The Investors in Housing Fund is seeking to provide deposits or shared investments for workers who are earning £40,000-£80,000 a year, but who are either finding it hard to get on the property ladder or find more spacious accommodation.
The homebuyer pays their mortgage and a monthly, indexed investment fee to the fund to cover the cost of the capital investment.
The fund, which is hoping to raise £500m, has been set up with the encouragement of both the mayor of London Boris Johnson and the £3.5bn London Pensions Fund Authority (LPFA).
Specialist property investment company Mill Group, which is running the fund, says it will target an income of 6% a year and a projected 15% overall rate of return, including capital gains.
Mill Group has been in talks with London council pension funds that are perceived to have a dual interest in not only the returns, but the economic and social benefits of encouraging key workers to stay in the capital.
The promotion of the fund is being aided by Neil Newton, ex-board chairman of the LPFA, who has already met with dozens of London councils to discuss it.
Newton said: “When I left the LPFA, one of the tasks I was given by Boris Johnson was the role of getting this residential property fund off the ground. There is a slice of Londoners whose housing needs are not being met and this fund might be a way of kick-starting that.
“For pension funds it is one of those rare occasions where very good investment returns tally with socially responsible investment.”
The London residential property market has outperformed most other asset classes over the last 40 years, but the lack of scale, management costs and risk of voids in letting have put off institutional investors so far.
David Toplas, chief executive officer of the Mill Group, said that if the fund proves successful, the concept could be repeated for other parts of the country.
