A new scheme from UK-based startup, Unmortgage, allows first-time buyers to get onto the property ladder by purchasing just 5% of a home and renting the rest.
Launched to the public in July 2019, Unmortgage gives people the opportunity to buy between 5% and 20% of a property, which they are then able to live in. Whatever percentage of the house you choose not to buy will be bought by a funding partner.
To qualify for shared ownership with Unmortgage, you need to have a minimum household income of £30,000 (before tax).
You must be able to pay an initial payment of 5% of the property’s value – this will be at least £12,500, as you are only able to benefit from the scheme when purchasing a property worth a minimum of £250,000.
It is unlikely that you will be able to purchase with Unmortgage if you have a poor credit score or have previously been declared bankrupt.
You will then make monthly rental payments, which are calculated by looking at similar homes in your area – whatever percentage of the house you own will be deducted from your rent every month. For example, if your rent is £900 a month and you own 10% of the house, you will only pay £810 a month.
You are able to increase your percentage of ownership at the end of any chosen month by making an overpayment on your rent, but you do not have to – if you’re struggling for money one month, you can choose to just pay your basic rent payment.
When paying extra to increase your ownership, the initial costs associated with buying the property will also be paid back (i.e. surveys, legal fees, stamp duty), so paying an additional £1,000 towards the ownership of the property will not necessarily increase your ownership by £1,000.
For tax reasons, the most you can increase your ownership by is 5% every year, up to 40% - after this, you either have the choice of continuing your monthly rental agreement or buying the remaining 60% of the property.
Who owns the rest of the house?
As mentioned earlier, whatever percentage of the property you do not choose to purchase is owned by an investor. In this case, Unmortgage work with asset management firm, Allianz Global Investors, who will manage the money that purchases the remaining percentage of the property.
Your monthly rental payments are paid to Allianz Global Investors, however you will not have direct contact with them – the only contact you will have is with Unmortgage, who act as an intermediary.
Unmortgage make their money by charging a fee to their investment partner – you are not charged extra.
First-time buyer stamp duty
When buying a property through traditional means, there is no first-time buyer stamp duty on properties costing up to £300,000 – with Unmortgage, this is not the case. In fact, you have to pay more.
As well as paying stamp duty on your original share, you will have to pay a surcharge of 3% for buying with an investor.
You will have to pay stamp duty again if you decide to buyout your investor entirely, as this will be treated as a separate purchase. You will not have to pay the additional 3% surcharge, but will be charged for the stamp duty bill on the full value of the property – even if you already own 40% of it.
Shared ownership home insurance with Unmortgage
When buying a property with Unmortgage, you will be required to pay for buildings insurance and a home emergency cover policy.
As you are the one living in the property, you will have to pay 100% of the buildings insurance. This will be purchased by your investment partner, who you will then repay in monthly payments.
You will pay your emergency home cover policy on a pro-rata basis, meaning that if you only own 5% of the property, you will only pay 5% of the premium. You will also pay for things like structural repairs on a pro-rata basis.
The pros and cons of shared ownership with Unmortgage
- You can buy a property without a mortgage
- You can live in a more expensive house than you would usually be able to afford
- There are no fees if you decide to increase your share of ownership
- There are no restrictions relating to pets, decorating etc.
- Heavy stamp duty rates
- Limited selection of properties
- Not available nationwide
- You can only increase ownership by 5% every year, up to 40%
- You cannot make any structural modifications
For more information on the service offered by Unmortgage, you can use the chat feature on their website to contact them.
Visit Bobatoo's home insurance page for more guides on the topic, or if you need to check your credit score for financial borrowing, read Bobatoo's review of Checkmyfile - one of the best credit reference agencies in the UK to check your credit score online for free!