First-time home buyers can buy a home with a 5 percent mortgage and no mortgage under the new lease-to-buy scheme, although they will have to pay stamp duty at the same rate as second home buyers.
Wayhome is a real estate company backed by a £ 500 million investment from retirement funds that will partner with home buyers on their purchases, with the buyer paying a security deposit of 5 to 30 percent and the company the rest.
The buyer then pays Wayhome the rent for the rest of the property, which increases annually with inflation, and can pay lump sums to increase their share over time.
The lease-and-buy scheme, Wayhome, buys homes with new buyers to help them climb the stairs, but there are a few restrictions they should be aware of.
Wayhome reports that “hundreds” of potential buyers are already browsing properties for this scheme, and there are five buyers who have already accepted offers.
However, the fine print around the schema includes some potentially costly fees and penalties, which we will explain below.
The company is part of the Unmortgage Group, which pioneered a similar scheme called Unmortgage back in 2019, but is now launching under a new name.
Since this scheme requires a 5 percent bond on the value of the home, the first question to ask is why Wayhome is better than getting a 95 percent mortgage and buying a home immediately.
Nigel Purves, chief executive of Wayhome, says this will allow buyers to buy properties for six to eight times their annual income, while most mortgage lenders only allow new buyers to borrow 3.5 to 4.5 times. …
This means they can live in larger homes in more attractive areas than the typical start home, although rents can be higher than mortgage rates.
Wayhome will buy homes ranging from £ 200,000 to £ 500,000 that are in good structural condition, require no construction work, have two to five bedrooms and good sized living quarters, and are located in desired areas. He will not buy new buildings.
It currently operates in 41 locations, including the London Boroughs, Boroughs, South Coast, Bristol, Leeds and Manchester.
Wayhome offers the ability to partially own a home without getting a mortgage
Nigel Purves, chief executive of Wayhome, told This is Money that the project was intended to be “a bridge between renting and owning through conventional mortgages.”
“If you can get a house of the right size in the location you want with a mortgage four times your income, we tell people that – obviously they should follow the advice – but this is what they should probably do if they can.
“The problem is that most of our clients live in areas where real estate is six, seven times the income or more, and the only way to bridge this gap is to save for decades or have family members who can help you, which, of course, for most there are no people. “
Customers applying to use Wayhome must be between the ages of 21 and 55, have a household income of at least £ 30,000 and no more than £ 140,000, have a credit check, and have no other home.
The scheme is aimed at people who cannot get a traditional mortgage due to too low a deposit or salary, and Wayhome claims that half of the 80,000 people who have signed up so far are key workers.
What are the limitations?
There are some important limitations that anyone considering this scheme should be aware of and should also seek independent advice before moving on to it.
The largest of these concerns stamp duty. While first-time buyers generally don’t pay stamp duty on purchases under £ 300,000, those using Wayhome after the stamp duty holiday ends on September 30 will pay the 3 percent rate typically charged to second home buyers and real estate investors. …
This is because they are buying their home through limited partnerships with Wayhome institutional investors, including Allianz GI and pension funds, who poured £ 500 million into the company to buy its first homes.
They only pay the portion of the stamp duty that is based on the share of the house they are buying, so a buyer who pays a 5 percent bond will pay 5 percent of the total stamp duty.
For example, a buyer who buys a 5% stake in a £ 300,000 home for £ 15,000 will pay a stamp duty of £ 450.
However, if they retained their ownership, they would have to pay extra – so if they wanted to increase their stake by 5% every year for five years, it would be a total of £ 2,250.
Buyers can renovate their home … to some extent
There are also some restrictions on how Wayhome buyers are allowed to modify their property, both internally and externally.
While homeowners are allowed to do redecoration and furnish their homes however they want, they are not allowed to make extensions or new kitchens.
When it comes to renovations, homeowners pay for any ongoing maintenance, such as replacing furniture.
