Unmortgage

WibblyGirly

Who fixes any issues in the property? Me as 5% owner paying (I assume) market rate rent? or the 'investor'? I think I'd rather just save a bigger deposit and get a traditional mortgage.

ThePants999

Come on, guys, I'm all for caution but let's not go straight to "scam" or "dodgy" just because it's new and unproven. This looks pretty innovative to me. Yes, it's a shared ownership scheme, but there's already a shared ownership scheme that many people have happily benefited from, so the basic idea has some merits. Clearly anyone actually considering using the scheme would want to do a bunch more digging and get sound legal advice, but if you offered me a small wager on whether this was legit, I'd take it.

AdrianC

ThePants999 wrote: »

Come on, guys, I'm all for caution but let's not go straight to "scam" or "dodgy" just because it's new and unproven. This looks pretty innovative to me. Yes, it's a shared ownership scheme, but there's already a shared ownership scheme that many people have happily benefited from, so the basic idea has some merits.

"Traditional" shared ownership is in partnership with not-for-profit housing associations, and is based around properties that they own and manage directly.

This is a profit-making scheme, using money from institutional investors. For them to get involved, they will be expecting at least as good a return as on a traditional residential property portfolio - if not higher, due to the much greater risks involved in such high income-borrowing levels. Then there's the management/maintenance questions.

Quite simply, I do not see how it can possibly work without a certain level of shenanigans. I am happy to be proved wrong - as, yes, I do think there's an untapped market sector here. BUT - if that market sector could be serviced in a sensible way, do you not think some established market player would already be doing it?

ThePants999

AdrianC wrote: »

This is a profit-making scheme, using money from institutional investors. For them to get involved, they will be expecting at least as good a return as on a traditional residential property portfolio - if not higher, due to the much greater risks involved in such high income-borrowing levels. Then there's the management/maintenance questions.

Quite simply, I do not see how it can possibly work without a certain level of shenanigans. I am happy to be proved wrong - as, yes, I do think there's an untapped market sector here.

I have only the same information you do, so I might be making some completely incorrect guesses - but if my extrapolation of how this business works is correct, I think it genuinely can work.

This isn't an area I know well, so my very first assumption might be wrong: when you talk about a "traditional residential property portfolio", I'm assuming that pension funds etc don't actually go out and buy houses and engage letting companies; I'm assuming they invest in companies that do that. So, the traditional model here is that a company takes investment from institutions, buys a bunch of houses, and returns profits to their shareholders that are basically the rents minus the maintenance costs (and company overheads). Right?

To me, this looks similar. Only, instead of the company buying 100% of houses and taking 100% of the rent, this company (if I've understood the business model correctly) buys 95% of houses (with the people getting "unmortgages" buying the other 5%) and collects 95% of the market rent. Sometimes the percentage will be different, but that's essentially irrelevant - you're still getting the same return on a given investment whether it's 95% of 10 houses or 50% of 19. So, the institutions DO get the same return.

But it gets better (from the institution's perspective) - I strongly suspect that, in return for complete security of tenancy in the house they've "unmortgaged", the unmortgagees here probably have to handle all repairs and maintenance on their own, or at least a greater share than their ownership percentage. So the margins for the investors are actually higher, I'm guessing.

Naturally, that means it's a less attractive prospect for those looking to buy a home - but then the whole point of it is that it's aimed at people who COULDN'T buy their own home without this scheme. Pretty clever IMO.

AdrianC wrote: »

"Traditional" shared ownership is in partnership with not-for-profit housing associations, and is based around properties that they own and manage directly.
...
BUT - if that market sector could be serviced in a sensible way, do you not think some established market player would already be doing it?

No, not necessarily. Every idea that seems obvious now was novel at one point, and I believe we've only had "traditional" shared ownership in the UK since 2009. In any case, though, https://en.wikipedia.org/wiki/Equity_sharing describes a private shared ownership scheme that has quite a few similarities to this one, so I don't think this is even new, just a slightly different model.

AdrianC

ThePants999 wrote: »

This isn't an area I know well, so my very first assumption might be wrong: when you talk about a "traditional residential property portfolio", I'm assuming that pension funds etc don't actually go out and buy houses and engage letting companies

They can and do - both directly, through subsidiaries, and through third-party companies.

To me, this looks similar. Only, instead of the company buying 100% of houses and taking 100% of the rent, this company (if I've understood the business model correctly) buys 95% of houses (with the people getting "unmortgages" buying the other 5%) and collects 95% of the market rent. Sometimes the percentage will be different, but that's essentially irrelevant - you're still getting the same return on a given investment whether it's 95% of 10 houses or 50% of 19. So, the institutions DO get the same return.

Except that UnMortgage "promise" that the rent will be lower than market rent. Now think about the difference between a part-owner and a tenant, in terms of potential downside. You cannot simply issue an s21 notice to a shared owner. At the high salary-to-borrowing ratios being talked about, the risk of a mortgage default is also very high.

