Investment Returns

Life Tenancies have multiple factors that drive capital growth.

Capital Growth Drivers

House Price Inflation

Investors benefit from exposure to House Price Inflation (HPI) on the full value of the property purchased, despite having purchased the property at a discount from vacant possession value (VPV).

Increasing Age

As the Life Tenants increase in age, the potential investment value increases, irrespective of HPI performance. Simply put, the older the Life Tenants become, the higher the likelihood that the property will revert to the investor.

Occupancy Change

If a Life Tenancy with two occupants reduces to one occupant, the potential investment value increases immediately.

Improvements

Life Tenants frequently make improvements to the property, such as decoration or renovation, which will often contribute to a rise in the VPV and investment value.

Downside Protection

Whilst a Life Tenancy investment provides disproportionate exposure to the potential benefits of HPI, it also provides protection from the potential impact of sharp or long-term deflation.

In the example below, it would take circa 20 years of house price deflation at 4% per year for the investor to make a gross loss* on their investment.

Example 1

Freehold Property
Female 65


VPV	£250,000	Investment Price	£113,185
Percentage Share	100%	Discount	£136,815
VPV Share	£250,000	Discount %	55%

Term	Future VPV	Reversion Gain	ROI
5 Years	£203,843	£197,556	80%
10 Years	£166,208	£263,454	47%
15 Years	£135,522	£343,628	20%
20 Years	£110,501	£441,173	-2%

* Gross loss does not take into consideration sales, legal or any other fees or costs. It also assumes the Life Tenancy has ended.

House Price Inflation

During the last 20 years to June 2023, the average property price in England rose from circa £129,400 to £306,400 representing a property value increase of approximately 265%.

Transaction data extracted from the ONS for England confirms that the average annual compound growth in house prices was approximately 4.6% over the last 20 years.

The graph opposite illustrates that whilst there are irregular cycles of house price growth, the increase is linear over the medium term.

LTPs are ideally suited to take advantage of the consistent property growth in England and are inherently structured to ride out any short-term house price fluctuations.

Average House Price changes in England

Source: Sales data extracted on 31 August 2023 from the ONS for England

Investment Illustrations

The examples below are based on a £250,000 RICS vacant possession valuation for a property with an assumed 4% annual House Price Inflation over the term.

The examples illustrate how the initial investment and future returns vary depending according to the length of the Life Tenancy, percentage of the property owned and the age of the Life Tenants.

Example 1

Freehold Property
Male 62 & Female 65


VPV	£250,000	Investment Price	£106,607
Percentage Share	100%	Discount	£143,393
VPV Share	£250,000	Discount %	57%

Term	Future VPV	Reversion Gain	ROI
5 Years	£304,163	£197,556	185%
10 Years	£370,061	£263,454	247%
15 Years	£450,236	£343,628	322%
20 Years	£547,781	£441,173	414%

Example 2

Freehold Property
Male 75 & Female 75


VPV	£250,000	Investment Price	£148,326
Percentage Share	100%	Discount	£101,674
VPV Share	£250,000	Discount %	41%

Term	Future VPV	Reversion Gain	ROI
5 Years	£304,163	£155,838	105%
10 Years	£370,061	£221,735	149%
15 Years	£450,236	£301,910	204%
20 Years	£547,781	£399,455	269%

Example 3

Leasehold Property
Male 69


VPV	£250,000	Investment Price	£89,317
Percentage Share	75%	Discount	£98,183
VPV Share	£187,500	Discount %	52%

Term	Future VPV	Reversion Gain	ROI
5 Years	£304,163	£214,846	155%
10 Years	£370,061	£280,744	211%
15 Years	£450,236	£360,919	278%
20 Years	£547,781	£458,464	360%

Investment Returns

Life Tenancies have multiple factors that drive capital growth.

Capital Growth Drivers

House Price Inflation

Increasing Age

Occupancy Change

Improvements

Downside Protection

Example 1

Freehold PropertyFemale 65

House Price Inflation

Average House Price changes in England

Investment Illustrations

Example 1

Freehold PropertyMale 62 & Female 65

Example 2

Freehold PropertyMale 75 & Female 75

Example 3

Leasehold PropertyMale 69

Freehold Property
Female 65

Freehold Property
Male 62 & Female 65

Freehold Property
Male 75 & Female 75

Leasehold Property
Male 69