Similar to the government’s Help to Buy equity loan, Castle Trust will directly link its 20 per cent partnership mortgage with a three-year 70 per cent loan-to-value fixed-rate deal from Kent Reliance.
Under the deal, borrowers can take out a 90 per cent LTV rate at 2.99 per cent, which Paul Howard – Castle Trust’s managing director for mortgages – said equates to comparatively lower monthly payments than its competitors.
The partnership mortgage contains no monthly servicing charges and the lender will only receive rent on its share of the property either when it is sold, the loan matures or when the borrower decides to repay.
Rent is not guaranteed and instead Castle Trust accepts a share of the increase in the value of the property from the date the loan is taken out.
As part of this agreement, Castle Trust could potentially have to swallow a loss, should the value of the property decrease.
Both Castle Trust and Kent Reliance have received funding from the US private equity firm JC Flowers & Co.
REACTIONS
Provider view
Paul Howard, managing director of mortgages for Castle Trust, said: “We will lend 20 per cent of the property value with no monthly servicing cost. This, combined with Kent Reliance’s three-year fixed rate – 70 per cent LTV – mortgage at 2.99 per cent, means that the monthly payments are way below any other 90 per cent deal in the market. An alternative 90 per cent LTV three-year fix at, say, 3.89 per cent would cost £991 per month on a £190,000 mortgage on a 25-year term. This new product reduces the monthly payment to £711 per month – a saving of almost 30 per cent. While the Help to Buy scheme is there for some purchasers of new-build property, we are the only provider of equity loans on properties at least two years old and our criteria are much more flexible. This offer is unique.”
Adviser view
Carl Melvin, managing director of Renfrewshire-based Affluent Financial Planning, said: “It seems like a reasonable value arrangement. However, it is really a question of three important factors and potential borrowers should ask themselves: ‘Are the interest rates that the lender charges acceptable, how much are the fees and how flexible is the deal?’ If you want a low rate you will find there are often a lot of tie-ins that do not give maximum flexibility. The most important thing of all, in this case, is to check the small print for potential tie-ins or drawbacks. Customers should always remain somewhat sceptical with lenders and always do the numbers. In the case of this particular deal, while it does not seem excessive, it is still a lot of money for a first-time buyer and the suitability really depends on personal circumstances.
CHARGES
Castle Trust’s mortgage includes a product fee of £995, an undefined valuation fee and an administration fee of £130. There is also an early redemption charge within the fixed-rate period, which equates to 3 per cent of the amount repaid by way of capital repayment or in full redemption.
VERDICT
This deal provides a useful development on the government’s Help to Buy scheme, though, as always, prospective FTBs are best advised to fully explore their options and individual circumstances before committing. This launch follows a recent surge in the FTB property market and it is likely that numerous other alternatives will continue to appear.
