A £500m UK residential property fund has been launched to help first-time buyers raise a deposit to buy their first property. The Investors in Housing fund from specialist property investment firm Mill Group will work on a co-investment model.

Under this model, the buyer acquires 25-50% of the property with the fund buying the rest. Buyers will use the deposit cash to provide the loan to value required by lenders.

They will pay a monthly indexed investment fee, based on market rent, on the part of the property they do not own. They can increase the percentage of the property owned at any time.

The fund aims to provide investors with a running yield of 6% per year as part of a projected internal rate of return of 15% a year over a five-year period, on an ungeared basis, after fees. Fund fees will be around 0.7% a year of assets under management.

David Toplas, chief executive of Mill Group, said the fund will provide a solution to a lack of movement in the market which has been created by first-time buyers struggling to find the deposit required to access the housing market.

He added: "It is a win for hard pressed buyers and for institutions who can now invest in residential property with a superior investment model without the previous associated issues."

Peter Bolton-King, chief executive of the National Association of Estate Agents, said: "A fund such as this will prove to be the only way for many Londoners to be able to afford to buy given the current constraints in obtaining affordable mortgages.

"The residential housing market has been ripe for private sector investment given the consistency of the returns it offers. I hope that this represents the start of a positive relationship between institutional investment and home owners," he added.

London based Mill Group has almost £1bn in assets under management.