Somebody from Castle Trust left a comment on a post from yesterday and an email exchange ensued. I asked whether I could publish their response on my blog and they agreed.
They said: "Castle Trust uses the returns from Partnership Mortgages to pay HouSA investors returns greater than the Halifax House Price Index" [Their website states: "Income HouSAs provide a fixed quarterly income as well as giving you full access to house price returns" which I think is pretty crystal clear]
I responded: "I'm now even more puzzled - your website says that the borrower doesn't pay anything until the house is sold or 25 years later, so how will you pay a fixed quarterly income to investors? Where does this money come from? New investors?"
They responded: "Castle Trust will keep 20% of all investments through HouSAs in cash to meet our shorter term obligations and use the balance of 80% to lend as Partnership Mortgages. Castle Trust will then use the proceeds from Partnership Mortgages as they are redeemed to fund the returns due on HouSA investments."
Ahem. From Wiki:
A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors.
Ah well. I suppose the fact that "Its seven part-time directors include... former Financial Services Authority chairman Sir Callum McCarthy" means they won't have too many problems getting this scheme authorised.
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UPDATE, Jack C at HPC recommends the following further reading:
Mortgage Strategy: Is Castle Trust shared equity deal too good to be true?
Money Marketing: Four major lenders will not lend to Castle Trust borrowers
Tuesday, 21 June 2011
Ponzi Scheme Fun
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5 comments:
I'm not certain it's exactly a ponzi scheme, as eventually (in perhaps 25 years) it will start paying off, but yes, if this doesn't take off, and others don't jump on it, you'll be pretty much fucked.
They're paying out capital as income= Ponzi scheme to me.
What happens if there's only one investor - does he get paid 20% over the course of the 25 years. Doesn't seem a lot, so they'd have to sell the properties to cover. But, if the properties have dropped say 50% in value...what then.
JT, we have emailed.
JQ, their website promises a regular income - let's assume a return of at least 4%, so after deducting fees and commissions, after two or three years the money runs out.
"if the properties have dropped say 50% in value...what then?"
On Planet Property, house prices ONLY EVER GO UP!
Wandsworth Council have obviously seen those DCLG and Castle Trust press releases (either that or someone there reads this blog - without, ahem, actually, ahem, getting the, ahem, point sadly) and have been duly INSPIRED !!!!!
http://www.bbc.co.uk/news/uk-england-london-13864237
Yep, it's a Ponzi scheme - as you'd expect from anything deamt up and promoted by an ex-regulator and b(w)ankers...
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