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Second-charge deposit deal links top-up loan to house price swings

Brokers say clients must understand that Castle Trust’s new second-charge mortgage, which aims to lower a borrower’s monthly repayments by boosting their deposit, could work out significantly more expensive than a traditional mortgage at a higher loan to value.

The partnership mortgage is a loan for 20 per cent of a property’s value, providing the borrower already has at least a 20 per cent deposit. It is available exclusively through intermediaries.

There are no monthly repayments for the mortgage as the capital of the loan is repaid if the value of the home rises when the borrower sells.
Castle Trust, which is backed by private equity firm JC Flowers, keeps 40 per cent of any increase in the property’s value and the borrower keeps the remaining 60 per cent. If the property loses value, Castle Trust will share 20 per cent of the loss.

Chief executive Sean Oldfield and chairman Sir Callum McCarthy, who is a former chairman of both the Treasury and the FSA, will head the lender’s management team.

’If your house increases sharply in value, that could work out to be quite expensive. If house prices fall, it will work out very cheap’

John Charcol senior technical manager Ray Boulger says: “If your house increases sharply in value, that could work out to be quite expensive. If house prices fall, it will work out very cheap. People need to understand the pros and cons of this scheme.”

MoneyQuest managing director Simon Jackson says: “I am not sure how I would explain it to somebody and make it sound like a good thing, just because of the cost.”

London & Country head of communications David Hollingworth says borrowers need to realise the potential costs. He says “If the property grows in value, it will cost you and you have got to understand exactly what that may be.”

Castle Trust head of marketing Mikkel Bates says: “We are very clear that if house prices rise significantly, then having a partnership mortgage will be more expensive.”

Masons Financial Planning practice principal Dean Mason says: “High-street lenders would have to come out and say, yes we are comfortable with this proposition, put clients to us on this basis. Otherwise, you might get a situation where you approach them and the customer might end up wasting fees because an underwriter might decide they do not like the look of it because it is not a real 40 per cent deposit.”

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