Pretty much this.
If I take the comparison of what I’ve bought vs what they offered me.
Rent vs repayment it’s about £400 worse off for me on unmortgage.
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General consensus on MSE forum is “avoid”
https://forums.moneysavingexpert.com/showthread.php?p=71509946
Hi all,
I’m Nigel, one of the co-founders of Unmortgage.
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tl;dr: thanks for checking us out. Sorry there’s not much information out there about us at the moment. Our new homepage will be live in the next couple of weeks and that should answer most of your questions. If you’d like to know more now please read below or email me at nigel@unmortgage.com.
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Firstly, a big thank you for the interest and feedback. We haven’t been shouting about Unmortgage much yet, so it’s always humbling when people take the time to check us out and think about what we’re doing.
We’ve spent much of the last 3 years focusing on raising the funds to start buying homes. I’m pleased to say we’re close to making an announcement now (more on this below). But the upshot of that has been that we didn’t allocate much time for working on our website. So my apologies to everyone who hasn’t been able to find an answer to any questions they may have. By coincidence we’re days away from putting a new homepage up with a detailed set of FAQs that should help with most of them (and if anyone would like to see it and help us test it, please email me at: nigel@unmortgage.com).
In the meantime I just wanted to pick up on a couple of points that people have mentioned here.
What’s the catch? - we get asked this a lot! There’s no catch, honestly, but whether Unmortgage will be right for you will depend on your circumstances.
We designed it as a bridge between renting and a mortgage - it’s not supposed to replace a mortgage. So if you can get a regular mortgage on the home you want in the area you want (as it sounds like you’ve been able to @anon61087081?) you should probably do that, after taking proper advice of course. don_quixote is quite right that with interest rates where they are at the moment, Unmortgage is more expensive than a mortgage, if you can get one.
Lots of people can’t though, because either they don’t have a big enough deposit or the home they want is 5x, 6x, 7x their income. The bank will only lend 3.5x-4x, and their ‘Bank of Mum and Dad’ can’t help them to bridge the gap. But they can afford to rent those homes - that’s where we come in.
Because of the way our model works, we can put people in a property that’s 5x-7x their income. At that level, our testing suggests that rent will be 22-30% of gross income, so in line with what most people are paying now. In any case, rent for a particular property is set at market rate for that property on day 1 pro-rated for the amount you don’t own - if you buy 5% on day 1, you pay 95% of the market rate rent for that property. Market rate rent is verified by an independent RICS-regulated surveyor.
Rent increases by the RPI measure of inflation each year and every 5 years you (and only you, not the investors) can reset to market rate if you think the rent is unfair. With Shared Ownership schemes rent usually increases by more than RPI each year and there’s no way to bring it in line with market. With a mortgage, after the fixed term your payments are based on interest rates, which are much more volatile than RPI.
There are no markups on rent, though the calculator on our current homepage is unsophisticated at the moment so it might look like there are - again that’s changing on our new site.
You can buy any home currently for sale that fits our criteria (but we are quite strict on condition, so no fixer-uppers). If the property is a house, you will part-own the freehold. We prefer freehold houses first, then share of freehold flats, then leasehold flats last and we don’t buy brand new builds (so no bulk buying from developers) because the resale market for a particular new build flat is not yet proven. If you prefer a new build, then Help to Buy or Shared Ownership may work for you.
There’s no complexity around buying more equity each year and there are no fees for this either - Tom-H you’re quite right that this makes our model much more flexible than conventional Shared Ownership.
However, @nickh you’re quite right that there is a 5% limit on equity buying per year. This is to stop people using the product as a hedge against house prices, which would be unfair on our pension fund investors (more about them below). A couple of points on this though. Unmortgage is not supposed to be something you do forever. The idea is that if you go from 5% to, say, 20% with Unmortgage, you’ll then either buy us out with a conventional mortgage or take that 20% and use it to buy a different home with a conventional mortgage. So you would be able to own the whole home in the future by replacing Unmortgage with a conventional mortgage when you can.
Secondly, it’s worth bearing in mind how our 5% per year limit compares to a conventional mortgage in practice. Because of the interest, for the first few years on a standard repayment mortgage you’d usually be acquiring way less than 5% of the equity each year as a first-time buyer. And many mortgages will charge you fees for overpaying or for repaying early.
Reading between the lines I think there are also some questions about why our investors would want to do this and how we make money. The investors are pension funds - a secure, long-term rental return is perfect for them. And they’re the perfect partner because they don’t want to keep trading their money in and out - this means they can give you the guarantee that you can stay as long as you want to. We make all our revenue by charging them fees for arranging and managing the investment (customers are charged zero fees by us) - our business model is just like any fund manager in that way.
Finally, where are we at? Last year we signed a Joint Venture with one of the UK’s largest fund managers to help us raise our first Property Fund (not to be confused with the £10m fundraise we announced in Techcrunch, which is for the company only). This fundraise is underway and we should be ready to buy our first homes for Unmortgage customers over summer this year. We should be able to say more about this soon.
If you have any other thoughts or questions please drop me an email, we’d love to hear from you.
Thanks for reading,
Nigel
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Thanks for checking us out @Melton. I’ve added a longer note with more info as a reply to the OP, hope that explains some key points.
On your questions, you can stay in an Unmortgage home as long as you want and no-one can force you to sell your share, providing you continue to pay your rent and look after the home.
If you’d like to chat more about your circumstances and whether we can help when we launch, please drop me an email at nigel@unmortgage.com.
