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February 4, 2011 6:29 pm
Property investment companies are launching innovative products that could throw a lifeline to people hoping to take their first step on to the property
This week, the Mill Group, a specialist property company, began raising money for a £130m institutional investment fund that will finance first-time buyer deals of up to 95 per cent loan to value, with no mortgage needed.
Under the terms of the scheme, the first-time buyer puts down a deposit of
5-15 per cent of the property, and the fund will purchase the remaining share.
The fund will charge a monthly investment fee, which the Mill Group claims will be comparable to the cost of servicing mortgages at a similar loan to value. Stamp duty would not be payable by the buyer initially but would be due in five to seven years’ time when the homebuyer is expected to buy out the fund, providing an exit for investors.
The fund will initially
target first-time buyers in London and the south-east. David Toplas, chief executive of Mill Group, says the scheme will be available on new-build as well as older properties.
But not every property will be approved by the fund. “We will be conducting our own research into the property to make sure it is likely to be a good investment, and evaluating whether it’s likely to go up in value,” explains Toplas.
The fund will also credit-check buyers to make sure they can afford the monthly payments.
Mill Group is currently focusing on raising money for the fund and with a minimum investment of £5m, it is predominantly, but not exclusively, targeted at institutional investors. The fund is projecting a running yield of 6 per cent per annum.
Mill Group expects to launch to first-time buyers and reveal its brand name in the second quarter.
Property experts warn that first-time buyers must have a full understanding of the costs involved and how the scheme works.
David Hollingworth of London & Country, the mortgage broker, says the industry would need to see how the scheme would work in practice to ensure that it balances the needs of the investor without detriment to the purchaser.
Ray Boulger of John Charcol agrees. He says those most likely to benefit from the Mill Group scheme are homebuyers with only a 5 per cent deposit as they are currently unable to attain mortgages at 95 per cent loan to value.
First-time buyers with a deposit bigger than 5 per cent may find the launch of a new scheme by Assetz, the property investment company, more appropriate.
Assetz is creating a fund that will allow homebuyers to “top up” mortgages to cover up to 90 per cent of the value of a property.
The company has partnered with two of the big housebuilders and a couple of smaller local building societies with plans to launch a trial scheme later this quarter. Stuart Law, Assetz, chief executive, says it will then look to expand the scheme to the resales market later this year.
Under the scheme, borrowers get a mortgage of around 75 per cent loan to value from one of the fund’s lending partners, with the fund financing the top slice up to 90 per cent. Borrowers will be offered a blended interest rate of around 5 per cent, according to Law.
While Law admits the scheme is likely to only help a few hundred buyers this year, he expects it to grow significantly in 2012 and beyond.
Mortgage experts welcomed the new initiatives. “I think it’s good news that we’re getting these schemes because there is clearly a gap in the market for people with a small deposit,” says Boulger.
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