Fractional Ownership Beats the Credit Crunch

In case you’ve been living in the wilderness for the last year,Fractional Ownership Beats the Credit Crunch Articles a short history of the credit crunch! It all started with a relaxation of lending criteria, both with regard to the size of loans compared to income and the credit rating of the borrowers. People who 10 years ago wouldn’t have been able to get a mortgage at all were offered large loans with very little proof of income. These loans were then packaged up by “clever” bankers and sold on to financial institutions around the world. This fueled a boom in asset valuations and while this continued everything appeared OK – if people couldn’t afford to pay their mortgage interest they simply rolled up the interest into a new loan. The party ended when interest rates in the US were raised and some of the more ridiculous deals that had been sold (balloon/deferred interest schemes) started to go wrong. Bring on a period of falling real estate values (both in the US and in the UK) and panic in the banking world. Some of the losses for individual banks on mortgage-backed securities are truly amazing, running into tens of billions of dollars.

What Effect is it Having on Real Estate Values?

Whilst all the chaos has been going on in credit markets banks have been unwilling to grant new mortgages without the security of large deposits. This is continuing to this day, with rates on mortgages increasing (in the UK) whilst the official rate charged by the Bank of England falls. Sales of homes are forecast to be down 40-50% in 2008 compared with 2007, with the decline in prices being put at between 5 and 10%. All connected with home sales are feeling the effects, and there is no end in sight to the crisis.

Why is Fractional Ownership Different?

Fractional ownership so far seems to be less affected by the p