Interest around property ISAs is growing. We've teamed up with Bricklane.com to deliver some answers to the most commonly-asked questions.
Last least year, we ran an article called How to become a property investor with £100. It explained how, by using a property ISA, anyone can get their hands on a slice of the residential property market with an initial investment of as little as £100.
Property ISAs (as offered by Bricklane.com who we partner with on Zoopla's Invest channel) are effectively stock and shares ISAs into which savers can stash up to £15,240 for the current tax year (2016/2017), rising to £20,000 from the new tax year which starts on 6 April, 2017.
Any cash you pay into the account is pooled with that of other investors and held in a fund which is a combination of a ISA-eligible online platform and a Real Estate Investment Trust or REIT.
The fund is then used to purchase buy-to-let homes across UK cities including Leeds, Manchester and Birmingham. (A second REIT focusing just on London is set to launch later this year.)
Your investment tracks movements in the value of these properties – and receives rental income on top. As the account is ISA-eligible, both your income and equity gains will be paid to you free of tax.
Online property ISAs can offer something of a lifeline to savers struggling with paltry interest rates, but it’s important to know what you’re doing – and that you are aware of the risks.
Our article gave rise to a few more detailed questions from our readers about property ISAs. So, with some help from Bricklane.com, here’s a follow-up Q&A to answer them.
Q. “I’ve had my ISAs for years. Is it really worth transferring them into a property ISA – and why?”
A. While any decision should be made based on individual circumstances (and your capital is at risk), there are two main reasons you might consider transferring your ISA balance/s to a property ISA, explains Bricklane.com’s chief executive, Simon Heawood.
“A lot of customers come to us because they’re saving for a first home but want to keep pace with the property market at the same time. A property ISA is one solution that can achieve this and potentially help them reach their goal sooner.
“Secondly, savers are simply getting fed up with their cash ISAs delivering next-to-no returns. With our property ISA, just the rental returns (currently about 3.5% a year after costs) could be much higher than cash ISA rates. Plus, you get the potential changes in the value of property.”
Q. "Is this effectively peer-to-peer lending?"
A. No. Peer-to-peer platforms lend your money to other individuals or businesses – and, in some cases, this money is secured against property. With a Bricklane.com property ISA, you’ll actually own a share of the properties in the fund.
Q. "How and when can you take your money out – and are there penalties?"
A. There is no minimum term on investments, or penalties for withdrawals. And you can opt to request your money back at any time.
“You can do this by offering your shares for sale to other investors through the platform,” says Heawood. “Transactions are completed at two-week intervals.”
If, in exceptional circumstances there are no buyers, you can offer your shares at a discount if you want the money quickly. Alternatively, you can wait to sell them at market value which could take three months or longer.
However, Heawood stresses that – just like property – Bricklane.com should be viewed as a long-term investment, and that your capital is at risk.
Q. "How is my money protected?"
A. Investments in Bricklane.com are held by a custodian bank. The first £50,000 of your cash is protected by the FSCS in the unlikely event it was to become insolvent.
Q. "What about investments of more than £50,000?"
A. The fund’s investments are made in real bricks-and-mortar property which has historically proved a secure long-term investment. But all investments are also held independently from Bricklane.com and safeguarded by an FCA-authorised depositary.
Bricklane.com is also partnered with some major organisations. Deloitte is its fund auditor and Allsop its independent property valuer.
Find out more about property ISAs and apply at our Invest channel
Q. "Can I transfer existing ISA balances across?"
A. Yes. you’ll be able to transfer across any existing ISA balances when you open the property ISA. During the online application process, you’ll be asked for details of any ISA balances you want to transfer. You’ll be presented with an ISA transfer form which you’ll need to print off, sign and return by post to Bricklane.com who will then handle the transfer on your behalf.
Q. "Is there a maximum I can save into a property ISA?"
A. There’s no upper limit to amount you can save, it’s just that the tax-free element on the returns are capped to your annual ISA allowance or – if greater – the value of your existing ISAs if they’ve been transferred from elsewhere.
Q. "Won’t buying more property for rent prevent others from buying their first home?"
A. “We don’t think so,” says Heawood. “Currently, about 60% of young people expect never to be able to buy a house which means remaining shut out of the UK’s most important market.
“Bricklane.com means savers are able to own a stake in the property market, whatever their financial position, rather than being excluded because they don’t have a deposit. We could also help first-time buyers reach that first home years sooner than planned.”
Q. "Could I unwittingly be investing in unscrupulous landlords?"
A. Connells, a major national estate agent, manages the properties owned by the fund, “ – so tenants are in safe hands,” says Heawood.
He adds that the Bricklane.com team – many of whom are renters themselves – is in full support of a better renting experience for all. He said tenants living in properties owned by the fund only pay around a fifth of the usual ‘moving in’ fees. “This was before the Chancellor announced tenant fees would be banned entirely in his Autumn Statement.”
Q. "What expertise does the Bricklane.com team have in property?"
A. Heawood says that, among the team are investment advisors who have more than 100 years’ combined experience at senior levels in the property industry.
This includes Chris Strickland (former chair of the Peabody Trust housing association) and Will Rowson (former chief investment officer of CBRE Global Investors EMEA). All acquisitions are approved by Craig Hallam who’s transacted more than £5bn of UK residential property.