Brokers think property investment fund too risky for first-time buyers

Industry pundits have poured scorn on a new property investment fund offering first-time buyers the chance to get onto the property ladder with just a 5% deposit and no mortgage.

The Mill Group has launched what it claims is the UK’s first property investment fund, offering the opportunity to invest in resi-dential property by financing first-time buyer deals up to 95% LTV.

Home buyers will be asked to purchase 5% of the property and the investors will facilitate the purchase of the remaining 95% without a mortgage lender.

The buyer will pay a monthly co-investment charge. In five to seven years they are expected to buy out the fund and at this stage could get a mortgage.

But Dev Malle, sales director at Personal Touch Financial Services, says while the scheme is innovative it does not give the protection of a mortgage regulated by the Financial Services Authority.

He says: “My key concern would be that first-time buyers are purchasing a home to live in but are not protected in a regulatory environment. The devil will be in the detail in terms of what payments and fees are charged.”

He adds: “It would also be interesting to know what would happen if the borrower could not meet their payments. Would the property get repossessed? It could be better for the borrower to save for five years and then use that money as a deposit for a mortgage.”

One broker, commenting on Mortgage Strategy Online, says: “All the risk of buying a house, with none of the upside. Why would you go for this, rather than renting?”
The Mill Group says the scheme is particularly suitable for those in higher managerial, professional and administrative careers, who are seeking long-term homeownership.

David Toplas, chief executive office of the Mill Group, says: “Co-investment aims to bring institutional investment into the market by giving consumers the ability to get onto the housing ladder quicker than saving these levels of deposit.”