A London businessman faced with unaffordable mortgage repayments following the slump in the Cyprus property market has reversed his financial situation in a way which has inspired the creation of a new service designed to benefit thousands of Britons with overseas properties they can no longer afford to keep but find impossible to sell…
Former music industry publicist Tony Barker bought a £120,000 property off plan in a major development in Paphos in Cyprus in 2006. Research convinced him that he could achieve high yields and significant growth.
But the combination of higher than expected mortgage repayments, a dead lettings market, a drop in his personal income and a slump in demand for properties in Cyprus combined to create a situation he found impossible to handle.
As completion early in 2008 was delayed until the autumn, Tony was advised that the bank would postpone the start of mortgage repayments until completion. But he was not told that, during the delay, he was accruing interest on his mortgage loan and creating a big rise in the size of his repayments.
‘When the credit crunch hit in the autumn of 2008, I faced mortgage repayments at a much higher level than I had anticipated and for which I had not budgeted, having planned to flip my property,' said Barker.
‘This coincided with a dip in my personal income, resulting from the recession, so I decided to let the property. But after four months the rental agency had produced no income and then it went bust,' he added.
Desperate to walk away legally from both his property and mortgage payments, Tony discussed the options with his financial advisor at the Marcus James Group. Together they devised a solution to his predicament, subsequently selling the commitment to make the outstanding mortgage repayments and associated costs to a new investor.
‘I may have lost my original deposit payments of £24,000 but the relief I felt by getting out of a living nightmare more than outweighed that financial loss,' explained Barker.
The concept worked so successfully that the group has now formed a new specialist business, Marcus James Recovery, with Barker as managing director.
Marcus James Recovery charges the property owner a fee of £495 plus VAT to locate a suitable new investor. If it is unable to do so within six months, the owner can claim a refund of £345. All rights and charges associated with the property are assigned to the new investor who pays a one off fee of £5,250 plus VAT.
‘This is a particularly attractive concept for non-status borrowers with impaired or low credit ratings, who often find it difficult to obtain finance on normal terms and conditions. The Recovery service enables them take on a mortgage without the need to pay a deposit or arrange for the mortgage to be underwritten,' explained Barker.
To provide a safeguard for the original owner if the new investor defaults on the mortgage repayments, ownership of the freehold is retained by the original owner until the balance of the mortgage has been paid off.
Meanwhile the new investor can occupy or let the property. If, in the longer term, the new investor wishes to sell the property before the mortgage has been repaid fully, the original owner is entitled to a 20% share of the difference between an agreed contractual figure and the price achieved.
Initially starting with Cyprus, the company plans to expand its business to Spain as well as other locations which were magnets for buyers in the boom years, including Croatia, Bulgaria, Turkey and Portugal.