From The Metro:
Thousands of families facing the threat of repossession are being offered Government help to stay in their homes as a mortgage rescue scheme was rolled out across the whole of England.
The £200 million scheme allows vulnerable households to reduce their monthly mortgage payments by selling a share in their home to a housing association*, or to sell the property to the association outright and remain in it as tenants on subsidised rents...
Housing minister Margaret Beckett said: "For the most vulnerable households, the mortgage rescue scheme will be available across England to help ensure they can remain in their homes. This is part of a range of measures the Government is putting in place to help households at risk of repossession in the current climate. As well as expanding free debt and legal advice, we have increased the support available for people who lose their jobs, and are introducing the option for homeowners to defer part of the loan to give them the time they need to get back on their feet."
*sigh*
1. £200 million sounds like a lot, but that's enough to bail out 2,000 families, assuming they have a mortgage/house of £100,000. There are over 20 million households in the UK, so the scheme will 'help' (a modern euphemism for 'give money to') fewer than one in ten thousand families.
2. UK residential properties are falling in value by over £1 billion per day, so this money is enough to delay the house price crash by about five or six hours.
3. If this were a good time to buy housing, then investors would be snapping them up. It's not and they aren't. If I don't want to buy properties as a private individual, I'll be damned if the government uses my tax money to do so and then let them out at subsidised rents. OK, I'm damned.
*/sigh*
* Please note that housing associations are creatures of legislation, funded/backed by the government, with a lot of tax exemptions who can thus compete unfairly with private developers, as well as having more flexibility than local authorities but without even a shred of democratic accountability. They are the ultimate quangoes.
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Agreed on housing associations. "Social housing" = unecocomic housing.
Government help = Taxpayer cash.
I'm seeing that particular code alot. Sometimes it sounds like Labour (or Gordon personally) are funding the thing.
OK, Mark, pick holes in this.
A £1bn nominal value portfolio of 10,000 "distressed" 25 year mortgage loans @ 6% pa averaging £100,000. Each borrower must (but can't) currently repay £615.88 per month or £7322.62 pa for the life of the loan.
First: transfer the properties to a custodian.
Second: set an “affordable” rental of (say) £250 per month or £3,000 pa and index – link it.
This gives a total Rental Income of £30m in the first year, rising with inflation.
This is “Unitised” into (say) a million “Units” or “millionths” within a partnership-based framework, using an LLP in the UK or an LLC in the US
Each Unit consists of one millionth of the economic interest / “ownership” of the relevant properties and carries an income of £30.00 in the first year, rising with inflation thereafter.
It is now simply a question of the market price of these Units: at £1,000 per Unit the initial return is 3%, and the proceeds £1bn which refinances the debt at 100% of nominal value; at £750 per Unit the initial return is 4% and the proceeds £750m or 75% of the nominal value. And so on.
For the co-owner Occupier it's a new form of Rent to Buy, since anything he pays more than the rental due buys him Units.
He never gets to actually own the freehold, since that stays with a custodian, like most of the stocks and shares on the planet, actually, but he can end of as the owner in economic terms if he buys enough Units in the Pool.
This is a Debt/ Equity swap: but not Equity as we know it, in a Company - it's equity in the LLP.
It wipes the floor with secured debt because there is no capital repayment.
And the "affordability" of the rental means that by definition it is more certain to be paid, justifying a lower rate of return.
If you're an investor intent on maximising your return, Mark, then don't be surprised if the property is empty and you get no return at all.
Result: an index-linked; secure, property-based; reasonable; (and btw Sharia'h compliant) rate of return.
I think there are one or two investors looking for something like that.
Cojock - I have proposed something similar working the other way around. The investors buy the properties and finance that purchase and rent out the properties at a commercial rent. Any payments made by the tenant in excess of the commercial rent go to buy units in the LLP/REIT or whatever vehicle is best suited.
The ideas behind this structure are, (1) to give tenants a feeling of 'ownership' if they want it (2) It is a commercial arrangement - that is it does not distort the market as subsidised housing associations do. (3) Units bought by tenants would be a return of capital to the promoters. (4) The landlord would be professional - as opposed to the amateur which has bedevilled this market. (5) Such a strucure could attract all sorts of investors seeking yield.
There is more but I have not worked it through fully. Crucially to succeed it needs a more stable house market that is less susceptible to boom and bust.
> Crucially to succeed it needs a more stable house market that is less susceptible to boom and bust.
1/ Make Bank reserve ratios track M4.
2/ LVT.
Lola
In the structure I outline above there is no debt - and therefeore no debt repayment. So financing costs are dramatically less.
The key point is that once properties are held by the custodian, they are never sold again.
The Occupier may change. The Investor may change. The Occupier may well become an Investor over time if he builds equity over time by buying Units, which he can then draw upon in his retirement, or for any other reason.
This is essenially a simple but radical new approach to tenure, creating a new form of "Co-ownership" - within an LLP framework - as between the provider of capital invested in land, and the user of the capital invested in land.
The Hilton group entered into a not dissimilar > £1bn "Capital Partnership" a few years ago, but they haven't (yet) "unitised" the gross revenues they share with the financing "Capital Partner" consortium.
Cojock:If you're an investor intent on maximising your return, Mark, then don't be surprised if the property is empty and you get no return at all.
I used to have four buy-to-lets as it happens, I had the best letting agent in the business who set realistic rents and in seven years my total void periods were about two or three weeks per flat.
I'm not disputing your maths, but your idea overlooks the fundamental point, there is a huge latent loss on the value of those properties. In my free-market view of things, that loss has to be shared between borrower and lender, and not borne by the taxpayer generally with a vast increase in the powers of the quangocracy.
AC1 has nailed the solution most succinctly.
Firstly, credit intermediaries aka banks are unnecessary - Peer to Peer finance will IMHO come to replace them sooner rather than later - and if banks are to have a future it will be as service providers, who no longer need to risk their capital by creating credit based upon it.
Secondly, in the model I advocate property is held by a "Custodian" (as shares etc are now in respect of institutional dealings) while rights of occupation and rights to revenues change hands.
There will be no "loss" because the property will never be sold again.
ie we will move from a hugely inefficient transaction-based "intermediated" property model to a disintermediated service-provider model.
And we will do so because a service provider model is more "efficient".
...and as for LVT -I agree totally with AC1 - a "Location benefit levy" amount may simply be deducted from rental payments at the clearing level.
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