that the recent property booms, seen both in the UK and the US, were created, in part, by loan companies and banks who were looking to cash in on the lucrative mortgage market.
With ever-increasing property prices, that showed no signs of abating, many aspiring homeowners felt inclined to do whatever it took to get their feet onto the property ladder.
With the increase of property prices rising far quicker than inflation, and offering returns far in excessive of many other investment options, many people were quick to sign up for interest only mortgages, and other unethical schemes.
They hoped to make a quick, and substantial, profit.
The reality, however, may be somewhat different.
TRAPPED BY NEGATIVE EQUITY
Interest only loans, often coupled with high arrangement fees, leave those that took advantage of them in the position where they can typically only afford to pay back the interest.
Month after month, the outstanding capital balance remains the same.
Obviously, if housing prices had continued to rise rapidly, then a healthy profit could still be made from selling at a later date and benefiting from any remaining equity left after the principle sum had been repaid.
However, when the market crashes, as it may well be doing right now, the victim of this housing fraud will find themselves paying a loan for the rest of their lives.
This loan may well end up being secured on a property which is then valued at far less than the value of the mortgage.
Such negative equity can then lead the victim into a position where they are trapped and cannot move.
THE NEVER-ENDING LOAN
With such high interest rates on these types of mortgages, they are then trapped in a situation where they are paying through the nose for a home they will never actually get to own.
Additionally, having such a large credit burden may prevent them from sourcing funding from other lending firms and may even lead to poor credit ratings.
The housing market fraud is designed in such a way that the only people who consistently make profit from it, whatever happens in the property market, are the banks and other lending institutions.
Personally, I would never obtain a 100% or interest-only mortgage as it poses too big a risk.
By being careful, I have managed to keep an affordable roof over my head, despite getting divorced.
On the other hand, if you don’t take risks, you will never make big profits.
Have any of you reading this made a big profit, or a huge loss, by utilising interest only mortgages?