Castle Trust controversial shared appreciation mortgage

Castle Trust controversial shared appreciation mortgage

Castle Trust has launched its shared appreciation mortgages whereby the lender takes some of the profit when you sell your property.

The Castle Partnership Mortgage sounds like an attractive solution on the outset, as it allows you to pay a lower mortgage payment, however this comes at a significant price and anyone entering into this type of mortgage needs to go in with their eyes fully open.

To qualify for this scheme when purchasing a property you would get a 60% Loan to Value Mortgage from a conventional lender, have a 20% deposit and then secure the final 20% as a Castle Partnership Mortgage. For the ten plus years that you need to hold the mortgage you would only pay a Repayment mortgage based on the 60% you borrowed from the Conventional lender. Ten plus years later when you sell Castle Trust however want their original 20% loan back and in addition 40% of the equity growth (i.e. the increase in value of the property) over the period of the loan.

If you take the same example as quoted in this article it would mean the following:
On the initial purchase of a house worth £200,000 you would:

• Get a conventional Mortgage for 60% = £120,000
• Have your 20% Deposit = £40,000
• Get a Castle Partnership Mortgage for 20% = £40,000

Fifteen years later with an average house price growth of 5% per annum the house would be worth £416,000. Your payment back to Castle would equate to £126,000 (i.e. £86,000 for the privilege of having the initial £40,000 loaned to you). This would represent an increase of 216% on the loan. You on the other hand would be left with £90,000, which is a £50,000 gain on the original £40,000 put in of your own money; this represents an increase of only 125%, significantly below the Castle value.

This high figure is achieved by Castle because they take 40% of the increase in the full house value, and not just the element that they have initially paid for. It is a classic case of them leveraging their money at the cost of the homebuyer.

As they even state on their website ‘the more money you make on your home the more a Partnership Mortgage will cost you, and the less money you make on your home, the less it will cost you in most circumstances. This means that you can’t predict the cost of the a Partnership Mortgage’

That statement alone rings warning bells as the variation in cost could distinctively catch families out in the future at the end of their term. Although Castle reduces the money they require back if the market has fallen in value by the original loan value less 20% of the fall, you can be assured that their Actuaries have calculated the probability of them losing overall.

As we know from historical data the housing market has doubled in value every 7yr – 10 years traditionally, so they are hedging their bets wisely, even if this time due to the market conditions it takes 20 years to double the value, they can’t lose. Particularly as they are starting this scheme at what is considered the bottom (or near bottom) of the housing market cycle.

As a home owner you would be better to get an 80% mortgage from the outset, especially if you are looking to utilize your property as your pension in the future by downsizing at age 65 years (you can’t go past this date with Castle Trust).

Gill Alton

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Gill Alton is the founder of Alton Property Partners, which provides a comprehensive and personal Property Portfolio Building Service for investors in the UK.

Alton Property Partners manage the entire investment process, from sourcing property at a discounted value, co-ordinating the Mortgage, arranging the refurbishment, right through to ensuring it is ready for the rental market.

The service is specifically aimed to support those who recognise the value of a UK investment portfolio, but lack the time, or knowledge to be able to invest for themselves because they are full time employees or Business Owners. With full consultation and comprehensive financial analysis, clients can be assured that their portfolio of strong yielding properties will be built to exacting standards and they will be kept up to date every step of the way.

Having been involved in property for 16 years Gill has built a personal portfolio for her family, and in addition to Alton Property Partners, runs a Property Mentoring Business, Venus Property Mentoring which focuses on supporting new investors onto the investing ladder. Having originally left the Corporate world to be a Qualified Mortgage Broker, Gill’s husband now focuses on their family Mortgage Brokerage in Maidenhead – Alton Mortgages.

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  1. Phil Robinson November 14, 2014 at 1:56 pm #

    Hi Gill

    Not sure if the calculations shown on your article about Castle Trust equity loan are correct as at November 2014. Do not know if the repayment criteria has changed since it was initially published.

    As I understand it, if you borrow 20% of the property value from Castle Trust you would repay 40% of the gain in value. In this case if original value is £200k and end value is £416k then the growth is £216k and repayment is 40% of this amount i.e. £86.4k and not £86.4k plus the original £40k.

    I don’t know if you have any further articles on this matter.

    • Gill Alton November 14, 2014 at 5:33 pm #

      Hi Phil
      Thank you for your comment, I haven’t written any further articles on this and as you can see this blog was written two years ago. That being said I have had a quick look at the Castle Trust website to see if they have changed their criteria since I wrote this.

      I don’t believe they have as the website clearly states;

      ‘The loan is repaid at redemption, along with a share in any growth in property value over the term of the loan’

      I would interpret this as the original £40k loan plus a percentage of the growth being returned to Castle Trust. I hope this helps. Gill

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