A company that says it is on ‘a mission to reinvent homeownership’ and which has set out to purchase rent-to-buy homes with a £500m pot from pension funds, has had its offering scrutinised in an article by Helen Crane writing on This is Money website.

Providing what they called ‘Gradual Homeownership’, Wayhome ( part of Unmortgage Group, which was to create a similar scheme called ‘Unmortgage’, three years ago) allows its first time buyer customers to borrow up to eight times their household income and therefore to a ‘avoid the usual ‘starter’ or ‘first-time buyer’ sized properties and instead live in a bigger home, in a desirable neighbourhood, more suited to their lifestyle or family situation’.

The customers – who are mostly people who have limited cash assets and incomes, so mostly unable to obtain a traditional mortgage – must find a 5% deposit and then Wayhome arranges to buy the chosen property for cash, by partnering with its institutional funding partners. Customers don’t need a mortgage, instead they rent, at a fair market rent, the percentage share of the home that they do not own.

Customers can ‘staircase’ (buy more of the home) at any time, from a minimum of £50 up to 5% per year; and up to a maximum stake of 40%. To be eligible, customers need a household income of at least £30,000, and are subject to an application process.

Wayhome acts as a professional buyer, running the homebuying process, and handling the agents, conveyancers, and surveyors from start to finish. It will buy secondhand homes in good order but will not touch new-builds.

The company says that ‘providing customers pay their rent and look after their home, they will always have security of tenure – only they choose if or when to sell their home, A Wayhome property comes with all the benefits of homeownership, so customers can decorate, keep pets, and really make their home their own.’

If the customer chooses to move on at some point in the future the property can be sold and the proceeds distributed between customer and company in proportion to their shares.

Nigel Purves, CEO of Wayhome says: “It’s a grim reality that homeownership is out of reach for millions of people in the UK. Because lenders only offer loans based on low income multipliers, even those who have saved a significant deposit are often prevented from borrowing enough to buy the type of home that they can comfortably afford to rent.

“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. But it also means they can stay as long as they choose, decorate, and still share the maintenance costs fairly with our funding partners.

So far, so good.

The This is Money article identifies some facts that a prospective customer of the scheme should take into account before making any decisions.

First time buyers usually do not pay stamp duty on purchases under £300,000 but after the end of the SDLT holiday Wayhome buyers will need to pay the 3% rate usually applied to second home buyers and investors.

The reason is that they are buying in a limited liability partnership with Wayhome’s partner pension funds. In practice the buyer will only pay SLDT on their proportion of the purchase price – so with just a 5% deposit the SDLT will apply only to the 5% proportion. As they staircase their ownership over time, further SDLT becomes payable.

The customers can furnish and redecorate the homes but cannot add extensions or put in a new kitchen.

The company operates an ‘early buyout period’ of between five and ten years. If the buyer decides they want to buy their home in full during that time they will need to repay the cost of legal fees and survey costs. If they wish to leave the home Wayhome’s investors have three months to decide whether to buy out the resident or put the property up for sale. Either way a £350 valuation is payable.

The This is Money article (which you can read in full here) concludes:

“While there are plenty of caveats, Wayhome could work for people in certain circumstances as a bridge between renting and owning, as long as they are clear about the potential fees and charges.  The company certainly has big plans, with Purves saying that it is looking for £10bn of 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.”