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Written by rosalind renshaw

An extraordinary plan has emerged to revolutionise the mortgage market by bankrolling house buyers.

Aimed at both house movers and first-timers, it would give them a 20% deposit in return for a 40% share of any profits from an eventual sale.

It would also share any losses if house prices fell.

Behind the venture, Castle Trust, is Sir Callum McCarthy, a former chairman of the Financial Services Authority, and US private equity firm JC Flowers.

McCarthy chaired the FSA between September 2003 and September 2008, and at one stage was hauled before Parliament to defend the FSA’s handling of the Northern Rock crisis.

JC Flowers entered Britain’s financial services sector last year by investing in Kent Reliance Building Society and turning it into a bank. It has made clear its plans to do more deals.

McCarthy became European chairman of JC Flowers in November 2009.

Under the new plan, Castle Trust would raise the money for the deposits by selling bonds to investors. Their returns would be dictated by the Halifax house price survey. Investors could take out stakes from £1,000.

While the business model has yet to gain approval from the FSA,  it would not need a full banking licence.

Castle Trust says its management team has “extensive investment and mortgage industry experience”.

McCarthy has recruited a heavyweight board, including John Gummer, now Lord Deben, who is chairman of the Association of Independent Financial Advisers. Dame Deirdre Hutton, a non-executive director of the Treasury and ex-chairman of the National Consumer Council, is also on the board.

McCarthy says that Castle Trust is structured in such a way that JC Flowers will make money regardless of whether house prices go up or down. JC Flowers has pumped £100m into the venture.

McCarthy said: “This is something genuinely innovative.

“There are thousands of people struggling to get on the housing ladder, or struggling to raise the deposit to move into a bigger house to cope with a growing family.

“Then there are people who want to invest in the housing market but don’t want to get caught up in the complications of a buy-to-let property.

“We’ve found a way to intermediate between those two groups of people, and that could become something quite powerful.

“It does sound too good to be true. We all had the same reaction when we looked at it. But we’ve spent two years modeling this.”

Comments

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    It is an utterly rubbish idea, and will just enslave more people in debt. See the link below for an excellent analysis as to why it is rubbish.
    http://markwadsworth.blogspot.com/2011/06/another-day-another-reckless-throw-of.html

    Mind you something like this is just what you'd expect from a management team consisting of the people that got us all inti this financial messs in the first place - ex regulators and bankers.

    • 20 June 2011 12:11 PM
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    I'm pretty sure you'll get the scheme past the FSA. Despite what they tell us about reform, money still has the loudest voice at the FSA! I'm less confident about your chances of explaining this product to the customer though, most of whom have a genuine mis-trust of banks at present. I'm also interested to see how competitive your interest rates will be.

    • 20 June 2011 12:06 PM
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    If the only option for a client with a small deposit is to rent for ever or use this scheme to buy there own property I know what I'd do. Rents dead money for most people unless you're working on a short term contract or an agency worker so can't/find is difficult to get a mortgage anyway.

    • 20 June 2011 11:51 AM
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    Thanks for your interest. Actually, the Partnership Mortgage has been carefully designed to be very different to previous shared equity schemes – the terms are fairer to the homeowner (eg the homeowners keeps the majority of any increase in value of the property), and it is has been targeted at a different customer base (ie NOT the elderly and NOT those on low incomes).

    It is only for responsible homeowners who already have a 20% deposit who are under the age of 55 years - both those buying a larger home and first time buyers. A Partnership Mortgage will reduce the size of the traditional interest paying loan, and the interest rate on that loan, which can reduce monthly payments by a third. In return, the homeowners pays 40% of any increase in the value of the property, when they sell their home or at the end of the term of the loan (up to 25 years).

    The reason the homeowner pays more than 20% back is because they are not paying interest on the Partnership Mortgage during the life of the loan, nor are they paying rent for the 20% share of the home that Castle Trust funded. Castle Trust uses the returns from Partnership Mortgages to pay HouSA investors returns greater than the Halifax House Price Index, which means that we can help first time buyers effectively get on the property ladder who otherwise wouldn’t be able to (minimum investment size is £1,000 which is much smaller than the amount needed for a deposit). Please visit our website at http://www.castletrust.co.uk for further details.

    • 20 June 2011 11:39 AM
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    Good grief. The old "shared equity" ruse raises it's head once again.
    All I can say to everyone with absolutely zero exceptions is; "DO NOT TOUCH IT"
    Whilst immensely attractive for private equity investors, this is a contractual time-bomb for the poor homeowner.

    • 20 June 2011 09:06 AM
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    Another of the great pretenders strikes again. When will failure be recognised for what it is. For this man in particular, but ex regulators in general , to be accorded any ability to design anything other than a 'disaster in prospect' is an insult to any genuine adviser's intelligence.

    Don't lend to people who cannot afford to borrow on ridiculous multiples at the top of a burgeoning market.

    Everything else, just about, works; and has done for years.

    • 20 June 2011 09:03 AM
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