Critics hit out at equity-loan scheme for landlords

A company offering buy-to-let landlords interest-free loans worth up to 20 per cent of the price of a property they want to buy, has been criticised by opponents.

The catch is that for every one per cent of the value of a property that it lends against, Castle Trust will take two per cent of the capital gain when the landlord eventually sells. During the term of the loan, typically no more than 10 years, the landlord pays no interest.

Should the property not rise in value, the loan will be redeemed at par with no interest charged, and Castle Trust admits that if house prices rise substantially, the product may cost the landlord borrower more than a traditional mortgage.

Castle Trust launched the product back in October but The Guardian appears to have discovered it only in recent days, describing the equity-loan element as possibly the next craze in the booming world of buy-to-let. It goes on to say that because the product is aimed at landlords first-time buyers....can wave goodbye to the chance of obtaining a free loan.

The paper also says the deal will fan the controversy over lending to landlords which it suggests may be at least partly responsible for difficulties faced by would-be buyers wanting to get on the property ladder.

Castle Trust, which describes itself as offering innovative products to investors and borrowers, has also launched an Isa-style product called Housa which offers investors (even those who may not own a home) the chance to earn returns based on residential market growth as measured by the Halifax house price index.