Ethical property investing
There is a new way to invest in residential property while supporting first-time buyers, as OnStep Homes co-founder Rito Haldar explains…
It is notoriously difficult for first-time buyers to get onto the property ladder, with house prices continuing to soar unabated.
The government’s Help to Buy initiative and shared ownership schemes have gone some way to address this challenge, but a new peer-to-peer funded model means that private investors can now help to plug the gap.
OnStep Homes launched this year, to help young families gain the security of their own home, without a mortgage. The company, set up by the team behind peer-to-peer lender Unbolted, offers individuals an easy, tax-efficient way of investing in a diversified portfolio of residential property.
Co-founder Rito Haldar suggests that OnStep provides a more ethical alternative to buy-to-let investing, which has been accused of taking homes away from first-time buyers and raising prices.
“OnStep provides the opportunity to collaborate rather than compete,” he says. “You get to invest in the residential property market but instead of taking stock away, you are actually helping people get on the ladder.”
The model works by enabling OnStep users to co-invest in the property alongside the tenants.
The tenants hold between five per cent and 10 per cent equity investment in the property, commit to a long term, inflation-linked rental agreement and take on full repair and maintenance responsibilities.
Investors on OnStep’s platform can fund a shared equity mortgage with a second charge on the property, with a similar legal form to a Help to Buy loan.
OnStep is offering a regular income of three per cent per year, increasing with inflation, alongside geared capital gains from the property.
The loan has a seven-year term and is repayable at the end through refinancing or sale. Investors can also exit early using the secondary market, depending on liquidity.
While all investments carry risk, property has been a lucrative asset class for decades. When estimating capital growth, OnStep looked at average house price growth in England over the past seven years, which equated to 38 per cent.
If house prices continue to grow at the same pace over the next seven years, a house valued at £500,000 will become £690,000. After paying off the first-charge mortgage this would result in a 100 per cent return for investors.
“It’s also worth mentioning that we are only targeting good-quality, existing family homes in desirable locations,” Haldar adds.
“These are a more resilient investment than apartments in rental blocks, which tend to be more vulnerable to downturns in the economy.”
“With OnStep investments, you have a long-term tenant who’s heavily invested in the property themselves so will do everything to make sure the property is well-maintained and if the time comes to sell, will try to make sure it sells at the best price so that they also get a return on their investment.”
An ethical investment choice that provides inflation-busting returns with the security of bricks and mortar – that’s what makes OnStep stand out from the crowd.
