Revolutionary home for investors

Britain needs more than 200,000 new homes a year and is building well below 100,000. Yet housebuilders are struggling to find buyers for even this reduced number because people can't get mortgages for more than 80% of the value.

Nor is there any hope of an immediate improvement in the availability of funds. Even dedicated property lenders like Nationwide find it very hard to make money on home loans at the current low levels of interest rates.
The other home truth about UK housing is that it has proved to be easily the best investment for most individuals over the past 50 years, and will probably continue to be in spite of the current soggy state of the market.
Not only have returns far outstripped those from stocks and shares but the profit on selling comes free from capital gains tax provided it is the person's main residence. No other home for savings comes close.
Seeing this, there have been attempts over the years to create investment funds that would reflect the increase in house prices, but none has ever really managed to get it right. No one has yet created a property investment vehicle that makes buying and selling residential property units as easy and buying and selling shares in a mutual fund. Until now.
This is where yesterday's announcement of the launch of Castle Trust comes in. Behind its low-key launch is probably the most far-reaching innovation in the housing market for a generation. It promises new ways to buy houses and to invest in property. Between them they have the potential to revolutionise the market.
Though the press release was short on detail the concept is simple. On the mortgage side, if people don't have money for a big enough deposit Castle will help them. Thus if a buyer has a 10% deposit but can only get an 80% mortgage, then Castle will make good the cash shortfall. What it wants in return is a share in the ownership of the house. The upside is that people will be able to buy who could not otherwise afford to get on the ladder, and should have the effect of cutting the number of years they have to spend saving for the deposit at a time when the age at which people can afford their own home is getting later and later.
The downside is that they will have to share the profit with Castle when they sell. However, as part of the arrangement they will be free to refinance at any time, so they might choose to remortgage after say five years, at which time they should be able to borrow a bit extra, which they use to buy Castle out. The price would of course reflect any increase in the value of the house.
Castle will get the money it needs for these deposits from outside investors whom it will organise into a fund. It is this fund, and thence the investors who will be entitled to the profits Castle makes on its share of the houses it has helped buy. In this way investors will have a direct stake in housing, an opportunity to profit from the price rises, or indeed to lose money in a crash.
Because this is a new idea and a highly emotive area, given that it involves people owning their home, Castle needs to make sure it be absolutely open and transparent in how it related to its homebuying partner. Its governance has to be beyond reproach and here too it has got off to a good start. It is chaired by Sir Callum McCarthy, former chairman of the Financial Services Authority, and the board includes former politician John Gummer, now Lord Deben, on its board.
Launch will be in the autumn, assuming the necessary authorisations come through from the FSA. It promises to be the best news for months for first-time buyers.
Source http://www.thisislondon.co.uk/