New no-mortgage deal to launch for first-time buyers

A new concept is due to be launched this autumn into the UK housing market, enabling first-time buyers in London to invest in their home but without a mortgage.

The scheme, from UK property and finance company Mill Group, is currently being marketed to investors, with the aim of raising a £100m property investment fund.

The ambition is to offer investors the opportunity to invest in residential owner-occupied property which will provide a new source of liquidity for first-time buyers and remove their need for a mortgage.

Under the scheme, a home buyer and an institutional investor would co-buy a property. The consumer would purchase a minimum 5% share with the investor buying the other 95%.

Together they would own the property as tenants in common, but the consumer would have full and exclusive occupancy rights, and full entitlement to the property.

The consumer would pay no stamp duty – the investor would pay this as the consumer share would almost certainly be too small to attract the tax.

The consumer would be able to buy more of the property if and when they choose, and can raise a mortgage to buy out the investor at any time after two years, at the open market value of the property at the time.

The drawback to the consumer is that they will barely profit from any uplift in the value of the property; however, they would not risk negative equity. They also have security of tenure, which they would not have as tenants.

Mill Group believes investors will be interested in the proposition because, unlike buy-to-let, properties which the occupants regard as their own homes are unlikely to suffer the usual wear and tear.   

David Toplas, CEO of Mill Group, said: “The most significant obstacle preventing more meaningful investment by UK institutions into residential property over the past decade has been a perception of intensive asset management and low income yields. 

“Quite simply, a tenant does not have enough financial or emotional investment in the property to maintain it to a reasonable standard, and this ultimately costs landlords so much money that the investment potential is undermined.

“Home buyers will be asked to purchase a minimum of 5% of the property – a deposit amount that is not currently accepted by most mortgage providers as a deposit, and so begin their purchase of a property without a mortgage lender.”