Investing in property? Understand the risks?

Posted: 2nd February 2016

Semi detatched houseAll investments involve some level of risk. Bricks and mortar are no exception and those who seek to profit from a rising property market should take professional advice so that they fully understand what they are getting into.

In one case which underlined the point, a man who borrowed almost £185,000 at a high rate of interest to fund the purchase of an investment property on the eve of the financial crisis ended up losing both that property and his home after failing to keep up with the loan repayments.

The man entered into the loan agreement – which stipulated a 1.65 per cent monthly rate of interest – in August 2008. He swiftly defaulted and the investment property, on which the money was secured, was repossessed by the lender. Interest had continued to build on the original loan and, even after the property was sold for £240,000, the man still owed almost £58,000.

The lender obtained a charge over the man’s home to cover that balance, plus interest which had continued to accrue. The total sum secured was more than £77,000. In granting him some relief, the High Court found that the amount of interest had been miscalculated and that only about £61,000 was outstanding as at the date of the charging order. That sum would be paid to the lender on the sale of the man’s home.