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What is the difference between this and an Islamic mortgage?
The key difference is that the Primary Finance Home Provision Scheme is free from the burden of debt as we do not force you to buy our share from us, although you are free to buy it from us if you wish.
Who owns the property?
The property is owned by a special purpose company. This company is owned by you and our other investors. As your share of the company increases so does your ultimate ownership of the property, and your rent is reduced accordingly.
What is the monthly target level of equity purchase?
This is the amount of equity you would have to purchase each month to completely purchase our share by the agreed term. For example if we arrange £200k of finance for you over 30 years then it would be £556 per month on average.
How is rent calculated?
The rent we charge is based on several factors. These include things like the local rental market, how active the market is, property size and location, our own cost of capital and business costs and strategy. We do our best to balance all of these factors and make our pricing as competitive as possible. Ultimately however, it can sometimes come down to what we need to charge to make the agreement financially viable for us as a business. This means in some areas we could end up at the top end of the market, whilst in some areas we may end up at the bottom end. The rent we calculate is firstly scaled down for your equity. As an example take a £200k property where we calculate the rent to be £1k per month. If you have £50k of equity then your rent will be £750 per month instead. We will also usually give you a further rental discount in any month where you purchase the target level of equity. This is usually at least 5% and in some cases could be as high as 50%! Taking a 50% discount in the example above, in months where you stick to your target monthly equity purchase we would only charge £375 rent rather than £750. So in summary, on a property where you would normally pay £1k per month rent, you might only end up paying £375 with us.
How is the rental discount calculated?
We typically provide a rental discount in each month where you make your target payment of rent plus equity purchase. The level of discount is driven mainly by the property and location, and is there to try and ensure we are charging all customers a similar amount after discount. For example, two customers with similar homes in different parts of the country may have different base rental values. Therefore, we provide them with slightly different discount rates to ensure they are both paying roughly the same on a discounted basis. The customer whose base rental value is higher, will need a higher discount rate in order to achieve this. The discount rate is mechanically derived, with very little subjective input.
How is rent reviewed?
We conduct annual rental reviews. If local property prices in your vicinity have increased your rent will increase; if they have decreased your rent will decrease. The maximum increase or decrease is capped according to the terms in your offer letter, so your payments should never move by too much in any given year.
What is the eligibility criteria?
To be eligible for finance, you must pass our affordability assessment and not have any history of arrears or CCJs. You must also have a good credit score rating and be resident in the UK with Indefinite Leave to Remain as a minimum. We hope to start serving citizens of other EU countries very soon, and eventually the rest of the world!
How do you assess affordability?
We assess your ability to be able to pay rent and purchase the recommended level of equity each month. To do this we look at your monthly income less outgoings to determine your net disposable income. This is then compared against the monthly payment to determine whether it is affordable for you. As a broad rule of thumb we would typically give finance for up to 4.8 times your household income, however this is not set in stone and we will consider each customer on their own merits.
What income can I use to purchase a home?
Any income you wish to include for your application must be declared to HMRC for tax purposes and evidenced by appropriate documentation, such as payslips, P60s and tax returns.
I'm paid in cash, can I still apply for finance?
We are able to accept customers who receive their salaries paid in cash, where they are able to provide a minimum 1 full tax year track record evidenced by a P60 which illustrates earnings inline with the amount stated on the application. This must also be accompanied by 6 months of payslips and 6 months of bank statements which show a minimum of 95% the salary being credited within 3 working days of the pay date on the payslip. If this criteria cannot be met, this income cannot be considered admissible as part of an application until such time as the appropriate evidence can be provided.
How much finance will you be able to provide to customers?
Currently we are providing up to £400k of finance to any one customer. We also require you to have a minimum 20% starting equity amount and the maximum property value we support is currently £500k. As we grow and scale we expect to be able to loosen these boundaries somewhat.
If I choose not to purchase the recommended level of equity in any month, will my payment be lower?
If you only pay rent in any given month you will not be eligible for any rental discount in that month. However, we would still generally expect your rent-only payment to be less than your monthly recommended payment of rent plus equity.
At what price is the property sold to the customer?
We sell to you at the same price the property cost us. For example if we paid £100k for the property, plus another £3k in purchasing costs then we sell it to you for £103k. If there is any upside in the property value, that is all yours to keep. And if the property has gone down in price there is no pressure on you to buy it.
What happens if I can’t afford my monthly payment?
