Give yourself a break when you buy to let

Sam Dunn previews a scheme that allows investors to holiday in Cornwall for six weeks a year
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The Independent Online

One Cornish beach, 500 luxury holiday homes, six weeks by the sea and a 5 per cent guaranteed return are all enticements in a new buy-to-let property scheme.

The Beach is an ambitious proposal for an upmarket mix of serviced apartments, leisure facilities, shops and a hotel at Carlyon Bay near St Austell on the south Cornwall coast. Prices for the glass-fronted luxury apartments start at £200,000, rising to £700,000, although most will be priced in the £250,000 to £275,000 bracket.

Deposits on the apartments, which should be ready by 2005-6, have already been received from 30 investors. But there could yet be hold-ups: planning approval has been granted but local objectors are calling for a public inquiry and plan to petition John Prescott, the Deputy Prime Minister.

However, Johnny Sandelson, chief executive of Ampersand, which is building the apartments, is confident that the development will go ahead and will prove successful. Uniquely among buy-to-let property developers, the company has devised a so-called Live & Let scheme, which will allow investors to holiday in their beachfront property for six weeks each year. Ampersand will manage and rent out the apartments for the rest of the year.

Mr Sandelson says poor stock market returns and lacklustre savings products have made the guaranteed 5 per cent return for the first four years "a compelling alternative" for investors.

"Cornwall has a tourist accommodation problem," says Mr Sandelson. "We are confident we will hit our targets, given the quality of the apartments."

The ultimate success of the project relies on the county's year-round tourist appeal. While Ampersand can't say exactly how much rent the apartments will generate or how long they will stand empty between tenants, Mr Sandelson says that rents should rise as visitor numbers increase during the next few years, thanks to local attractions such as the Eden Project.

The finance deal works like this: if you want to purchase a £200,000 flat you must put down a 20 per cent, or £40,000, deposit. In return, Ampersand will pay you 5 per cent (in the above example, £10,000) of the purchase price during each of the first four years. This should cover the annual interest on your £160,000 mortgage, which you can take out with Ampersand if you wish.

The property developer says its mortgage rate will be no higher than 5 per cent, resulting in interest payments of £8,000 a year. A projected weekly rent of £200 works out at 130 per cent of the minimum return required by most buy-to-let mortgage lenders.

Buyers don't have to take Ampersand's mortgage deal and, in any case, should shop around for the most competitive rate. They will be able to offset their rental income against the interest payments on their mortgage, as with any buy-to-let investment.

But the real problem may be finding tenants outside the peak summer holiday season. Despite Ampersand's confidence, the South-west Tourist Board's latest figures show that while 90 per cent of serviced apartments in the region have bookings in August, just half are occupied in March and April.

If and when you decide to sell up, The Beach qualifies as a business, allowing you to benefit from 75 per cent capital gains tax relief. A higher-rate taxpayer selling within two years would pay tax at just 10 per cent on any increase in the property value.

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