Mark Wadsworth

This is a spare 'blog in case my main 'blog at markwadsworth.blogspot.com isn't working

Ponzi Scheme Fun

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.
———————————
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

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