Mill Group has developed an innovative UK residential investment proposition called Investors in Housing, which will be managed through its residential property arm, Investors in Homes Management Ltd.
Investors in Housing will also use a new Co-investment asset model through which to acquire its investment in a portfolio of residential property interests which generate attractive levels of income on a very cost efficient basis. This new Co-investment model has considerable benefits over the traditional “buy-to-let” or AST models.
Description
Investors in Housing is an innovative residential investment platform for Investors, who may select between co-mingled funds or segregated mandates, each offering long-term superior yields. A low risk investment, it aims to deliver an escalating income distribution as part of an overall attractive internal rate of return to Investors.
Investment will be in good quality residential property, initially in Greater London and the South East, giving the opportunity for capital appreciation over the life of the Fund.
The unusually high income returns from residential property investment are delivered from long term contracted arrangements under which the full costs of repair and maintenance, as well as insurance, are passed on to occupiers, who are chosen for their strong credit qualities.
These arrangements provide for a high degree of predictability and low volatility and risk, in comparison with other residential investment structures and other asset classes.
Co-investment Rationale
Co-investment will be initially offered to first time buyers of good credit standing, who may not have the substantial deposit savings which are now required to obtain a mortgage.
The co-investment product brings passive investors together with Co-owners who occupy the property as their own home. The Co-owner agrees to pay an occupation charge on the part they do not own, as well as assume responsibility for repairs, maintenance and insurance. Capital appreciation is shared between the Investor and the Co-owner who occupies the property, essentially in proportion to their cash investment. After some years the Co-owner may wish to buy out the Investor’s share or move on, to buy another property, but otherwise provides a long term income flow to investors, who may sell this income flow at any time.
Benefits to Investors
Residential property on a total return basis has been the best performing asset class over the last 10 years. Annualised total returns from UK residential properties over the last 10, 20 or 30 years have outstripped returns from Gilts, Commercial Property and Equities.
There has been a long-term supply/demand imbalance in UK housing for many years. The current planning, financial and mortgage difficulties are likely to depress new housing supply, leading over the medium term, to house price growth.
Investors cite a number of factors as to why large scale investment in residential property has been limited to date. The co-investment scheme addresses these factors and is designed to:
- Enhance net income returns in comparison with the conventional private rental sector
- Create a long-term co-investment arrangement rather than a short-term rental agreement
- Assign the maintenance and insurance responsibilities to the Co-owner, who will be liable to pay this in addition to their monthly charge
- Create a large and diversified property portfolio chosen by both Co-owners and the Asset Manager
- Avoid development and land assembly risks and delays
Benefits to Co-owners
Home ownership remains an intrinsic part of UK culture; consumers are prepared to pay more to buy than rent, but accessibility to deposits and mortgage finance restraints are creating difficulties for first time buyers, even when they have good jobs.
Mortgage deposit size is the overwhelming factor in preventing potential home owners from stepping on or up the property ladder. Market research from the Council of Mortgage Lenders reveals that 82% of households want to become homeowners within 10 years.
Despite the fact that a person may earn a high enough salary to manage mortgage repayments, higher deposits and tighter mortgage lending requirements are stifling the market. Many potential home owners simply cannot provide these larger deposits from their existing savings. This in turn is leading to increasing pressure on the cost of renting, creating new barriers to housing accessibility.
This co-investment scheme therefore:
- Shortens the time it will take to save for an adequate deposit
- Enables them to move into a home of their choice in the area of their choice sooner
- Largely fixes annual costs to RPI
- Allows access to the property market before prices may rise
IMPORTANT NOTICE
This statement is issued by Mill Finance Limited, which is authorised and regulated by the Financial Services Authority (“FSA”). The Investors in Housing Fund (the “Fund”) is categorised under the Financial Services and Markets Act 2000 (“FSMA”) as an Unregulated Collective Investment Scheme (“UCIS”) and the promotion of a UCIS either within the UK or from the UK is severely restricted by FSMA. Accordingly, information about the Fund will only be communicated by or on behalf of Mill Finance who is “authorised” under FSMA only to such persons to whom such communication may lawfully be made. Any such further information must be read in conjunction with the Information Memorandum.
