A New Shared-ownership Scheme called ‘Gradual Homeownership’ by Wayhome has Hit the Market
Under this new rent-to-own scheme first-time buyers could buy a home with a 5% deposit and no mortgage. However, it does come with a few restrictions.
This new scheme by the Company Wayhome, will partner with homebuyers on their purchases with the buyer paying a deposit between 5-30% and the company funding the rest. The buyer will then have to pay rent to Wayhome on the rest of the share they do not own. The buyer can ‘staircase’ at any time and pay lump sums to increase their share from a minimum of £50 to a maximum of 5% of the property value per year.
The Scheme will allow buyers to take on properties worth 6-8 times their annual income where usually, first-time buyers are only allowed to borrow between 3.5 – 4.5 times their annual income. This means first time buyers could purchase larger properties between £200,000 - £500,000 with no building work needed, have 2-5 bedrooms, well-sized living spaces and situated in desirable area. They will not be buying any new builds. It is currently active in 41 locations including the outskirts of London, the Home Counties, the South Coast, Bristol, Leeds and Manchester.
The basic criterion for applying is that buyers will need to be aged between 21 and 55 with a household income of at least £30,000 and no more than £140,000, pass a credit check and not own another home.
The biggest restrictions are that buyers would still have to pay stamp duty as you are buying a home as a limited liability partnership with Wayhome’s investors. Buyers would only have to pay stamp duty on the proportion of the home they are buying with a deposit, so if a buyer placed a 5% deposit they would only have to pay 5% of the stamp duty bill. With every amount of increase in your ownership, the buyer would have to pay back that proportion of the stamp duty bill.
Another restriction is that buyers cannot improve property by adding extensions or replacing the Kitchen and any day-to-day maintenance they would have to cover. Buyers can still decorate and furnish the property, with the added benefit that they would only pay their percentage share in emergency maintenance cover and building insurance.
Wayhome have clarified that if the buyer keeps paying their rent and keeps to the terms of their contract, you cannot be asked to leave.
What happens if you want to leave or buy out of the Scheme? Another restriction on the Scheme is that buyers will only be able to purchase a maximum of 40% of the shares. After that, there are three options: pay rent on the remaining 60% without increasing your share, buy the investors out by getting a conventional mortgage or sell their stakes back to the investors. If you were to buyout ‘early’ usually set between 5-10 years in the contract, the buyers would need to repay all the costs for the property survey and legal fees. The buyer would also have to pay for a £350 valuation fee either way and if the investors choose to buy back, there can be up to a 6 months wait before a buyer can move.
Wayhome pre-filters out properties that are available on the market to make sure the properties they advertise to potential buyers are in good condition. The buyer can attend the viewing, but Wayhome acts as the buyer’s agent dealing with negotiations, conveyancers and surveyors.
The Gradual Homeowner Scheme is suitable for those who are living in areas where average property prices are drastically higher than their annual income and at a price a normal mortgage would not cover. This bridges the gap by not having to save for decades, wasting time people do not have, or have family members help, which many first-time buyers do not have the luxury of. Though it is not ‘catch free’ and you would have to take out independent advice to make sure the scheme would benefit you more than a regular mortgage and not hinder you later down the line.
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