Example based on £200,000 property
Reservation deposit £1,000
30% after 45 days £60,000 Note 1 below
70% guaranteed mortgage £ 227,500 Note 2 below
2 years guaranteed rental £ 40, 000 Note 3 below
50% Rental share thereafter £ 59,000 pa. Note 4 below
Estimated mortgage cost £ 18,000 pa Note 2 below
Estimated Yield per annum 18.15%, plus 30 days personal use
This is how it works
A £1,000 non-refundable fee is only needed for the reservation of a specific property.
Note 1 An additional 30% deposit is then required (less £1,000) within 45 days of reservation. Should you choose to borrow the 30% deposit; the developer will pay the loan repayments, including interest, for this deposit until completion of the specific unit you have reserved. These payments will then be added to the purchase price upon completion. (Example, Property price £200,000. £1,000 reservation fee paid. The deposit = £200,000 x 30% = £60,000 - £1,000 (reservation fee) = £59,000. Interest on £59,000 @ 6% p.a. = £295 per month, paid for 24 months by the developer = £7,200 added to the purchase price upon completion).
Due to the significantly discounted off-plan price and the likely capital appreciation during construction, it is anticipated that the £200,000 purchase price will have grown in value, on completion, to circa £325,000
Note 2 At this point a guaranteed 70% loan to value mortgage is available and you will, therefore, be able to borrow up to £227,500, which is ample to repay the outstanding £199,000 (the purchase price less £1,000 reservation fee) as well as the accrued interest of £7,200.
Assuming you borrowed the maximum loan to value i.e. £227,500 the annual interest would be £18,200 based on a rate of 8%.
Note 3 The rental guarantee of 10% based on the purchase price of £200,000 will generate an income of £20,000 p.a., which is sufficient to cover your repayments.
Note 4 Alternatively you could retain the £59,000 loan taken out for the original deposit, pay the interest yourself each month, from completion onwards, and use it to invest in a further investment property purchase.
You are free to sell your property at any time, although you are likely to receive an optimum price once your unit has been built and you are in receipt of a guaranteed income stream.