Head of Castle Trust Sean Oldfield has denied claims that his firm’s partnership mortgage, which is launched today, is the same as the shared appreciation mortgages offered by Barclays and Bank of Scotland back in the 1990s.
Under the old shared appreciation mortgages, which were offered between 1996 and 1998, customers could borrow 25 per cent of the value of their property interest-free while lenders took 75 per cent of any appreciation in value and shared none of the losses.
Castle Trust’s partnership mortgage is structured in a similar way, but in addition to not targeting borrowers over 55 it only takes 40 per cent of any gains and shares in 20 per cent of any losses on the home.
Borrowers under 55, who have a 20 per cent deposit, are eligible to take a further 20 per cent from Castle Trust in order to qualify for 60 per cent LTV repayment mortgages from a separate lender.
Interest is not charged on the loan over the course of the mortgage term but is repayable on the sale of the home.
Independent compliance consultant Adam Samuels says: “The original shared appreciation mortgages were used as a way of doing over people that couldn’t afford their homes and then the lenders picked off the increase in the property value having not really properly explained to the customers what they were walking into. That market disappeared not for compliance reasons but because the funding vanished.
“If you try and bend the market, it has a history of trying to fight back.”
But Castle Trust’s Oldfield says that the partnership mortgage his firm has developed is an entirely new product and not comparable.
He says: “We only lend to borrowers under the age of 55 and we share in loss as well as growth. They can be a safer product for borrowers than a traditional mortgage alone. Partnership mortgages are fundamentally different to anything that has gone before in terms of product design, target market and our standards of disclosure, advice and communications.”
The product will only be available through independent intermediaries who have passed Castle Trust’s professional development accreditation from the Chartered Insurance Institute.
Legal & General Network director of housing and external affairs Stephen Smith says: “I know that a great deal of work has gone into the design of this new lending scheme to ensure, as far as possible, that every problem with the previous generation of schemes has been addressed and resolved.”