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What happens if a Borrower/ Tenant defaults on their repayments?
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Thanks for popping up here and engaging with us. Absolutely the best way to keep people informed and prevent speculation. Interesting proposition. For someone to purchase with Unmortgage, would the lending criteria be similar to a traditional mortgage? (Of course with the caveat that you would ‘lend’ on 5-7x salary). I’ll keep an eye out for the FAQs.
@TR1 no problem, thanks for your question. Because we’re not lending any money we can be less strict on certain criteria than a mortgage lender would be. For example, it’s easier to get an Unmortgage if you are self-employed or a company director than it would usually be to get a conventional mortgage.
Like most mortgages, though, we can’t offer an Unmortgage to anyone who has an adverse financial history eg bankruptcy, County Court Judgements, IVAs etc within the last 7 years.
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Is there a restriction to the properties you will will offer on e.g. freehold/leasehold, new build/old build and so on?
Whilst I already have a mortgage (or at least my wife does), this at least now gives me a personal ‘use case’ for Unmortgage.
We’re considering selling. I’m also open to the idea of contract work. In reality, I’m about to start a new full-time job, but I can now imagine a scenario with an experienced contractor or sole trader who may initially struggle to get a ‘traditional’ mortgage.
The ability to buy a share (effectively equal to their deposit), and buy up a greater share at a cap of 5% per year (in theory could own the lot within 19yrs assuming a minimum 5% deposit) works perfectly for them. As you say, in reality they may wish to sell before realising total ownership.
Source of funding and fee allocation also makes much more sense now.
@anon20446743 thanks for the question.
It’s in everyone’s interests, including the interests of the investors, for a customer to stay in the property as long as they are able. So we’re not going to take possession of the property the instant someone falls into arrears. Our approach will depend on the reasons why someone has fallen into arrears, and what they think they’ll be able to do to make up the payments.
Most arrears are short-term and accidental - someone might pay for a holiday and forget there’s not enough money in their account for their rent. Here we’ll just chase people to inform them they’ve missed their payment, and usually the payment will be made soon afterwards. The matter would then be closed from our point of view.
If the problem is more serious - maybe they’ve lost their job for example - we’ll work with the customer to help them back on their feet and to determine a payment plan to make up the arrears. This could include the customer releasing some of their ownership share as a last resort.
Ultimately, if the person has been in arrears for 6 months+ and they’re unwilling or unable to formulate a payment plan, we would have to seek possession of the property, but that would be a last resort.
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Thanks for the question @anon72173902. We prefer freehold houses first, then share of freehold flats, then leasehold flats last and we don’t buy brand new builds because the resale market for a particular new build flat is not yet proven.
We’ll only buy properties that are in good condition and not compromised for location setting (eg not on main roads, or backing onto a railway).
When we launch in an area we’ll be providing a curated list of properties currently live on the sales market in that area to choose from. Customers will also be able to send us properties if we haven’t launched in their area yet.
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Thanks @TR1 glad that’s helped to clear some things up. You’re quite right that our product will work well for some people who are highly reliable but not well served by the traditional mortgage market, though not just for those people.
There’s an annoying tax technicality (the Annual Tax on Enveloped Dwellings for any property tax enthusiasts!) that kicks in once a person owns more than 50% of the home. As a result, we won’t be able to allow people to buy more than 50% of their home in total unless they buy us out 100% with a conventional mortgage. Likelihood is though that even sole traders or contractors would be able to get a conventional mortgage long before then, as their equity would have built up to the point where a traditional lender would serve them.
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Ok so if I find a property I like chances are I may be declined as it may not match your criteria?
EDIT:
I wouldn’t be looking at main roads, train tracks or flight paths.
It’s definitely possible, but I can’t give you a firm probability without knowing more about where you’d be looking, what you’d be looking for, and about your circumstances.
If you find one you like from our curated list in one of our launch areas chances are it’ll work for you (the list is personalised to your circumstances, but lots of other things can go wrong in a house purchase).
If you drop me an email with roughly what you’re looking for I could give you a rough idea for now. Or if you’d prefer I can organise a call with one of our property specialists who can talk you through it.
It doubt it would be in your ‘curated list’ as I know what I want and what area.
I’ll shoot you an E-Mail with what I’m looking at and what I want shortly.
Is this how Muslim mortgages work? A way around paying interest?
In sharia law the bank owns the property in whole and you lease from the bank
I like the FAQ about rent:
" You will be informed of this rent beforehand to make sure you’re happy with it…" - and if you’re not happy with it?? They’ll charge it anyway!
I think it’s a good concept for lower value propeties where people aim to stay for a long time (say family connections to that area, or always lived and worked there).
Selling Shared Ownership properties can be a nightmare (not always - but generally it’s better to obtain 100% ownership then try to sell if Housing Associaton say no they can’t find a buyer). 2 SO homes near me have been on the market for over a year (25% of a flat in a questionable location, I can understand why…). Had the buyer acquired 100% then offered to sell at a 5% or 10% discount I’m fairly sure an investor or FTB would’ve snapped it up - even I’d have been interested
With this there’s no option to do that, so you need to find someone that wants to buy like 8% of a home if you want to move out within a few years?? Unless rents are reduced rents (e.g. your rent on the 90% if charged at 80% of what it should be, similar to schemes like RentPlus), I can’t see it taking off big time.
It’s a good investment to be in though, I can see why pension funds are interested - just not convinced it’s great for those that can obtain a s/o mortgage