Self Invested Personal Pension Loan: Citrus Broadway
The developer a well established and reputable local development company that specialise in residential property solutions in the Dorset area. Normally the developer would finance their developments by borrowing 70% of the land and build costs from NatWest Bank, putting up the remainder, plus all associated costs themselves.
The proposal is to link up with the developer, raising 20% of the land and build costs from our members’ SIPP accounts. This means that they would only be required to find funding for the remaining 10% of the land and build costs plus all associated costs.
Bank Lends 70% - Build Cost
70% - Land Cost
SIPP Loan Syndicate 20% - Build Cost
20% - Land Cost
Developer 10% - Build Costs
10% - Land Costs plus all other costs
Benefits
For this proposed development, NatWest would charge the developer an annual interest rate of 2% over base rate (currently 6.75% per annum) for their mortgage. The SIPP investors will receive 12% per annum, from which Lewis’ fee of 2% per annum is deducted, leaving investors with a clear 10% per annum tax free in their SIPP while the money is on loan. Interest will be payable monthly.
Costs
All costs will be covered by the developer. Pointon York will charge the developer a fee of £100 for each syndicate member. Lewis’ fees are taken at source from the interest rate payable by the developer.
Lester Aldridge acts on behalf of the SIPP investors and their fees are met by the developer.
What Happens in the unlikely event of the developer failing?
A common query for this proposal is ‘what would happen to my investment if the developer were to fail’? On this development, NatWest Bank has the first charge, and the SIPPs have the second charge. In effect, this means that in the event of the insolvency of the developer, or NatWest stepping in before the development is completed, the bank would sell on the land and development to another developer to complete. The bank is obliged to achieve an appropriate sale value for this development. The outstanding mortgage sum plus interest, costs and expenses would then be reclaimed by NatWest, and any monies received over and above this amount would be payable to Lewis Syndicate members. Of course, we would do all that we could to ensure completion of the development and return of the SIPP loans.
Citrus Broadway
Land has been purchased with planning permission for 9 detached new bungalows, described as rear of 23—33 The Broadway, Bournemouth.
Total Development Costs £1,503,000
Split between Land £ 845,000
And build costs £ 658,000
Of this
NatWest would provide a mortgage of £ 1,052,100
SIPP Syndicate Members would loan £ 300,600
The developer would provide the additional 10% plus associated costs £ 150,300 (+ costs)
Total £1,503,000
Expected Sale Value £1,890,000
Please note that the loan from SIPP members will be split between land and build costs and paid in stage payments. This will be based on architects certificates, as required by the bank.
Risks
Your investment may be at risk if property prices fall.
If the developer were to enter into liquidation, the development may have to be sold and the NatWest outstanding mortgage would be repaid first. Any amount over and above this would be payable to Syndicate members, however this amount may be lower than the sum initially invested.
Summary
A net return of 10% per annum is achievable while the loan is in place. This is a significant return for the overall investment, with the additional benefit of a second charge over the development. Lewis is pleased to offer this scheme as part of your SIPP proposition. One of our advisers will guide you further as to whether this proposal is suitable for you. Should you wish to proceed, one simple form is all that is required.
E & OE
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