New privately-funded home ownership schemes
There is a new homeownership scheme funded by the private sector available in the market, and it has some pros and cons.
To address the housing crisis in London, investors are seeking ways to support «Generation Rent» by offering alternative privately-funded home ownership schemes.
What is the latest homeownership scheme?
One of the most recent offerings is the scheme of «gradual homeownership» by Wayhome. In a nutshell, it is aimed to purchase 50,000 properties across the country over the following 5 to 7 years and then sell them to prospective buyers that cannot get them alone.
Nigel Purves of Wayhome said that over 80,000 potential buyers expressed their interest in the scheme. And the first 5 buyers are moving into their new homes in August.
The standard shared ownership schemes are managed by housing associations and aim to new build properties. Wayhome's scheme is based on pension funds and targets second real estate with a price range from £200k and £500k. Then such properties are sold to buyers with decent credit ratings who can prove at least £30k of a household income and provide a 5% deposit.
For example, for homes worth £500k, this would require an initial £25k. In addition, buyers have to cover 5% of buying costs such as stamp duty tax, solicitors, and surveys.
Such investments allow buyers to live in the property. However, they have to pay rent to Wayhome based on the proportion of the property that is owned by Wayhome. Purves says that it will correspond to the local market levels. When buyers move in, they are responsible for the daily property maintenance, although any significant structural work costs are split with Wayhome.
Wayhome allows buyers to increase their ownership share in a property over time up to 40% which means that the scheme is not a direct pathway into full homeownership. However, once buyers decide to move, they can expect a share of the proceeds.
What to consider about private homeownership schemes?
- If something looks too good to be true, then it probably is. Always take into account that companies make money from buyers one way or another, so find out how they do it in your specific case. Most likely, it is the rent that you need to pay, and you need to estimate whether it is a favourable deal.
- Carefully read the paperwork and ask questions to evade the pitfalls and to find out any fees and the maintenance costs applicable.
- Work out the costs of increasing the ownership share in a property and how the inevitable annual growth in rents will affect the rent you pay. Make sure to find out or at least estimate the rent you will be paying in a couple of years.
- Consider standard shared ownership offers. They are focused on new build homes and can be pricy, but they represent a secure pathway into full homeownership.
The key competitive advantage of Wayhome's scheme is its focus on the second properties that exempt buyers from new home premium or high-cost services. However, Wayhome’s offerings are under £500k, meaning that their London homes are generally located in low-cost destinations as Morden or Woolwich and across the commuter belt.
Other private schemes in the market?
Proportunity aims to make a million potential buyers into homeowners by 2030 offering home buying loans. They aim to close the gap between what buyers can put out as a deposit plus a mortgage and the actual price of the property.
OnStep's scheme offers buyers to pick a home and agree on a price. Then it purchases the property with a 5% deposit from a buyer, and you have to rent the property for a minimum of 5 years before you can sell it and get a 15% share of the price growth.