Personal Finance

Property Pact: how you can become a mortgage lender

More and more people are having to turn to their parents for help getting together a deposit in order to buy their first home. The “Bank of Mum and Dad” is lending so much money it is now classed as the ninth biggest lender in the UK, with loans of £6.5bn.

The problem is this leaves those people whose parents aren’t able to help them out in the cold. But not any longer. A new peer-to-peer firm hopes to unite those who can afford to help with first-time buyers in need of financial aid.

Property Pact allows its investors to lend money to people wanting to get their foot on the property ladder, “filling the gap between their deposits and what the banks are prepared to lend”, says John Fitzsimmons in The Times. 

 “We have lots of young people coming out of university and moving into good professions, who may have been the first in their family to do so,” says Errol Woodhouse, the chief executive of Property Pact.

“They want to buy a home but don’t have that financial support behind them. This can be a way of levelling the playing field a bit.”

I’ve got the money to lend. What’s in it for me?

Property Pact offers people prepared to lend their cash an attractive return of 5% on top of the Bank of England rate – currently 5.25% – and that is paid on a quarterly basis. Compared with traditional savings accounts, where the most you can hope for is 2.5%, the return is certainly attractive.

Property Pact provides details of potential borrowers, such as their occupation, location and income, and you then choose who you want to lend to. You can put in between £5,000 and £25,000 per homebuyer and the length of the loan can be agreed between you from a year to ten years.

What are the risks?

In order to get that big return, lenders are taking more risk than they would be if they kept their money in a savings account. There is always a chance the person to whom you are lending will fall behind on their payments, or simply default completely.

In fact, with Property Pact you are taking more risk than with other peer-to-peer lenders because you are lending your money to one individual. Other firms pool the money from investors before lending it out so your cash is spread across a number of loans, minimising your losses if one fails to repay.

However, the company has taken steps to protect its lenders. It will pay income protection insurance so your repayments will be covered if the borrower falls behind due to illness or accident.

Details of the loan are also noted on the property’s title deeds so it can’t be sold until the debt is paid off.

Can I withdraw my cash?

No. Once you’ve lent the money you cannot change your mind and call in the loan. You must either wait for it to be repaid over the term you agreed or you can try to sell it on to someone else, which could prove difficult.

I need help with my deposit. Can I apply for a loan?

First and second-time buyers can apply for a loan through Property Pact. You must have a good credit rating, earn at least £30,000 a year and have no county court judgements.

If you fit the bill, you have to pay £150 to list your profile on the website for potential lenders to see.

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