But it gets better (from the institution's perspective) - I strongly suspect that, in return for complete security of tenancy in the house they've "unmortgaged", the unmortgagees here probably have to handle all repairs and maintenance on their own, or at least a greater share than their ownership percentage.

Again - downsides. If somebody is borrowing 10x salary just to own a small proportion of their property, can they afford to maintain it?

and I believe we've only had "traditional" shared ownership in the UK since 2009.

2007 Grauniad article - https://www.theguardian.com/money/2007/may/18/firsttimebuyers.property

http://www.savills.co.uk/research_articles/141564/174106-0 suggests a 15% rise to 150k between 2009 and 2013.

But it's entirely likely it was decades earlier than that, even - this gives an "early 1980s" date.

In any case, though, https://en.wikipedia.org/wiki/Equity_sharing describes a private shared ownership scheme that has quite a few similarities to this one, so I don't think this is even new, just a slightly different model.

Strange that it's being shouted about as something revolutionary, then, eh?

ThePants999

AdrianC wrote: »

Except that UnMortgage "promise" that the rent will be lower than market rent.

I think that's just clever wording from UnMortgage. The rent will be lower than market rent... because you own some of the property. If you own 10% of the property, you're only paying 90% of market rent, so they've told the truth but it doesn't imply any lower rate of return for the institutions.

AdrianC wrote: »

Now think about the difference between a part-owner and a tenant, in terms of potential downside. You cannot simply issue an s21 notice to a shared owner.

Absolutely, they're guaranteed to be allowed to stay. There's a risk to UnMortgage in that if their investors want to withdraw funds, it's quite difficult for UnMortgage unless they get new investment in to replace it. And there's a risk to the investors that these part-owners might fall into rent arrears (though that risk exists with the traditional model too), or take actions that reduce the market value of the property. Happy to grant those kinds of issues; I suspect they're outweighed by UnMortgage not having to pay for maintenance.

AdrianC wrote: »

At the high salary-to-borrowing ratios being talked about, the risk of a mortgage default is also very high.

If I've understood the model correctly, there isn't a mortgage involved here. The part-owner pays for X%, the investors (through UnMortgage) pay for 100-X%, the house is fully owned by the combination of them. It's just the risk of falling behind on rents - and I imagine the rents are "secured" against the part-owner's ownership share.

AdrianC wrote: »

Again - downsides. If somebody is borrowing 10x salary just to own a small proportion of their property, can they afford to maintain it?

Remember, they're not borrowing 10x salary, they're part-buying a house worth 10x salary. Can someone who earns £20K afford to maintain a £200K home? Yes, I think they typically could.

AdrianC wrote: »

2007 Grauniad article - https://www.theguardian.com/money/2007/may/18/firsttimebuyers.property

http://www.savills.co.uk/research_articles/141564/174106-0 suggests a 15% rise to 150k between 2009 and 2013.

But it's entirely likely it was decades earlier than that, even - this gives an "early 1980s" date.

Right, cool, I'm happy to concede "early 80s" - that still demonstrates my point that shared ownership isn't a 100% obvious idea, or we'd have had it since the dawn of private home ownership and mortgages. Consequently, if it took decades to come up with that idea, it seems entirely plausible to me that a new tweak on it could be invented in 2016.

AdrianC wrote: »

Strange that it's being shouted about as something revolutionary, then, eh?

<shrug> Wikipedia knows about one form of it, but
(a) I'd never heard of it before, so whoever was doing it before did a pretty bad job of advertising it
(b) it seems there are elements of this that are genuinely new, so it is at least evolutionary
(c) they're a for-profit company, I'm not going to begrudge them doing some marketing

ThePants999

ThePants999 wrote: »

And there's a risk to the investors that these part-owners might fall into rent arrears

No, belay that: http://unmortgage.com/#/faq - "we won't kick you out and you can stay for as long as you like - as long as you make rent payments"!

lincroft1710

jmickle wrote: »

Hi. I'm James from Unmortgage

You need MSE permission to post here in an official capacity

poppy10_2

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PGTips54

I have no personal knowledge of 'Unmortgage'.
Their website must be amongst the least informative I have ever encountered though I've not followed the 'Get Your Budget' link. I can only think that their strategy is to create curiosity.
I suspect they are trying to create a synenergy between the occupants (tenant/part owner) and the investor (landlord). I imagine it might work as follows:
The occupant, in effect, gets to pay, what would conventionally be their deposit, (beyond 5%), in the years after moving in.
The landlord has the benefit of a tenant with a personal interest in the property - potentially better upkeep and no rental voids.
I would like to think that capital risk and upkeep costs are shared pro rata to capital shares.
Perhaps I should copyright this explanation in case 'Unmortgage' wish to add it to their website !!