This article by David Toplas first appeared in Mortgage Solutions | 22 Jun 2012 | 11:16
Since the economic downturn hit back in 2007, mortgage lenders have substantially tightened up on lending criteria for house hunters, especially for the important first-time buyer sector.
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.
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.