Ethical buy-to-let alternative offers 7% returns

Written by:
The buy-to-let boom of the past two decades shows little sign of abating. Last year, 197,700 buy-to-let mortgages were approved, totalling £27.4bn in value. It’s arguable the market would be even bigger, were it not for the ethical objections of some.

However, there could now be a buy-to-let alternative, for investors who want to unlock the rewards of Britain’s housing boom while paying social dividends to local communities – REAP (the Real Estate Annuity Plan).

REAP is a scheme offered by mutual Equfund. Equfund invests in affordable housing projects in the North West; the organisation purchases and renovates existing properties, then rents them at below-average prices. Rents are also capped.

Since its establishment 15 years ago, it has renewed over 1,000 properties to market standards. Many tenants who cannot gain rented lodging with established landlords have secured housing through Equfund.

Investors effectively provide Equfund with a five-year mortgage; in return, the organisation pays a seven per cent gross return out of its rental income, which can be taken as fixed monthly or quarterly payment. Investor income is unaffected if there are periods when a property is empty, or a tent defaults on their rental agreement.


Equfund purchases a neglected three-bedroom home in Liverpool, for £50,000. Equfund invests £10,000 in upgrading the property; upon completion, the property is valued at £90,000.

A REAP loan of £67,500 (consisting of three investments of £17,500, £20,000 and £22,500) – 75 per cent of the property’s value – is then allocated to the property.

Equfund finds tenants for the property, who pay £523.55 per month, or £6,282 annually. Each investor will receive seven per cent returns on their original investment; any excess money generated is kept in reserve, for property-related expenses (e.g. repairs), periods when the property isn’t rented, and if tenants fall into arrears on their rental payments.


REAP is open to all investors, but a spokesperson for Equfund says the scheme is best suited to retirees who want a higher-paying alternative to an annuity.

For retirees seeking a sizeable regular income in their retirement, property investment is certainly an attractive option. However, direct investment (in the form of ownership) is a potential minefield.

Unless retirees have huge pension funds with which to purchase property outright, they will need to rely on buy-to-let mortgages. Beyond the ethical issues that some have with the concept of buy-to-let, buy-to-let mortgages require much larger deposits (typically around 25 per cent), and retirees generally do not have an alternative regular income to depend on if their investment fails.

Furthermore, being a buy-to-let landlord necessitates getting to grips with a number of legal obligations and administrative burdens (including complying with building regulations, tenancy legislation, tenancy deposit protection, gas safety measures and immigration checks).

REAP theoretically offers an alternative to direct property investment, at a reasonable cost. There is a minimum investment requirement of £15,000, and there are no fees or charges.


While REAP investors do not lose out if the value of a property falls, likewise they do not profit from an increase in property value; if a property rose in value by 25 per cent, investors would simply continue to receive seven per cent return.

Furthermore, REAP investments are not protected by the Financial Services Compensation Scheme, meaning investments are not protected from fraud, or covered in the event Equfund collapses.

Danny Mahon, director of Equfund, says that in the event of the organisation going bust, the properties would be sold by a “security trustee”, with profits used to recompense affected investors. Even then, however, there is no guarantee investors would receive their money back in its entirety.


There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Big flu jab price hikes this winter: Where’s cheapest if you can’t get a free vaccine?

Pharmacies, supermarkets and health retailers are starting to offer flu jabs ahead of the winter season, but t...

Is now the time to fix your energy deal?

Fixed energy tariffs all but disappeared during the energy crisis. But now they are back with an increasing nu...

Everything you need to know about the pension triple lock

Retirees are braced to receive another bumper state pension pay rise next year due to the triple lock mechanis...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

The best student bank accounts in 2023: Cash offers, tastecards and 0% overdrafts

A number of banks are luring in new student customers with cold hard cash this year – while others are compe...

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Money Tips of the Week