New mortgage-free deal for first-time buyers launches

A new deal for first-time buyers has been unveiled.

It gives them a mortgage-free way to get on the housing ladder even if they have only a 5% deposit.

It would entail them to ‘co-buy’ a property with a fund, with the aim of buying the fund out within five to seven years.

As such, the product – which is not regulated by the FSA although Mill Group, which offers it, is – is ideal for better-heeled first-time buyers with good earning prospects but who cannot currently get a mortgage because of high deposit requirements.

Mike Wisgard, of Mill Group, said that first-time buyer households with an income from about £50,000, a 5–15% deposit and plans to stay in their first home for at least five years, would be eligible for consideration.

Mill Group, a specialist property and finance group with nearly £1bn of assets under management, is looking to raise at least £100m for the Investors in Housing Fund.

For its investors, the fund is hoping to raise a yield of about 6% a year, and possibly more.

Home-buyers will be asked to purchase 5% of the property – which is not currently accepted by most mortgage providers as a deposit – and the Investors in Housing Fund will facilitate the purchase of the remaining 95% of the property.

Stamp Duty would also not be payable by the home-buyer when they buy their initial 5% of the property. In five to seven years, the home-buyers are expected to buy out the fund, providing an exit for investors.

If things go wrong – for example, there is a divorce – the fund would buy the entire property, said Wisgard. It might also be possible to extend the exit period beyond seven years.

The buyer would pay a monthly co-investment charge, rather than a mortgage payment. This would be comparable to the cost of servicing mortgages at similar or lower LTVs – if first-time buyers with only 5% deposits could get them.

For example, a first-time buyer purchasing a home worth £300,000 would pay a deposit of £15,000. The monthly co-investment charge would be £1,655 – similar to a 90% three or five-year fixed repayment mortgage at £1,745.