McCarthy, king of Castle, aims to unlock mortgage lending in UK

By ERIKKA ASKELAND
Published on 01/10/2012 00:00

A FORMER chairman of the banking watchdog has today launched a firm which aims to “unlock” mortgage lending in the UK.

Sir Callum McCarthy, an ex-chairman of the Financial Services Authority (FSA), who is also a non-executive director of HM Treasury, will be chairman of Castle Trust, which has been backed by £65 million from US venture capital firm JC Flowers.

The launch of Castle Trust was planned for the end of last year but its green-light to operate was delayed by the regulator.

The firm has unveiled its product, the “partnership” mortgage, which is similar to some shared-equity mortgages available through housebuilders, but on wider terms.

Under the company’s lending scheme, home-buyers take out a regular mortgage but can also borrow 20 per cent of the cost of the house from Castle Trust. When they come to sell the house or reach the end of their mortgage term, they will owe Castle Trust 40 per cent of any profit made on the sale.

The firm said that the partnership mortgages will be available to “responsible home buyers” and existing homeowners up to the age of 55. The mortgages are available through brokers which are accredited through the Chartered Insurance Institute.

Critics have said the products are dangerous for some as the deal involves taking out loans which force them to sacrifice some of the profit they would make from a rise in property prices.

The mortgage is similar to shared appreciation mortgages sold by Barclays and Bank of Scotland in the mid-nineties which prevented some from trading up when house prices rose.

However, the company said the product was designed to “reduce the risk” of homeowners worried about negative equity.

The company said it would also serve to encourage banks to ease restrictions on mortgage lending. More than 1.5 million people have been refused a mortgage over the past five years – 99,000 in Scotland – with the total value of rejected mortgages reaching nearly £227 billion, the company said.

McCarthy said: “Castle Trust aims to bring solutions to problems which have too long affected the UK housing market. It is good news for banks and building societies who lend alongside Castle Trust because it reduces the risk on their balance sheet, and good news for consumers as it reduces the risk of home ownership, whether they want to buy a property or invest in housing as an asset class.”

In addition to the capital raised from JC Flowers, the company aims to raise funding for its mortgage product through two investment products. The Castle Trust Income HouSA and a Growth HouSA offer investors with between £1,000 and £1 million the opportunity to “invest in house prices”, and they qualify for tax-efficient vehicles such as ISAs, Junior ISAs and for SIPPs.

Sean Oldfield, chief executive, Castle Trust, said: “We have been working on this proposition for many years, and having secured FSA authorisation, built an extremely strong management team and developed a unique and exciting offering. We are raring to go.

“Our research suggests there is significant demand for both partnership mortgages and HouSAs as homeowners are looking for new choices in funding their homes and investors want ways to reduce volatility in their portfolios.”