It is the question every 20- and 30-something seems to be asking themselves at the moment – how will I save for a deposit? However, a new scheme from a company called Unmortgage is offering a way to buy a house with only a 5 per cent deposit and NO mortgage.
If sounds like a dream come true, but often with schemes like this there is always a catch.
How the Unmortgage scheme works
You need to put down a 5 per cent deposit of at least £12,500 (so the house will need to be worth at least £250,000). Also, you need at least a £30,000 household income before tax. Unmortgage will then match you up with a funding partner to buy the home together.
Unmortgage claims that it does all the time-consuming things such as chasing solicitors and analysing property surveys. Even though you only own 5 per cent of the property, you are all good to move in immediately and start nailing your favourite pictures to the wall.
From then on, you will continue to pay rent, which will go to the funding-partner who helped you buy the home. The rent is calculated by estimating what similar houses in the area will be paying in rent. So if you buy 10 per cent of a home that would normally rent for £1,000 a month, your first payment will be £900.
You can increase the percentage of your ownership at any time by paying more rent every month.
‘We are targeting people who can’t save enough for a deposit,’ Josef Wasinski, a co-founder of Unmortgage told The Times. ‘For us, it’s the missing step between renting and getting a mortgage.’
The scheme claims that it charges no fees and the initial stamp duty payments are split between you and your investment partner. So at first glance, it seems like the ideal way for first-timers buyers to get a foot on the property ladder.
But as always there are a few catches that could keep milking you for more money than if you’d just saved for a deposit.
The downsides of Unmortgage
You’ll need a good credit score to use the scheme, and your property will also have to meet all the requirements, meaning it will need to have at least two bedrooms. If your dream home happens to be on the main road, Unmortgage have ruled out lending in that scenario.
You could also be caught out by inflation. Rent will rise each year in line with the retail price index, but if inflation falls, sadly your rent will stay static.
A huge thing to keep an eye out for is that you won’t qualify for first-time stamp duty discount. While Unmortgage says that stamp duty payments are split between you and the investor, you’ll be hit with an extra 3 per cent stamp duty fee because you’re buying with a business partner.
Also, as you gradually by the home, once you own 40 per cent of the property you’ll have to pay stamp duty AGAIN to refund the investor.
Another hidden expense could come in the form of insurance. Unmortgage picks both the buildings provider and home cover provider, leaving you stuck with an uncompetitive rate.
What do the public think of Unmortgage?
However, aside from all the extra hidden expenses can you trust the scheme? On a MoneySavingExpert.com forum people were sceptical about the idea of shared ownership with an investor.
One user commented: Who fixes any issues in the property? Me as 5 per cent owner paying (I assume) market rate rent? Or the ‘investor’? I think I’d rather just save a bigger deposit and get a traditional mortgage.
However, another user was keen to defend the scheme: ‘I’m all for caution but let’s not go straight to “scam” or “dodgy” just because it’s new and unproven. This looks pretty innovative to me. Yes, it’s a shared ownership scheme, but there’s already a shared ownership scheme that many people have happily benefited from, so the basic idea has some merits.’
Would you consider using the no mortgage scheme?