There’s a new way for first-time buyers to get on the property ladder – and it doesn’t involve getting a mortgage.
Launched to the public in July, Unmortgage offers people the chance to buy a share of between 5% and 20% in a property, which they can then live in.
Rent, set at local market rates, is paid on the remaining share, which is owned by an investor.
Homeowners have the option of building up their share over time, or can completely buy out the investor, reports the Manchester Evening News.
To qualify, you must have a minimum gross household income of £30,000 (or a maximum of £100,000), and the rent can only cost up to 36% of your income.
The idea is that buyers can become partial homeowners, without needing to worry about the salary-based lending caps normally applied by mortgage lenders.
According to the website, ‘Unmortgage is for you if you can’t afford to buy the home that you can afford to rent.’
Unlike shared ownership, it’s not just available on new builds, giving you more choice in the kind of property you buy . Once you’re in, you’ll be able to increase your share as often as you want.
The scheme also eventually allows you to buy 100 per cent of the property, as opposed to the 40 per cent cap in shared ownership schemes.
Here’s everything you need to know about the Unmortgage scheme:
How does Unmortgage work?
If you’re a first-time buyer, you’ll need to pay at least 5 per cent of the deposit for your new home. Unmortgage requires new customers to pay at least £12,500 as a minimum to use the service.
Once you’re up and running, you can buy up to 5 per cent more of your home each year, up until a maximum of 40 per cent. After reaching 40 per cent, Unmortgage expects buyers to either buy the rest of the property with cash or with a mortgage.
You’ll only be able to buy the property in full if its value has not fallen below purchase price.
Who can apply for Unmortgage?
To apply you’ll need an income of between £30,000 and £100,000 before tax, whether you’re renting alone or with somebody else.
To use the service you’ll need an acceptable credit rating, and if you have struggled to meet rent payments and/or been made redundant in the past, chances are your application will be rejected.
What homes can you buy on Unmortgage?
Unmortgage has laid out a specific set of guidelines for the types of homes its investors are willing to to fund.
- Homes in quiet, urban areas
- Homes with no foundation problems
- Homes which are ready to move in to
- Homes with between two and five spacious bedrooms
- Homes which are freehold, share-of-freehold or leasehold with a lease of at least 100 years.
As investors want to place their money into properties which will increase in value over time, Unmortgage will not help with the purchase of new-builds, properties on main roads, motorways or rail tracks, houses with ‘unfairly sized bedrooms’ or former social housing.
How is rent calculated?
To calculate the rent you pay on your home, Unmortgage will consider the rental value of similar homes in the area and then deduct your deposit from that amount.
Rent can rise each year in line with the RPI (retail prices index) measure of inflation. However, your rent price will not drop if inflation falls.
How is Unmortgage different from renting?
Although you don’t immediately own your new home, you won’t be restricted in what you can do with it. Even though you’re renting the part you don’t own yet, you’ll be able to have pets, nail up pictures and paint the walls. The only thing you won’t be able to do is major renovations, as these don’t always go to plan and could affect the price of your house before it has been fully paid off.
Should you use Unmortgage if you can get a mortgage for a home you love?
Unmortgage has been set up for first-time buyers who can’t get a mortgage for a home they could easily afford to rent. But if you can get a mortgage for a home you love, it’s advised that you speak to an independent advisor for a professional opinion on the best course of action to take.
Do you have to pay stamp duty?
In short, yes. Unfortunately, using Unmortgage will not make you exempt from paying stamp duty, and you may find yourself paying it at an enhanced rate. The initial stamp duty costs will be split between yourself and the investment partner.
Unfortunately using the scheme will make you exempt from first-time buyer stamp duty discount, so this is something to consider.
Because you’re buying as part of a partnership with a business, both you and the investor will be charged with an additional 3 per cent stamp duty fee on top of the usual rates.
And, if you go from 40% to 100% ownership you’ll be liable to pay stamp duty again on the full property value – but this time without the 3 per cent surcharge.
What fees will you need to pay?
While Unmortgage claims to charge no fees, you will still be liable to pay for solicitor and surveyor fees, as well as any leasehold fees. These costs will be split proportionately with the investment partner.
A RICs surveyor will value the home every year, and online valuations will be provided each month.
Can you move out of your property before you’ve bought it in full?
If you decide you want to move out of your Unmortgage property before you have repaid the investors in full, you can do.
While you’re able to stay in your home as long as you keep up with rent payments, if you decide you want to go elsewhere, the funding partner will be given three months to decide whether they want to buy your stake or sell with you.
If you wish to move on you will be liable to pay certain fees, such as a £350 fee towards valuation costs of the property. You will then be eligible to split any remaining selling costs with the investor – a calculation which is based on your stake in the property.
By Rachel Pugh & Amardeep Bassey
Source: Kent Live