Quick variations on the BES loan-back theme: Building societies have added more get-out options to new schemes, writes Neasa MacErlean

NEXT week at least six building societies will be asking investors to back Business Expansion Scheme issues to buy up their repossessed properties. They are likely to be met with substantial demand. The BES market is changing so rapidly that schemes that looked attractive when they were announced can look passe two days later.

Bristol & West's Bessa was hailed as an ingenious breakthrough when it was launched two weeks ago with a six-month get- out. But it is only now reaching its pounds 45m target. Two weeks is a long time in the current BES world.

The Bristol & West scheme is now regarded as outdated compared with newer launches that allow investors to bail out at one, two or three years as well as the six-month option.

The two main sponsors of BES schemes have opposing views of the development of the market. Close Brothers, sponsor of the Bristol & West scheme, believes most investors want to take out their funds after six months through the new 'loan-back' schemes. On its newest BES scheme - providing accommodation for students at Newnham College, Cambridge - it has arranged a 75p loan-back after six months for each gross pounds 1 invested.

Combined with the 40p tax refund for higher-rate taxpayers, the annualised return is slightly more than 32 per cent. (None of these schemes are suitable for 25 per cent taxpayers, who would earn far better rates elsewhere.)

The offer of a 75p return is competitive. However, this is bettered by a Corpus Christi BES issue, which plans a 76p six-month loan-back.

Johnson Fry, Close Brothers' main competitor, is taking a different tack. It is only offering a 74p six-month loan-back, on the assumption that investors will exercise their exit options at a later date. It is 'advising investors to consider not taking the six-month loan unless they need to take their profit as soon as possible'.

Johnson Fry is sponsoring BES issues from Portman, Leeds Permanent and National & Provincial building societies next week. It is also arranging for the surplus demand of pounds 19m on the recent Bradford & Bingley issue to be taken up by Leeds & Holbeck and Norwich & Peterborough. The minimum investment is pounds 3,000.

All these schemes will offer loan-backs of 78.31p after a year, 87.71p after two years and 98.24p after three years. Investors who take out a loan-back option will still be eligible for a 50 per cent share in any profits the schemes earn above pounds 1.23 per share over the full five-year BES period.

Britannia Building Society's similar pounds 50m scheme offers 75 per cent of the excess profits to investors.

The Johnson Fry philosophy assumes that the Chancellor, Norman Lamont, will not decide to forbid the exercise of the loan- back option after the BES regime finishes at the end of the year. The Close Brothers approach could cope with such a change.

Allenbridge Group, a BES adviser, is enthusiastic about the new building society deals with a range of loan-back options. If the Chancellor does not alter the BES rules in the Budget, investors will probably want to exercise their loan-back options in six months and then reinvest in a fuller-term BES issue. But the multi-option schemes cater for the possibility of a changed market in six months' time.

Next week many BES investors may be attracted to the National Westminster pounds 25m issue to buy the homes of NatWest staff who have to relocate. This scheme offers a 74p loan-back after six months or a pounds 1.08 guaranteed return in five years' time.

By contrast, Lloyds Bank is backing a Barratt Homes BES issue renting out new properties. It offers a pounds 1.15 return in five years.

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