JC Flowers mortgage

21st June 2011

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Private equity firm JC Flowers is backing a new venture offering interest-free mortgages for 20% of a home's value in return for a share of the property's increased value on its eventual sale.

The Castle Trust's "partnership loan" allows homebuyers to reduce their monthly mortgage payments by around a third, or to enable borrowers to buy a home up to 25% more valuable without increasing monthly payments.

The borrower would require a 20% deposit and Castle Trust would put forward another 20%, with the remainder needed from a primary lender.

The firm envisages borrowers using the loan to lower their repayments with their primary mortgage lender as they will effectively have a bigger deposit.

The deal is available to homebuyers and existing homeowners up to the age of 55. There are no repayments on the Castle Trust mortgage but the capital must be paid back once the property is sold plus 40% of the increase in value. If the borrower sells their property at a loss, Castle Trust will share 20% of the loss.

Melanie Bien, director of mortgage broker Private Finance, says shared equity mortgages are not revolutionary but this product aims to provide better funding options for those with a 20% deposit.


"As the product does not have FSA authorisation yet, no lenders have signed up but Castle Trust says it is in talks with the major providers," she says, "Although you would expect borrowers to qualify for attractive rates usually only available to those with a 40% deposit, rates are unlikely to be quite as competitive because in effect borrowers will have a second charge on their home.


"Borrowers should ensure they know what they are getting into. The 20% 'loan' accrues no interest during the term of the loan but must be repaid, plus 40% of any increase in the value of the property, when you sell. If the value of your property has increased significantly, you may end up paying much more back than you borrowed in the first instance."

The launch follows a private equity takeover of Kent Reliance by JC Flowers earlier this year.

Castle Trust is chaired by former FSA chairman Sir Callum McCarthy and boasts a six-strong management team including John Gummer, chairman of the Association of Independent Financial Advisers, and Dame Deirdre Hutton, a director of HM Treasury and former deputy chair of the FSA.

The firm will also offer a house price savings account, a fixed term investment product, an income HouSA, which provides a fixed quarterly income, and a growth HouSAs which targets outperforming the Halifax house price index and aims to reduce exposure if prices fall.

Sean Oldfield, chief executive of Castle Trust, said: "The housing market is the largest asset class in the UK, worth in excess of £4000bn, most of which has previously been unavailable to investors.

"Castle Trust has been designed to help customers with the two most important financial decisions in their lives – investing their savings and buying their home."


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