‘Gradual homeownership’ company, Unmortgage Limited, has been around since 2016 and partnered with Allianz Global Investors in July 2019. Its scheme is similar to the government’s shared ownership scheme, which lets mainly first time buyers purchase a percentage of a new build property with a mortgage, while renting the remaining percentage at a reduced rate.
Unmortgage’s approach is to partner home buyers with investors who will each part-own the home instead of using a mortgage.
Who can use the scheme?
To qualify for the scheme, first time buyers must have a good credit score and be able to invest a minimum 5% deposit of at least £12,5000, so the property to be purchased must be valued at £250,000 or more. The maximum deposit is 20%. The household income required is between £30,000 and £100,000 before tax.
The ‘funding partner’ invests the cash and the home buyer pays the partner a monthly rent based on similar homes in the area, less the percentage deposit paid. Rent can be increased in line with inflation each year but it won’t be reduced if inflation falls.
The home buyer can purchase a further 5% of the home each year up to a maximum of 40%. At this point, home buyers are expected to buy the remainder of the property with cash or a mortgage, which can only happen if the value of the property is not less than the purchase price.
What property is considered?
Unmortgage will only buy into houses that represent a good investment for its partners. For this reason, it stipulates that the property should be in a ‘good’ area, be in good structural condition and be neither the cheapest or most expensive home in the area. Properties with two to five bedrooms are considered and the property must be the home buyer’s main residence. Freeholds and leaseholds with a minimum 100-year lease are considered.
What isn’t considered is property on busy main roads or with odd-size bedrooms or flats in basements or over commercial property. Ex-social housing and new builds are also not allowed.
Unmortgage says it doesn’t charge a fee but home buyers will still need to pay fees for a solicitor and surveyor, as well as any leasehold fees, although these will be shared with the investment partner. An online valuation is provided each month and the home will be valued every year by a RICS chartered surveyor.
One downside of using Unmortgage is that home buyers will not benefit from stamp duty exemption that applies to first time buyers buying homes valued at up to £500,000 and you will be considered to be purchasing as a business. Although initial costs will be shared with the investor, an additional 3% stamp duty fee will apply above the usual rates. You will be required to refund your investor each time you buy a new percentage of the property (known as ‘staircasing’) until you own the full 40%, unless this takes longer than five years in which case it will be waived. Additionally, if the home buyer increases his share from 40% to 100% ownership he will be liable to pay stamp duty on the full property value, although it will no longer attract the additional 3% business surcharge.
If you want to sell the property, a fee of £350 is payable and the investor has three months to decide whether it wants to buy your share or sell its share to you. The home buyer is the legal owner of the property in the event of the investor going out of business, in which case Allianz would administer the process.
If you’re buying a new property, whether you’re buying with or without a mortgage or help from another entity, make sure you ask a Chartered Surveyor to assess your new home to look after your property investment.