A NEW scheme has been launched where house buyers don’t need to take out a mortgage in order to bag a home.
But you still need to have a deposit of at least £12,500 – 5% of the value of the property – saved up.
The scheme, which has been launched by a company called Wayhome, means you part buy and part rent your home.
You can then “staircase” – which means buy more of the house from Wayhome – to increase the amount of equity you hold in your home.
We explain how the scheme works – and what the pros and cons of buying a “rent to own” home are.
What is the new “mortgage-free” scheme?
Wayhome’s “gradual ownership scheme” works in a similar way to the government’s shared ownership scheme, as it allows first-time buyers to buy a share of a property and then pay rent on the rest.
But it has some big differences – the main one being that you don’t have to take a mortgage out on the property.
Instead, you only need a 5% deposit to put down on the house – and unlike the shared ownership scheme, you can buy a house which isn’t a new build property.
Wayhome will match you up with a “funder” – which will be a pension fund – who will buy the rest of the house.
You then have to pay rent to the funder for the part of the house you don’t own.
You can buy more each month, or in lump sums up to 5% of the property’s value per year – and Wayhome says there are no additional fees to do so.
However, you can only staircase until you own 40% of the house.
Wayhome confirmed to The Sun that homeowners are then expected to buy out the rest of the property without their funder’s help.
As you buy more of your house, your rent will go down in price.
You also have to contribute towards stamp duty on your house, which is proportional – if you own 5% of the house, then you’ll have to pay 5% of the cost of stamp duty, and so on.
But if you want to up your stake you’ll have to pay stamp duty again on the percentage share.
If you want to sell your home, your funder can choose to buy your share of the house.
If not, then you’ll need to put it up for sale on the market – and pay some costs like getting it valued.
Wayhome’s chief executive Nigel Purvers said: “Our Gradual Homeownership scheme is a new route onto the housing ladder, one which satisfies our customers’ homeowning ambitions, while treating them fairly.
“Gradual Homeownership allows our customers to move into a bigger, better home.”
Who is eligible for it?
There’s a list of criteria you have to hit in order to apply to the scheme.
You have to be able to put down a deposit of at least 5% of the total value of the property you want to buy – which should be at least £12,500.
That means you’ll have to be looking at properties valued at least around £250,000 – which may not be suitable for everyone.
You must pass a credit check, and be between 21 and 55 years old.
You can’t own another property while applying for the scheme.
What are the advantages of rent-to-own schemes?
A boom in demand for properties has seen house prices soar.
It means that homeowners face having to take out bigger mortgages as a result, only pushing up the monthly mortgage repayments they need to pay back.
It’s meant buying a house for many lately has been unaffordable – but L&C Mortgages director David Hollingworth said a rent to buy scheme could help buyers looking to get on the ladder.
“This scheme may appeal to those that simply can’t afford to buy a home that will meet their needs at the moment and give them a chance to put down as little as 5% and then pay rent on the remainder,” he said.
While Wayhome’s scheme is similar to the shared ownership scheme, you’re not restricted to buying a newbuild – you can buy any house listed on the market.
What are the disadvantages of using rent-to-own schemes?
If you’ve staircased to hold the maximum 40% share in the house, you’re expected to buy out the remaining 60% without your funder’s help.
So your house was purchased for £250,000 and you own the maximum 40%, you’d still need £150,000 in order to buy out the rest.
This means that you might have to take out a mortgage after all to stump up the cash needed to own the rest of your property.
You must have to pass a credit check too – which means those with poor credit scores would struggle to get on the ladder using this scheme.
Wayhome says it will only buy homes in “desirable areas” – we’ve asked what this means, but it could mean the scheme is not available in some parts of the country.
Quilter’s Charlotte Nixon said homebuyers may find they may face restrictions if they’re planning to do up and extend their home if they’ve used a rent-to-own scheme.
“Extensions and major alterations such as new kitchens or bathrooms are not permitted, but any repairs must be paid for by the buyer,” she said.
So while you can redecorate your house however you like it, you’ll want to check about extending or altering your house with Wayhome.
However, Wayhome said funding partners will share the maintenance costs of paying for the house.
She added that buyers are also “committed to paying rent on the rest of the property, rising annually with inflation”.