Since equity purchase is optional, if you can’t afford to pay rent plus equity in any month, you can choose to only pay rent. If you cannot afford to pay rent we will usually allow you to trade some of your equity instead, to the value of the rent that you owe. In this way as long as you have equity in the property you will be protected and we will not consider it a default.
How long can I continue trading equity if I cannot afford to pay rent?
We will usually allow you to continue to do this for as long as you need to as long as you have a genuine need to do so and we believe there is a reasonable chance you will be able to start making payments again within a reasonable timeframe. As a responsible finance arranger we will suggest that you should speak to a financial adviser and consider alternative options if we believe it will be detrimental to you to continue trading your equity with us.
Can I buy more equity than planned?
We usually allow you to purchase as much equity as you like in any given month, with no fines or fees for doing so. However, for large amounts we may require a notice period, as described within our standard terms and conditions.
What happens if there is a loss on the property?
As we are partners in the agreement we will usually share the loss according to our respective shares in the property, as long as you have not breached the terms of your agreement and taken reasonable measures to avoid a loss being incurred. The property must only be sold for a loss if we both mutually agree to do so as partners.
How is any profit split if I sell my property?
If you sell the property and move on we each take our respective shares of any profit, and share any costs and expenses according to our respective shares also. If you are selling because you want to move house and re-finance with us, then we will give you all of your share plus half of our share.
How does Primary Finance make money?
We make money from the rent that we charge. We may also take some of our share of the profit if you wish to sell the property during the course of our agreement.
What’s the catch?
There isn’t one! We simply believe that a better solution exists to home financing, which is fairer to the homebuyer, and that’s what we have created.
I would like finance to purchase an investment property. Can you help me?
Yes we can. Although our focus is on arranging home purchases for individuals wishing to purchase their own homes to live in, we also support buy-to-rent customers.
Are investments smaller than £5,000 possible?
This is the minimum investment amount we can accept. You may be able to form a consortium with friends and family members to be able to make the minimum investment amount. However, we would need to perform our standard checks on all consortium members, and you would need to choose a single point of contact to receive the shares and dividends and distribute them amongst yourselves.
What returns are available?
In return for your investment you receive shares with an expected profit paid out as regular dividends or reinvested. The expected profit rate varies depending on the size of your investment. There are also other perks of investing such as getting a priority waiting list spot – see our promotional literature and website for details.
What is the risk exposure?
In return for your investment you will receive shares in a portfolio company (known as a mudaraba), set up to administer Primary Finance home purchase plans. These will be Class A ordinary shares, meaning you will be entitled to the profits of this portfolio company. Your exposure and return will be related specifically to the portfolio of homes that your capital is used to finance, and each of these will be secured with a legal charge. You will not be exposed to the risk associated with Primary Finance’s wider business operations. The shares will not carry voting rights, as Primary Finance will administer and run the portfolio.
What is the tax treatment for returns?
Returns are in the form of dividends on the shares you hold. The current tax-free allowance on dividends is £2,000 per year. Therefore, as long as you don't exceed this threshold, your returns will be completely tax-free! If you have other forms of dividend income you will have to pay the prevailing rate of tax on your total dividends. For more information visit gov.uk or speak to your accountant.
What other perks are on offer?
As well as the monetary returns you can also get a priority spot to skip ahead of the general waiting list for our product (currently around 5 years long). Furthermore, you can receive exclusive offers and updates from us and get access to our exclusive members network and events. You can also get your name or logo on our supporters e-wall for investments over £50k, as well as access to our best rates of finance. Crucially important, you will be supporting a truly visionary cause to eliminate interest and debt.
Does investing guarantee I will get finance if I apply?
Not necessarily. All finance is arranged subject to our eligibility criteria being met. Please see the FAQs under the How It Works page for information on eligibility criteria.
How is the priority waiting list structured?
Our general waiting list is currently around 5 years long and growing! If you invest with us, you can join our priority waiting list instead. This means you will have the opportunity to take out finance with us ahead of the general public. The priority waiting list is ordered by amount given or invested, as well as timing. Some people who gave qard hasanah in phase 1 of our fundraising have protected places on the priority list, meaning that their position will not change even if others give or invest more than them. You should note that if you take your funds out before we provide you with an exit offer you will lose your place on the priority list, as well as any other investment perks.
Can I refer friends, and what is the reward?
Yes, you can. If you successfully refer friends who invest we will add their invested amounts to your total when determining your place in the priority waiting list.
