Ex FSA chair McCarthy plans new mortgage business

Sir Callum McCarthy, the former chairman of the FSA, is preparing to launch a new type of mortgage business he claims could kickstart the UK housing market.

The scheme, backed by US private equity firm JC Flowers, would see savers frustrated by low interest rates bankroll first-time buyers struggling to get on the housing ladder, the Sunday Times reports.

New venture Castle Trust would offer homebuyers a 20% deposit to buy a house in exchange for 40% of any profits made on the eventual sale. It would also share in any losses if house prices fall.

The cash to put up the deposits would come from bonds sold to retail investors, whose returns would be dictated by the performance of the Halifax house price index.

The complex business model is believed to be unprecedented, according to The Sunday Times. McCarthy has yet to gain approval from the FSA, although the project would not require a full banking licence.

JC Flowers is believed to have pumped an estimated £100m of seed capital into the business.

"This is something genuinely innovative," said McCarthy. "There are thousands of people struggling to get on the housing ladder, or struggling to raise the deposit to move into a bigger house to cope with a growing family.

"Then there are people who want to invest in the housing market but don't want to get caught up in the complications of a buy-to-let property. We've found a way to intermediate between those two groups of people and that could become something quite powerful.

"It does sound too good to be true - we all had the same reaction when we first looked at it. But we've spent two years modelling this."

The board of the new business includes John Gummer, now Lord Deben and chairman of AIFA, and Dame Deirdre Hutton, a non-executive director of the Treasury and former chairman of the National Consumer Council.