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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.”

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  • Jon 9th February 2011 at 11:57 am

    I think the result is likely to be similar to the shared appreciation mortgage, which at the time was considered to be a good thing and when property prices increased and home owners could not afford to move or buy out the SAM element was considered not such a good idea.

  • David 8th February 2011 at 5:28 pm

    I do worry about our industry, sometimes. Here’s an idea that could get the housing market moving again, leading to a potential significant increase in volume, at a time our business is in the slumps – and all we can do is ridicule it!!

    Dev says “It’s not regulated” – but these people don’t give loans or mortgages, so they would not need to be covered by the FSA. And true, the devil is in the detail, but when was the last time he looked in detail at a mortgage contract??

    And what is the risk of buying a house this way? If the Fund buys 95%, with no loan or mortgage, there is no risk of any negative equity. Yes, the value of the 5% can go down, but that will not lead to repossession.

    The upside is that they get the house they want with minimal risk, only having to pay the charges, which we are told equate to a similar mortgage and find a 5% deposit. They get he upside on the 5% and time to save for the extra, at their leisure.

    These guys don’t take our business away from us! They could help kick-start the market – and all their customers will become our customers as they do what comes naturally – buy the whole property with a mortgage.

    I would have expected a better analysis from Mortgage Strategy!