How will the money be used?
The money will be used predominately to finance properties, and will not be used for paying Primary Finance’s business operational costs. We will begin by offering Buy-To-Let Purchase Plans, which we are already able to do. Once we receive our full FCA permissions we will then be able to start offering Home Purchase Plans also. Around 3% of the money will need to go into regulatory reserves, and around 2% may be used to bolster these reserves. The profit rates we quote are always net of these amounts.
What security measures are in place?
Each property financed will be secured with a legal charge to the benefit of the portfolio company, which is owned by you. A legal charge is the same protection that a bank has when providing mortgages. If anything were to happen to Primary Finance, your money would remain safe within the portfolio company under your ownership. Furthermore our strict vetting criteria when offering finance, and our inbuilt protection mechanisms within our home finance product, both minimise the risk and impact of customer default.
How are returns calculated?
The rental returns received on the financed properties will first be used to pay any tax and expenses incurred by the portfolio company. For example, there will be some accountancy costs and receiving agent costs. The profit is then split between us in a simple ratio agreed upfront within your investment agreement.
How often are profits paid?
Any dividends declared from distributable profits are usually paid out quarterly.
Can I exit my investment?
If you need to exit your investment for any reason, you can submit a request to us. We recommend giving us 3 months' notice for us to consider your request. Investment exit may be subject to Primary Finance securing replacement capital, or homebuyers purchasing equity in their properties, whichever is sooner. If in doubt seek financial advice.
Are there any fees upon exit?
Any exit fees will only be netted off against returns you have already received up until that point. In this way we ensure we do not erode your capital. To cover our administrative costs, we may charge a small admin fee of up to 0.25% of your investment value when exiting your investment. If you have not received sufficient returns to cover this amount then we will cap the amount we charge at the level of returns you have recevied.
What price will the shares be bought back for upon exit?
Where we agree to do so, we will always repurchase or redeem shares at their original price. This is because we sell equity to our customers in their homes at original cost price rather than charging an uplift, and so the portfolio value does not necessarily increase with house prices.
What happens if Primary Finance doesn’t get institutional backing in the 3 to 5-year time period?
In this case we will continue looking for a larger investor to purchase the portfolio and make you an exit offer as soon as one is found. You can still request your money back with 3 months’ notice at any point.
What happens if Primary Finance falls into administration?
The funds in the portfolio company will not be callable by any administrators of Primary Finance if we fail and go into liquidation, as the company will be owned by you directly.
Why is the fundraise structured in this way?
Since Primary Finance exists to provide an alternative to the burden of debt, we would never find it acceptable to raise interest-bearing debt finance ourselves. If we had structured the fundraise as debt our investors would pay us a sum of money and we would owe them interest on the borrowed sums, which would need to be fully repaid by an agreed date. But of course, this would not be permissible under Islamic law. Instead, we have created a structure as the closest possible alternative that abides by our beliefs. We still expect to repay all the money invested and expect to provide growth on the investment, but on an equity basis rather than a debt basis.
Who are our advisors?
Our legal advisers (Trowers and Hamlins) are one of the best law firms in the City of London, and have helped us structure our investment offering. They have also helped us explain our investment model to the Financial Conduct Authority, who we have made aware of our fundraising structure. We have been diligent in utilising a network of the most reputable and trustworthy professional service providers in the market to deliver this opportunity in a robust manner.
Is this investment shariah-compliant?
Yes – our mudaraba investment structure has been reviewed and approved by Sheikh Haitham Al-Haddad (Islamic Council of Europe) in his capacity as independent Shariah scholar. It has also been internally scrutinised and approved by Sheikh Salman Hasan, our in-house scholar.
Is this investment right for me?
Only you can make the decision of whether to invest or not. We believe that Primary Finance will completely disrupt the way finance is done and provide a better way for our children to purchase their homes in future, free from the burdens of interest and debt. If you believe in this vision and want to help make it happen, becoming an investor could be right for you. We think that investing in this vision is more important than the potential of making returns, which are simply a nice bonus in our opinion. If you are unsure we encourage you to seek financial advice before investing.
Who can I speak to for advice?
You can speak to us if you want to obtain further information. If you want financial advice, we can put you in touch with an independent financial advisor who understands this investment product. We are not ourselves able to offer you financial advice on whether this investment is right for you.
Are shares transferable?
Shares are non-transferable and are not tradable on a stock exchange.
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