The cumulative impact of high deposit requirements, limited personal savings and the lack of an adequate mechanism to support first-time buyers has led to a dramatic fall in the number of approved mortgages.
I believe passionately that an alternative and innovative solution to the outmoded and impractical mortgage model can and must be sought to assist first-time buyers.
The ‘Investors in Homes’ product we have created, aims to highlight the gains that can be made from investing in residential over commercial funding whilst providing prospective buyers struggling to generate the upfront fees with adequate housing stock.
Mill Group are looking to launch the Investors in Homes proposition this year that will offer a no-risk, mortgage-free solution for homeownership whereby an institutional investment fund stumps up the majority of the cost of a property, including Stamp Duty, and the first-time buyer is asked to make a minimum 5% contribution, avoiding a high deposit requirement.
The plan for a £100m fund initially in the greater London region this year where the housing crisis is arguably most acute has, up until now, involved us consulting with a number of local authorities and pension funds.
Supported by institutional investors over the next 5 years, it could generate a potential level of investment of £30bn if rolled out more widely across the UK while offering first-time buyer’s an aspirational homeownership solution.
The difficulty comes in persuading investors to make the jump into the residential market, which represents largely unchartered territory. But the untapped residential market has the potential to offer great returns on investment.
We have previously quoted projected running yields of almost 6% per annum as part of projected return of 9% Internal Rate of Return (IIR). Evidence to show this can be found in the fact that the residential market has consistently outperformed other asset classes in real terms over 5 and 10 years.
From a consumer perspective, it is important to remember the scheme does not require the input of a mortgage lender so is not exposed to negative equity, isn’t subject to the Mortgage Market Review and they can choose their own property and location.
It is not a loan but a partnership between the consumer and investor – no different to two friends buying a place together.
The idea is that after around five years, the consumer will be in a stronger position to obtain a regular mortgage so co-investment should be seen as a stepping stone to this point.
The charges and fees would be dependent on the location and value of the property but as a rule, are designed to cost no more than the equivalent of a 4 to 5 year fixed 90% repayment mortgage.
By agreement, the consumer would have the opportunity to buy more of the property whenever they are ready to do so and as they do this, their co-investment charge would go down as it only applies to the share of the property owned by the fund.
What we require now is support from government to encourage alternative investment strategies and frameworks to ensure innovation within the housing market isn’t stifled but actively encouraged.
David Toplas is chief executive at Mill Group
