You might have spotted ads for a startup called Unmortgage on home-moving websites, promising aspiring homeowners the chance to buy a share in a property without a mortgage. You pay rent on the rest and can build up your ownership gradually, for free.
Sound too good to be true? Unfortunately, in many ways, it is - not least due to the hefty stamp duty bill buyers face, regardless of whether they've owned before.
Below, Which? explores the pros and cons of investing with Unmortgage and compares it with other options, including shared ownership and 95% mortgages.
Launched to the public in July, Unmortgage offers people the chance to buy a share of between 5% and 20% in a property, which they can then live in. Rent, set at local market rates, is paid on the remaining share, which is owned by an investor.
Homeowners have the option of building up their share over time, or can completely buy out the investor.
To qualify, you must have a minimum gross household income of £30,000 (or a maximum of £100,000), and the rent can only cost up to 36% of your income.
The idea is that buyers can become partial homeowners, without needing to worry about the salary-based . According to the website, 'Unmortgage is for you if you can't afford to buy the home that you can afford to rent.'
However, there are some serious catches.
Normally, first-time buyers in England are completely exempt from stamp duty when buying a property costing up to £300,000, and a discount applies on purchases between £301,000 and £500,000.
With Unmortgage, not only does this exemption not apply, but you'll have to pay more stamp duty than a normal buyer usually would. This is because you're buying with an investor, so a 3% surcharge will apply.
Up front, you just pay stamp duty on your share. But this can still add a lot to your costs. If you bought a 5% (£18,750) stake in a £375,000 house, you'd have to pay £1,000 in stamp duty.
As you buy more shares within the first five years, you'll also pay the investor back proportionately for the stamp duty they originally paid.
The stamp duty blows don't end there, however. If, at some point in the future, you decide to buy full ownership of the property, it will be treated as a separate purchase by HMRC.
This means you'd have to pay a new stamp duty bill (this time without the 3% surcharge, but also without the first-time buyer exemption) on the full value of the property, including the share you already own.
Taking the example of a £375,000 property, this would mean a tax bill for £8,750.
Unmortgage says it is attempting to change this. A spokesperson told Which: 'We believe that applying this [stamp duty rule] to Unmortgage unfairly penalises our customers.
'As such, we have engaged with HMRC, HM Treasury and MHCLG [the Ministry of Housing, Communities and Local Government] to ask them to push through legislative changes to level the playing field with government-backed schemes such as shared ownership.'
Whether this will happen remains to be seen, so you should only buy with Unmortgage if you're happy with the current costs.
If you buy a property with Unmortgage, you'll be paired with an investor via an asset management firm called Allianz Global Investors (GI), part of the Allianz SE group. But who are the investors?
'While there are multiple investors, they invest as one, and who they are will never have any bearing on the [homebuyer's] rights under their co-ownership and tenancy arrangements.'
Technically speaking, you'd buy shares together with the investors as part of a limited liability partnership (LLP), which owns the property. Buyers won't have any contact with the investors, as Unmortgage acts as the middle man.
While the property deed will be in the name of the LLP, Unmortgage says 'you have full legal and beneficial ownership of the home'.
Unmortgage pre-selects properties to list on its website, but these homes also remain for sale on the open market until a buyer is found (rather than being pre-purchased).
The company uses over 100 criteria to choose properties, including that homes have an asking price between £250,000 and £500,000, are in quiet urban areas, and are in good structural condition. Any must have 100 or more years remaining on the lease.
Unmortgage doesn't list, basement flats, ex-social housing, or properties situated on main roads, motorways or backing onto railway lines. Homes with 'unfairly sized' bedrooms are also on the blacklist.
But how does it work in reality?
Interestingly, despite Unmortgage specifying that all properties should have between two and five bedrooms, Which? found multiple six-bedroom properties when we searched the site.
We also ran several postcode searches that returned zero results.
Unmortgage said: 'We're focusing on around 50 targeted locations across England. As the business and our operational capabilities grow we will achieve full, UK-wide coverage.'
If you do find a property you like the look of on the Unmortgage website, the team will run background and credit checks on you. You can then arrange a viewing and Unmortgage will make an offer and negotiate on your behalf.
It's more flexible to staircase with Unmortgage than a regular shared ownership property, because you can either overpay your rent every month or make random payments when you have extra cash.
By contrast, shared ownership schemes usually only allow you to staircase up to three times per property. They also charge for valuations each time you staircase, whereas Unmortgage arranges free monthly valuations by an independent surveyor.
The downside of staircasing with Unmortgage is that you can only buy up to 5% extra per year. With shared ownership, on the other hand, a minimum rather than maximum is usually applied (generally at least 10%).
In addition, each time you increase your share with Unmortgage, you also have to pay your investor back for the costs associated with buying the property - specifically, the survey, legal fees and stamp duty. So topping up by £500 wouldn't buy you a full £500-worth of extra of ownership.
Once you reach 40% ownership, you can only increase your share by entirely buying the investor out, for example, by taking out a mortgage or receiving an inheritance.
As discussed earlier, you will need to pay another stamp duty bill on the entire value of the property at this point.
You can also only buy the investor out if the property has increased in value. While have grown substantially over the last few decades, they have begun to fall in some areas in recent months, so growth is by no means guaranteed.
If the value of the property you bought through Unmortgage did fall and you wanted to exit the scheme, you would have to sell your share. This may be tricky to do in a tough market and you could also face difficulties getting approved for a mortgage if there was a market crash.
According to Unmortgage, homeowners are legally entitled to live in the house for as long as they pay rent and adhere to the contract. No one can kick you out.
If you want to move house, you have to give the investor three months to decide whether they want to sell with you or buy you out. If they want to buy your share, they get another three months to do this.
Either way, you'll have to pay for a valuation, which Unmortgage says usually costs about £350.
Unmortgage was originally set up in 2016, and made headlines last year when it secured £10m of funding.
An Unmortgage spokesperson told Which?: 'Unmortgage entered the next stage of its growth strategy in May, strengthening and restructuring its senior team to reflect the needs of the business.'
When we asked what would happen to homeowners if Unmortgage went bust, the spokesperson said: 'The [homeowner] has legal ownership of the property along with the investors, so if Unmortgage were to go under, [the owner] would still have the legal right to live in their home and Allianz Global Investors would administer the process with them.'
In a nutshell: pros and cons of Unmortgage
For most people this would be the preferable option, as you'll own the property in your own name. The key difference will be the amount you can afford to borrow.
With Unmortgage, the only limit is the size of deposit you can save - which must be at least £12,500, equal to 5-20% of the property price - and the rent, which can't be more than 36% of your annual household income.
With a mortgage, however, you'll usually be limited to borrowing a maximum of 3-4.5 times your household income.
Both shared ownership and Help to Buy equity loans are only available for new-build properties.
Part-buying a property in this way is complex and you shouldn't invest unless you're confident that you fully understand exactly how it works and the risks involved.
If you want to find out more about Unmortgage, you can contact them using the chat function at Unmortgage.com.