They will share the cost of building insurance and emergency coverage with the investor, so whoever owns a 5 percent stake will pay 5 percent, and the same goes for things like replacing a boiler.
As long as they continue to pay rent and honor their contract, owners cannot be asked to leave, Wayhome said.
What happens if buyers want to leave?
Another limitation for buyers is that they can create no more than 40% stake in the home.
After that, they can stay and pay rent for the remaining 60%, buy back Wayhome investors, or sell their stake back to investors and leave.
Purves says there are two main ways out for people using Wayhome.
“We expect that there will be people who see this as a way to gain access to property now, which they could only get with a mortgage in ten years: they will throw off capital, and their salaries may increase, and eventually they will be able to get the usual mortgage and redeem us.
Others, in our opinion, will find during this time period that they may want to change location, they may want to move to a less built-up location, perhaps where their income-to-value ratio is lower, and therefore they will ask us to buy their share. give them up and they will go to buy a house elsewhere. “
Homeowners will share the value of their home with an institutional investor.
Buying them out would mean using the accumulated capital along with any other savings as a deposit and obtaining a basic mortgage loan.
Homes purchased with Wayhome also have an early buyout period of 5 to 10 years. If the buyer decides to buy the entire home during this time, he will be required to reimburse the property survey and legal fees, which can amount to thousands of pounds.
If a buyer wants to leave their home, Wayhome investors are given three months to decide whether they want to buy out the resident’s share or put the home up for sale.
This carries a £ 350 appraisal fee anyway, and if investors want to buy a share, they have three more months to do so, which means a potential six month wait for the buyer to be able to move. All selling costs are apportioned based on the share that the buyer owned when he decided to leave.
Since they will still be first-time buyers in the eyes of the mortgage lender, they may have to pay a higher interest rate on their next mortgage than in a typical second step, and they may be able to borrow less.
How are houses chosen?
Wayhome checks all properties on the market in the area, and those that pass through its filter are then advertised to potential buyers on its website.
“We screen all properties available on the market and conduct manual and automated backstage checks to ensure that these are the homes we would buy, excluding those in poor condition, and making sure that buyers don’t overpay “, Says Perves.
Once a buyer sees a home they like, they can attend viewings as usual, but Wayhome essentially acts as a purchasing agent, acting on their behalf for most of the process. This includes processing of trades.
It also employs its own surveyors, carriers and surveyors. The buyer pays the same interest as the share he buys, but he will have to pay the investors back if they move during the early repayment period.
While there are many caveats, Wayhome can work for people in certain circumstances as a bridge between renting and owning if they are clear about the possible fees and charges.
The company certainly has big plans, and Perves said he is looking for a £ 10bn investment over the next five years to buy more homes.
This would allow Wayhome and its investors to buy between 30,000 and 50,000 properties.
How is co-ownership different?
The Wayhome model bears some resemblance to shared ownership, where buyers buy part of the home and rent the rest.
However, if buyers with equity ownership use a mortgage to purchase their share, Wayhome buyers pay in full.
The advantage of this is that with Wayhome, the homeowner will not have to make mortgage payments and pay interest on top of their rent.
However, the ability to use a mortgage means that equity buyers can own larger packages in their homes, paying less money up front.
As with fractional ownership, Wayhome buyers will be able to increase their value over time by “climbing the stairs” or buying a larger share of their home.
The Wayhome model allows buyers to upgrade their property by as little as £ 50 and up to 5 percent of the property’s value per year without paying fees.
Co-ownership schemes allow owners to buy a larger share more quickly.
They are generally also allowed to “raise” once a year, but each time with a minimum share of 10 percent, although the government has proposed lowering this minimum threshold to 1 percent.
While Wayhome limits the buyer’s share to 40%, most fractional ownership schemes allow buyers to “ climb the ladder ” up to 100%, which means they can gradually transition to full ownership as their income increases, or they save more.
If they climbed the stairs a full 10% each year, they could own more of their home faster.
However, if their shares are mortgaged, they will not receive the full benefit of the equity in their home.
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