Aspiring homeowners must be sick of all the doom and gloom stories. We already have to worry about job security, pay freezes, the increasing cost of living and an ongoing double-dip recession, but anyone wanting to get a foot on the ladder faces even more bad news.
Many young people are priced out of today's mortgages, unable to provide the deposit that lenders require. However, tough times force industries to come up with innovative ideas to get things going again, and one company, Genie, is hoping to do exactly that with its new deposit-and-mortgage-free payment plan.
According to the latest stats from the Council of Mortgage Lenders first-time buyer activity is showing some signs of resilience with 19,200 loans handed to new homeowners, an increase of 9.1 per cent on May, yet few of these would have been able to do this alone.
Today, if you don't have a generous family member willing to part with their savings, mortgages are hard to come by with lenders favouring deposit-rich, ultra low-risk buyers and even if you can scramble together a small deposit, you'll pay way over the odds. With all this to contend with, it's no surprise some reports predict the average age of first-timers will increase into the late-30s, but the newly launched Genie home payment plan could offer a viable alternative to traditional home ownership.
"Whichever set of statistics you look at, the market is difficult for first time buyers. We feel there is need for innovation in the market. It needs fresh ideas. Things are going to be difficult for a long time and Genie is looking to give them an alternative," says Steve Hicks, the managing director of Genie.
The process starts with Genie buying new-build homes from housebuilders and developers, which it sells on to its customers under a 25-year payment plan. Under the plan, the occupier pays a monthly residency fee which issplit three ways: one part is an administration fee, another is interest (the Genie interest rate is currently 6 per cent) and the final part goes towards buying the property.
This fee increases annually but is fixed for the first five years and reviewed thereafter. So, if you wanted their four-bedroom townhouse in Carrville, County Durham, worth £165,000, the initial residency fee is £870 a month in year one, creeping up to £979 by year five, by which time you would own 18 per cent of the property. At this point the residency fee would be reviewed, but you would continue increasing your share of the property, reaching 20.5 per cent ownership by year 15, until you made the full 100 per cent at year 25.
"It is hard to directly compare the cost of this to a mortgage but one of the main differences is that you are the owner at outset with a mortgage and deposit-funded purchase, whereas you will gradually build ownership with this – any growth in the property is only partly the purchasers but that is always true of any shared ownership and could potentially be positive if prices fall," says David Hollingworth of mortgage brokers London & Country.
So far, 47 customers are already living in their Genie homes, all based in the North-east and with an average age of just 25, but there are plans for expansion in the North-west and London. Subject to a financial assessment of your ability to afford the plan, anyone with a pre-tax household income of at least £18,000 is eligible. A few niggly things could put you off initially – an 0845 phone number is never a great start and if you are made a formal offer there is also a non-refundable £600 plus VAT admin fee to pay. However, the big selling point is the level of flexibility Genie offers.
First, there are no early redemption or exit fees. If you suddenly find yourself with extra funds you can make lump sum payments (at a minimum of £5,000) which will be converted into a share based upon a professional valuation at the time. Alternatively, you can arrange to increase the residency fee so that you reach full ownership sooner. Equally if you fall on hard times, there is the option to come off the Genie payment plan for up to 12 months. During this time you get to keep the shares you have accrued, as these are locked in, and pay rent instead (which Genie say will be broadly based on market rent) which should also make it much easier to qualify for housing benefit.
"As soon as you get back on feet, you can return to the Genie payment plan and start accruing shares," says Mr Hicks.
Communication is the key, however, and if you miss a payment you will accrue default interest immediately and cannot acquire any further shares in the home. You also remain liable for the residency fee which could be taken from your share in the home. Ultimately, the message is that if you fail to meet the conditions of plan, Genie do have to the power to terminate it and you could lose your home.
As with any property purchases, house prices are always a sticky issue. Price fluctuations have no effect on your share of the property, but when you leave the plan or sell your home there is a risk that if prices fall you could get back less than what you've paid in. Also, if at the end of the arrangement you haven't managed to acquire 100 per cent you have three options; buy the remaining shares; sell your shares and use that money to purchase a different home; or see if you can extend your plan with Genie.
This isn't an equity release product so if you want to pullout of the deal you can end your arrangement at any point (again by either using your shares to refinance and buy the remaining shares, or selling your shares back to Genie, which has first refusal). Where problems could arise is if you and Genie cannot agree a price, but you do have the right to sell on the open market at a value which is the higher of the original price and the current market price.
Another potential concern is what happens if Genie falls into trouble but being authorised by the Financial Services Authority and back ed by Gentoo Group, a not-for-profit housing association with a healthy balance sheet and a good reputation, is reassuring.
Despite this, it pays to compare it to existing options such as the government-backed FirstBuy (shared equity) and NewBuy schemes, or buying with friends or family. There are also several products offered by mortgage lenders such as Lloyds' Lend a Hand scheme, the Parental Assisted Mortgage Scheme from Bath building society and Barclays' new Family Affordability Plan, which allow parents to act as guarantors, or use their savings/equity to offset your mortgage.
"Genie is a regulated firm and has been successfully launched for almost a year, so this should give people the confidence to at least look into it alongside these other available options," says Andy Frankish of independent broker Mortgage Advice Bureau. "As ever taking independent financial advice is vital; they will help you find the best option."
Case study: Geoff and Sarah Jubb, Sunderland
Geoff, 31 and Sarah, 32, were among the first people to take advantage of Genie, when they began looking for a new home to cater for their growing family. As parents of three children aged six and under, they were struggling for space but needed a helping hand to get their dream family home. Only five months after Genie was launched the couple decided it was the solution they were looking for.
"Genie was absolutely perfect for us," says Sarah. "The deal meant that we didn't have to have a huge deposit to make up front and having three little children our outgoings meant that we couldn't save this much money in the shorter term".
Sarah, a planning consultant and her husband Geoff, a gas engineer, moved into their new home at the Beckwith Green development in April. The property is worth £180,000 and they currently pay Genie £954 per month, but Sarah says they would have had to pay a deposit of around £20,000 if they had gone down the traditional mortgage route.
"We knew that in the current economic climate we would really struggle to save such a vast deposit and the Genie scheme enabled us to bypass that huge hurdle".