Whilst demand for homes has increased in recent months – surging after the easing of restrictions following the first Coronavirus-related lockdown – there continues to be a severe housing shortage here in the UK.
There were just 243,770 homes delivered between 2019 and 2020, whilst estimates suggest 345,000 are required each year to keep up with demand. And with a record-breaking 9.3 million Rightmove visits recorded on 7th April 2021, suggesting the post-lockdown housing boom is still in full swing, it is clear that more must be done to meet the needs of the housing market.
And the role of the Innovative Finance ISA (IFISA) in providing the necessary finance for the development of more homes at a time when the UK needs them most should not be underestimated.
The growth and benefits of the IFISA
When it was introduced in April 2016, the IFISA enabled experienced investors to hold alternative investments under the ISA tax wrapper for the first time.
The rapid growth of the IFISA – with £328 million in subscriptions in 2018/19, up from £277 million the previous year – is proof that more and more experienced investors are recognising it as an important investment consideration for their personal portfolios.
This is unsurprising when taking into account the potential for the IFISA to generate tax-free returns of between 4% and 8%. As well as this, amidst an uncertain and volatile investment landscape, the IFISA is an investment product that is uncorrelated to the likes of stock market fluctuations or cuts to the Bank of England’s base rate.
But the benefits of an IFISA are not limited to its potential to target higher returns than some mainstream investment products. The way these returns are generated – when looking at the property-backed IFISA in particular – also allow experienced investors to make a notable impact.
Supporting small and medium-sized housebuilders with an IFISA
The IFISA is a versatile, flexible product with multiple asset options available to invest into. One of the four main IFISA-eligible assets, property bonds are crucial in providing small and medium-sized housebuilders with the alternative finance needed to enable them to once again contribute to tackling the UK’s housing crisis.
Whilst small and medium-sized housebuilders once accounted for the provision of 40% of new homes in the UK, this number has dwindled to around 12% in recent years, due in large part to a lack of access to funding from mainstream banks.
However, it’s crucial that these regional housebuilders are able to re-establish themselves in the market. This was reiterated by the Government in their August 2020 white paper, declaring the importance of innovative SME housebuilders, in particular “those looking to build a diverse range of types and tenure of housing, and those using innovative modern methods of construction.”
And the IFISA is a tax-efficient vehicle whereby experienced investors can support these much-needed regional housebuilders. Though there are other methods of investment into property bonds, none can match the tax advantages offered by the IFISA.
Decades of shortages paired with a sharp increase in demand as working from home caused countless people to re-evaluate their living situation – a trend that could continue, as 43 of the UK’s 50 largest employers have revealed there are no plans for their workers to return to the office full-time – mean the housing market’s chronic undersupply of homes is more apparent than ever.
Regional housebuilders must work alongside their national counterparts in order to deliver the amount of homes needed, but their innovative, agile and unique nature also makes them invaluable in providing a richness of housing that is innovative and feels exclusive.
When investing into property bonds via an IFISA, investors have the potential to help in funding not just single properties, but entire developments of this kind; developments that can regenerate communities, provide mixed-tenure, affordable housing, and aid in boosting the UK’s economic growth.
Investing into property bonds with an IFISA
Both the potential financial and impact-driven benefits of investing into property bonds with an IFISA are clear.
Delivering essential alternative finance to small and medium-sized housebuilders, whilst generating potential returns free of income and capital gains tax, is a prime example of investing for impact – but utilising the IFISA in this manner is also imperative in meeting the demands of the housing market.
Though the IFISA as a product is not building homes, it is playing a substantial role in the development of housing by providing a generous tax relief for experienced investors who have the means to aid in bridging the financial gap left by mainstream banks.