The Positive Cashflow Loan is the latest development in a property market where most investors making fresh acquisitions face shortfalls between rental income and financing costs.
Many investors are prepared to fund the gap in the expectation they will make money from capital growth, benefiting meanwhile from tax deductions on financing costs and other expenses.
Gary Palmer of Argosy says the company’s product is aimed at sophisticated investors who understand that the interest they are not paying immediately will be added to their outstanding debt.
Argosy’s Positive Cashflow product has a fixed rate of 8.65% fixed over 10 years. Borrowers can choose to pay 4.75% over three years or 6.35% over five years. The gap between the full rate and the reduced rate is added to the outstanding debt.
Palmer says that that the loan had been designed so that the original debt cannot increase by more than 10% if there is no growth in property prices.
The product is targeted at property investors who do not want to fund the gap between rental income and financing costs – negative gearing – out of personal cashflow.
Palmer says the rate at 8.65% is not the cheapest the lender offers but is the best available on this product at present.
A lower rate may be available in April but he says that property investors who have looked at the product so far are less concerned with the headline rate than the ability to boost cashflow.
He says that the deferred interest is fully tax deductible for investors in the tax year in which the cost was incurred.
