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Shared equity deal will just be a debt trap for first-timers

I read Mortgage Strategy reporter Tessa Norman’s blog about Castle Trust’s shared equity scheme last week and was unimpressed by the deal.

It will offer borrowers who have a 20% deposit an additional 20%, so they can access a 60% LTV deal from another lender.

When the property is sold or the mortgage term ends, the borrower repays the 20% advance plus 40% of any rise in the property’s value, but if it drops in value Castle Trust will pay 20% of the loss.

As a first-time buyer I will stay away from such deals. They are only designed to prop up house prices artificially and make profits for the company and builders.

First-time buyers should save for a deposit like everyone else. House prices will fall until they reach normal levels. This scheme will just trap buyers into debt.

Gavin

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  • Castle Trust 29th June 2011 at 9:10 am

    Gavin, thank you for taking the time to summarise the main features of a Castle Trust Partnership Mortgage so succinctly in your letter. However, I am a little surprised by your conclusions.

    Partnership Mortgages will only be available to responsible homebuyers who have built up a deposit of at least 20% of the value of their home and who satisfy affordability criteria for the full traditional mortgage. It is not a way for homebuyers to borrow more than they could otherwise afford, so we will not ‘prop up’ house prices. In addition, because we will share in any loss you may suffer when you come to sell your home, a Partnership Mortgage may be seen as a form of insurance by those who wish to buy their home, but are worried about prices falling.