The company provides bridging loans that give individuals and fast access to capital on a short-term basis. Its income fund will provide a target return of 8.5 per cent a year, paid quarterly, by investing in loans of £100,000 to £5m over terms of between one and 12 months. Around 75 per cent of the portfolio will be invested in loans of three to six months.
The fund will lend up to 75 per cent of a property’s value, based on an independent valuation, and borrowers will pay interest of 0.75 to 2 per cent a month.
Residential property will be the main focus but up to 25 per cent can go in to commercial property. The company did not want to restrict itself exclusively to residential property in case it finds opportunities with a commercial element, such as flats with shops below them.
Montello will identify investment opportunities through referrals from solicitors, IFAs, accountants and other professionals. It will conduct due diligence on the borrower’s ability to repay the loan, which will form the fund’s exit strategy, and on the property backing the loan. In the event of a default by the borrower, the fund will have a first legal charge over the property.
At least 10 per cent of the fund will remain in cash to meet investor redemptions, which can be made on a quarterly basis subject to two months’ notice once the investment has been held for at least five months.
The 8.5 per cent a year target return is not guaranteed, but if a quarterly payment cannot be paid at the target level, investors may receive an additional payment the following quarter to bring the annual returns back up to target. Any excess above the target return will be paid to MPF as a fee.
Competition may come from the Blue Gate secured high income fund, another exempt unit trust/limited partnership investing in bridging finance. However, Blue Gate invests in bridging finance companies that lend the money on to borrowers. This may be a more complex strategy than Montello’s, but risk is diversified among bridging finance companies as well as the end borrowers.