Merseyside Assured Homes — from the other end of the lens
Not surprisingly, a number of you have asked how this investment opportunity compares to other types of property investments available on other peer to peer platforms or in the traditional world of finance. The truth is, this is markedly different. Although other models have similarities, there is nothing (we’re aware of) with quite the mix of features of Merseyside Assured Homes, which creates a different risk profile to what is ‘normally’ seen.
Those features include (and are looked at in more detail below):
1. A model that acts like a long-term mortgage to a housing provider except the lender (in this case Merseyside Assured Homes) owns the properties
2. Low risk of ‘default’ on the rent flowing from the housing provider since all its tenants qualify to have their rent paid direct to the housing provider by a local authority and the demand for housing, as we know, far outstrips supply
3. Security over not just the land and the buildings as they go from bricks to homes, but also over the key contracts, crucially in value terms, the lease
4. The value of the land and buildings is secondary to the value of the cash flows which stem from the lease.
On top of that, we love that this fixes problems for everyone involved — the housing provider, the tenants who will live in the brand new purpose-built homes, local authorities indirectly, and you our customers. All without adding to the housing problem which is seeing the numbers of social housing dropping out of the system at a multiple of times quicker than new homes are being added.
If we start with the housing provider — as a smaller player, it doesn’t have the land or the access to capital to build its own stock of quality homes. By committing to a long lease with the right to own the properties at the end, the outcome is the same as though it were able to borrow the money from a bank. Even if it could find a bank that would lend to a provider of its smaller size, the 25-year mortgage a bank would provide wouldn’t be long enough to repay the money it borrowed at the social / affordable rent levels that it will earn.
The model devised by Octevo gets round that by extending the lease out to 50 years which it is happy to do because, unlike the bank as lender, it (or in this case, its subsidiary Merseyside Assured Homes) actually owns the properties. And the housing provider is happy because it can genuinely promise long-term homes to its tenants even before it has the prospect of owning the properties.
All of the tenants for the new homes will be selected from local authority waiting lists and all will qualify for Local Housing Allowance and / or supported living payments to cover the cost of the rent. This is paid directly to the housing provider which gives the investment an attractive risk profile.
If something happened to the housing provider, new regulations are now in force which provide for a special administration process designed to ensure that tenants are not harmed and which means that rents will continue to be paid even during any interim period before a new registered provider takes over.
How does this compare to other models available to the smaller investor? At the risk of a crude over-simplification of the myriad of opportunities that are out there, we are lumping them into 2 broad categories:
- lending to individuals or businesses secured against the property they own (essentially mortgages)
- providing capital to buy land or build properties, again secured against the land and properties (often called development finance)
Central to both models is the value of the land and buildings which is ultimately a market. In Octevo’s approach, the value being relied on is that tied up with the 50-year plus income stream coming directly in the early years from local authority payments. The value of the land or buildings is secondary although it still resides within the company our customers are lending to.
Unlike the property market which can fluctuate and wildly as many of us painfully remember, the income stream from the rent is determined by statute and linked to inflation adding to its appeal as a predictable and more reliable flow of incoming cash.
Risk warning
As with any investment product there are risks. Part or all of your original invested capital may be at risk and any return on your investment depends on the success of the project invested in. You should be prepared to hold Abundance investments for their full term and investments may not be readily realisable. Estimated rates of return can be variable and estimates are no guarantee of actual return. Specific risks will apply in relation to each product. Consider all risks before investing and read the Offer Document for each investment.
