An investment company this week launched a revolutionary alternative to private renting for those who cannot afford to buy a home outright. Joint Equity, an established property firm, is rolling out nationwide a scheme which will allow private renters to purchase a property in a 50-50 partnership with holders of an ‘ethical mini-bond’.
The Joint Equity scheme aims to target those whose earnings are too high to allow them to quality for local authority and housing association support but who don’t have enough money to raise a mortgage themselves. It will target renters who are divorced and separated, retired, and ‘reluctant’, and is available to help buy homes worth under £250,000. The average home funded through an existing pilot scheme is worth £150,000.
Joint Equity says it has more than 1000 home buyers from across the UK on its waiting list to join the scheme and is looking to recruit more buyers as new funds become available. It believes the UK market for schemes of this type could be as big as 250,000 homes a year.
The company’s chief executive Brad Bamfield said: “There are many people now caught in the private-rental trap and who want to buy their own home but can’t afford to and that’s where we come in.”
He said last year owner-occupation fell to 65per cent of the market, the lowest since 1987, while renters had risen from 2.2m to 3.9m over the past 12 years.
The homebuyer needs to have a minimum five per cent deposit and be able to afford a maximum 45per cent loan to value mortgage to qualify. The investors in the partnership provide the remaining 50per cent of the purchase price.
The ‘resident partner’ pays the mortgage and an interest charge for the investor funding.
Joint Equity will provide access to a mortgage from its panel of providers and will cover 50per cent of the conveyancing and survey costs and manage the purchase process.
The bond is managed by FCA-regulated Ingman Capital Partners, and the homebuyer will first see an independent mortgage adviser who will explore all the options including Joint Equity and whether they could raise a 100 per cent mortgage elsewhere or qualify for housing association schemes.
For investors, it offers an escalating coupon of 4.5 per cent in years one to five, rising to 6.5per cent in year 20, with a terminal bonus at the end of the 25-year term.
The company says as the bonds will have a known income stream and a known capital value due to quarterly pricing of the housing index, it believes there will “ in due course be a vibrant secondary market for the bonds and an online market place is already being structured”.
Joint Equity has been running on a small scale since 2007, and helped 21 buyers.
It now hopes to raise £3.5 million from a first mini-bond to allow between around 50 properties to be purchased, and then to issue subsequent mini-bonds in tranches of £3.5million.
David Thomson, at independent financial advisers VWM in Glasgow, commented: "It might make sense for those who do see the investment as 'giving something back' and are keen to support first-time buyers for whatever reason."
But he said: "While the bond on the face of it appears to be reasonably attractive, physical property, either in the buy to let market or through a property fund would give similar income and a better terminal value. In addition I doubt that the bond would be very liquid...this might mean being locked in for 25 years."
He added: "As an investor you would also have to ask yourself if the homebuyers are unable to obtain a mortgage in the current environment do you want to take on a risk that a building society is not prepared to take - albeit the regulations have tightened considerably in recent years."
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