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Analysis: Lenders shy away from Castle Trust’s shared equity product

Castle Trust’s new shared equity product, partnership mortgage, has been given a wide berth by the major lenders despite being endorsed by UK housing minister Mark Prisk.

The partnership mortgage, which launched last week, allows borrowers under the age of 55 who have a 20 per cent deposit to take out a 20 per cent loan from Castle Trust, potentially making them eligible for a 60 per cent LTV mortgage from another lender.

Borrowers do not pay interest on the Castle Trust loan but must repay the loan in full when the property is sold. If the property increases in value, the borrower must pay 40 per cent of the increase to Castle Trust and if the property decreases in value, Castle Trust will pay 20 per cent of the loss on a house purchase.

Speaking to Money Marketing, Prisk says he would like to see more innovation in the private sector and singles out Castle Trust as an example of the sector working to help homeowners.

Prisk says: “I want to see aspiring homeowners offered a range of alternatives to the Bank of Mum and Dad to get themselves onto the housing ladder.

“That is why we have worked with the industry to launch the NewBuy guarantee, which helps buyers purchase newly-built properties with a fraction of the deposit normally required, and why over 3,000 new homeowners have already been helped through the FirstBuy scheme.

“But on top of this Government support, I want to see private companies devise new and innovative ways to help those who want to become homeowners to do so, as Castle Trust is working to do.”

Despite this endorsement, eight of the 10 largest lenders in the UK say they will not consider applicants who attempt to use the partnership mortgage to secure lending, while the remaining two refuse to offer a position.

Santander, Lloyds Banking Group, HSBC, the Royal Bank of Scotland, ING Direct, Nationwide, Virgin Money and Barclays say they will not lend to applicants in a shared equity scheme, while Yorkshire and Coventry Building Society say they do not have a clear position at the current time.

A Lloyds spokeswoman says: “The model outlined by Castle Trust may be suitable for customers with a high degree of understanding of the complex nature of the proposition, however we do not accept mortgage applications where the equity partner is taking more than the equity share that they provided from the outset.”

An RBS spokeswoman says: “We only lend to applicants with shared equity where the scheme is supported by the Government or a housing association.”

Coventry Building Society says the partnership mortgage is not something it has looked closely at, but it will consider any applications that come through.

Castle Trust claims it has a panel of lenders in place but refuses to disclose how many lenders are on the panel or which lenders have signed up.

Brokers intending to distribute the shared equity scheme must hold accreditation from the Chartered Insurance Institute. John Charcol broker Kate Baker was the first adviser to attain the accreditation last week, while a further eight of her colleagues at John Charcol are nearing accreditation.

John Charcol senior technical director Ray Boulger says: “Whilst in the early stages there is a relatively small number of lenders who have signed up, Castle Trust is talking to a number of others and I think within a reasonably short space of time, that number will increase and include a number of the medium-sized lenders.

“I would expect to see some of the bigger lenders on board in due course, but I think a lot of them want to know there will be enough volumes to make it worth their while. There is no intrinsic reason why first charge lenders should not accept this product but I think a lot want to see what the initial reaction is and what the volumes of business might be.

“The Government is supportive of what Castle Trust is doing because it sees it as a way of de-risking the housing market for borrowers.”

Chadney Bulgin mortgage partner Jonathan Clark says: “Market innovations such as Castle Trust’s partnership mortgage are to be welcomed in such a constrained market, but unless the high-street lenders work in partnership with Castle Trust, it will help few borrowers.

“In addition, great care needs to be exercised when advising on such products as we have seen a high level of complaints on equity share mortgages in the past from borrowers who simply did not understand the potential long-term implications of such products.”

Perception Finance managing director David Sheppard says larger lenders are more likely to concentrate on their existing lending strategies rather than venture into anything new at the moment.

He says: “The big hitters are not going to get involved with this. The impression I get from a lot of lenders at the moment is that they are inundated with applications and as such are unlikely to venture into other areas. They have a finite amount of money and while the Funding for Lending scheme has boosted those funds, they will not last forever. The bigger lenders are more likely to make themselves competitive on rates rather than look to venture into something that does have an element of risk.”

Castle Trust chief executive Sean Oldfield says: “We are very pleased to have received the statement from the minister. We look forward to growing our business to help people into homeownership.

“We are a new business launching with a panel of lenders we are happy with and throughout our first year, we will grow our panel of lenders over time as our needs arise.”



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  1. Castle Trust does not de-risk the mortgage – it simply changes the shape and timing of the risk. The risk is still there but is far less transparent.

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