The Interview
A New Defence
In June private equity firm JC Flowers launched Castle Trust, a mortgage and investment firm it says will change the mortgage market. Sarah Davidson talks to COO Martyn Guerin about their plans
How many times have you heard this will revolutionise the mortgage market? Plenty. And how many times has the claim
been justified? Not so many. But Castle Trust is firmly of the opinion
that this time it’s true. The newly launched firm has certainly
got the backing of some influential people including former FSA chairman Sir Callum McCarthy who is also a director of HM Treasury and now chairs Castle Trust. Mike Hughes, former chief executive
officer of IFA network Burns Anderson and director of Legal & General Bank, was brought in last month as managing director for mortgages and will work alongside chief operating officer Martyn Guerin, formerly of Barclays, to develop the Partnership Mortgage the firm plans to offer. It’s worth pointing out here that at
the time of writing Castle Trust was still waiting for its Financial Services Authority authorisation. But the idea is to provide second charge loans up to 20% loan to value at point of origination to top up a primary lender’s 60% LTV mortgage to 80% to extend borrowers’ affordability and buying power. The loans have no monthly repayments
and Castle Trust shares in any increase or decrease in the value of the property when the loan is repaid at the point of sale (see box for full details). “There will be times when we book a
loss on property,” Guerin admits. “That’s all part of why we believe our product is fair and innovative. We take a share in the gain if it increases and a share of the loss if it falls. We have modelled both these scenarios and are comfortable with what may happen in the market.” Among other leading industry lights
on board is the Rt Hon. John Gummer, Lord Deben, chairman of the Association of Independent Financial Advisers and former Cabinet minister who is a non executive director. Influential people – tick. “We have spent two years developing
these ideas,” says Guerin. “It’s a new type of financial institution looking at unlocking residential property both on the investment and homeowner side. “We’ve spent a lot of time researching
and modelling and it’s now just about ready to come to market once we get our approvals and authorisations,” says Guerin. It will work like this: a proportion of the
deposits taken through HouSAs – fixed term house price linked investment products - will be lent on partnership mortgages. Guerin confirms that some of the
original capital raised from American private equity firm JC Flowers will also be available to lend on these mortgages, with possible plans to bring in other institutional investors. Castle Trust’s partnership mortgage will
42 mortgAge iNtroDucer AUGUST 2011
be regulated under the Consumer Credit Act as it falls under second charge lending while Guerin says the mortgage products are “future-proofed” and have MCOB built into them. “If you think of the investment side
unless you own your own property or buy-to-let, there’s no real way to access returns for residential property,” Guerin says. “HouSA’s will give people that access. “On the mortgage side the market is
pretty desperate in terms of both volumes and innovation and it can be difficult for people to get on the property ladder. The partnership mortgage is all about giving people choice and affordability.” In theory it sounds like a flawless plan
but questions have been raised about whether consumers will want to give away access to some of the potential uplift in the value of their homes. “We do feel it will be attractive to
consumers,” explains Guerin. “Not just from the results of our research but also from discussions we’ve had with potential distribution partners.” Research by Castle Trust over the past
two years and on more than 10,000 people revealed that between a third and 50% of people would consider taking the partnership mortgage. Of them, 70% want to have a more
affordable lifestyle which the reduced monthly payments would enable and
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