Broker looking for funds to wrap mortgages

• Tweet

Tuesday 17 February 2004

One Auckland mortgage broker is looking to establish a co-operative type structure to provide funds for wrap mortgages.

By The Landlord

A few years ago, Auckland-based mortgage broking firm Financial Pictures had a number of clients involved in selling wrap mortgages, a type of rent-to-buy scheme. But in the last few years, more and more of the banks have become less and less willing to lend on such schemes and Financial Pictures has been losing clients, says the firm’s Daniel Feller. "It’s almost impossible to do wraps now," Feller says. He says he doesn’t know why, but it’s probably because of some negative publicity. "Two or three years ago, no bank would have had an issue with it." But Feller says there’s little difference between a wrap mortgage and getting near 100% finance to buy a car, which is commonly available. In fact, lending on a car is more risky because cars depreciate in ways that houses don’t.

The way wrap mortgages work is that an investor buys a house using a mortgage. They then sell it to someone else with little or no deposit who pays a percentage point or two on top of the original interest rate, getting in exchange an agreement to take ownership in, say, 30 years time. But if along the way the buyer defaults on repayments, the original owner keeps the title and any equity the buyer might have built up. It’s in the cases where this happens that the negative publicity has occurred.

Read More - Opens in a new window

Commenting is closed