You are using an older browser version. Please use a supported version for the best MSN experience.

Unmortgage lets you buy a house without a mortgage

Liverpool Echo logo Liverpool Echo 22/08/2019 Rebecca Koncienzcy
a person standing in front of a store: Unmortgage say they can help you buy a house without a mortgage © PA Unmortgage say they can help you buy a house without a mortgage

A company is claiming it can help people buy a house without the need for a huge deposit.

Unmortgage says it aims to fill the "missing step on the property ladder" by essentially allowing you pay for 5% of the property and its funding partners will buy the rest and rent it to you.

Their motto is "we believe if you can afford to rent it, you can afford to gradually buy it."

You can increase your ownership of the property at any point by overpaying on your rent.

Internet discussion boards have been debating this new scheme since the idea was first set up in 2016 with obvious questions around the positives and possible negatives.

We have had a look at what is involved in the scheme and what questions you might ask before signing up.

You still need a deposit

According to their own eligibility criteria, you must have at least £12,500 for a deposit - or 5% of the house value - still a huge sum of money for many working first-time buyers.

On top of this, you must have a minimum household income of £30,000.

Unmortgage said: "Unfortunately, we can’t help you if you have a poor credit score, have consistently failed to pay rent or you’ve been made bankrupt."

They have to 'like' the house too

If you are eligible and get passed the first few steps, once you have settled on a house, Unmortgage have to like the house too.

They state on their website: "The homes we buy have to be low-risk investments for our investment partners."

And this is part of the reason why they don't buy new builds, because they say they can't work out a fair price for them, haven't proven they have been built well and do not have features which could grow in value - such as fireplaces and bay windows.

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.

And you will need to pay stamp duty. 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.

Who else is buying your home with you?

  a close up of a sign: Many struggle to get on the property ladder © PA Many struggle to get on the property ladder  

While you would be expected to put up 5% of the money, the other 95% of the cost of the house will be bought up by their investment partners.

These include London-based Anthemis Exponential Ventures and investor Augmentum Fintech plc.

What if you can't pay the rent?

Like any lettings contract, if you continuously fail to pay the rent you will be asked to leave the property.

Unmortgage say they would do their "best to be flexible" so that you could stay in your home, but if attempts to get back on track with payments fail, the funding partners will offer to buy your share of the home at the current value and minus any rent arrears.

It is important to note that under this scheme your rent will rise each year with inflation. But it could also decrease depending on how much of the house you own.

When will you own the house?

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.

Loss of its founder and CEO

In May this year, founder and CEO of Unmortgage, Rayhan Rafiq-Omar left the company and was replaced.

According to techcrunch.com it is unclear why he left and the website's writer Steve O'Hear said it was of his "own volition".

A spokesperson for Unmortgage told the ECHO: "Unmortgage entered the next stage of its growth strategy in May, it strengthened and restructured its senior team to reflect the needs of the business.

"Hugh Boyle was appointed as CEO and leads Unmortgage day-to-day as it provides a new route to homeownership for the millions of people who are currently locked out of the market.

"Hugh is the Former International Division CFO and CEO of MBIA UK Insurance, subsidiary of MBIA Inc.  He is supported by Nigel Purves, COO, Conrad Holmboe, CIO and Co-founder Josef Wasinski."

FCA authorisation

The company is currently seeking authorisation from the Financial Conduct Authority.

The FCA is the regulating body for the financial activities of any business and under the Finacial Services and Markets Act 2000 all companies (including not-for-profit) have to be registered with them.

Registration can take between six and 12 months depending on how the form is filled in.

The fact that they have not secured this just yet should not be too alarming for the time being, but it may put some off until they have it officially.

If you deal with a company that is not FCA approved, you will not be covered by the Financial Ombudsman Service or the Financial Services Compensation Scheme if something goes wrong.

A spokesperson confirmed to the ECHO they are in the process of getting FCA authorisation.

Pros and cons of Unmortgage

This is the lay of the land, according to Which?

Pros

You can get on the property ladder without a mortgage

You can buy a share in a more expensive property than you’d usually be able to afford with a mortgage

There’s no risk of running into negative equity

You’re not restricted to new-builds, as you would be with a Help to Buy equity loan or shared ownership

You can increase your share as often as you want, fee-free

You can treat the property as your own when it comes to things like decorating and pets

It may be easier to sell than a shared ownership property as you can list it on the open market

Cons

You not only lose your first-time buyer stamp duty exemption/discount, but have to pay it at an enhanced rate

You have to pay stamp duty on the full property value if you want to go from 40% to 100% ownership

You are limited to homes that have been pre-selected by Unmortgage

The scheme isn’t currently available nationwide

You can only increase your share by 5% per year (until you buy the investor out)

You can only buy the investor out if the home has grown in value

Selling is likely to take longer than it would with a property you fully own If you can’t pay the rent, the property could be repossessed (like with a mortgage)

You won’t be allowed to make structural changes such as replacing the kitchen or building an extension

Before going ahead with any house purchase you should speak to an independent advisor. For more information on Unmortgage, head to https://www.unmortgage.com/ .

AdChoices
AdChoices

More from Liverpool Echo

Liverpool Echo
Liverpool Echo
image beaconimage beaconimage beacon