17 March 2008

Eastern Victoria MP Peter Hall has warned local people to beware of a practice called mortgage wrapping, following successful prosecution of such a case by Consumer Affairs Victoria.

Mr Hall said the scam was a practice that saw unsuspecting people charged a much higher interest rate than usual by people selling properties.

His warning comes after two people failed in an appeal against their conviction over a case involving a house in Morwell.

Speaking in Parliament this week, Mr Hall said: “This couple was accused of what is called 'mortgage wrapping', where they buy a property at a small price on a low mortgage interest rate with a bank and then on-sell it at a much higher price at much higher lending interest rate terms.”

A newspaper article on the court case cites the example of a Morwell property bought for $54 000 in 2002 on a mortgage of 5.72 per cent a year, and on-sold to somebody for $82 000 at vendor terms of what Mr Hall described as an “outrageous” 14.69 per cent per year.

‘Vendor terms’ are when the owner of a property agrees to take a deposit from the buyer, then the buyer pays off the remainder of the agreed price over a period of time, and usually pays interest on that ‘loan’ amount. Mortgage wrapping occurs when the interest rate charged is well above the normal going rate and is often imposed because the buyer has no other choice.

“The particular lady (in this incident) lost her money in the house,” Mr Hall told Parliament.
The matter was raised in Parliament by Mr Hall several years ago and has been subsequently pursued by a local solicitor and Consumer Affairs Victoria.

It is now likely the couple accused of mortgage wrapping will face civil suits seeking repayments of up $3 million.

Mr Hall warned buyers to beware of the practice and said if anyone suspected such a scam, they could contact Consumer Affairs Victoria. 

Media contact:                  Peter Hall      (03) 5174 7066   or 0427 747 066