Mortgage debt increases both potential returns and risks. The provider of debt receives interest payments and capital repayment value is not exposed to property price movements. On the disposal of a property, the debt is repaid before net proceeds are distributed to Property Partner investors.
Investors in the SPV therefore have the amplified exposure to movement in the property price. The examples below illustrate this for a property purchased for £500,000:
|
Property Price Movement |
+10% |
-10% |
|
Property Disposal Value |
£550,000 |
£450,000 |
|
Mortgage (LTV of 50%) |
£250,000 |
£250,000 |
|
Investor's Equity Value |
£300,000 |
£200,000 |
|
Capital Gain/Loss |
£50,000 |
-£50,000 |
|
Capital Return |
+20% |
-20% |
Note: the above calculation illustrates the impact of mortgage debt on capital returns. Other factors that impact capital returns, include purchase costs, sales costs, fees and taxes. These are presented in more detail on the respective properties’ page.
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