New Joint Equity scheme for struggling buyers
Joint Equity will allow buyers to purchase a property in a 50/50 partnership with bondholders through a Joint Equity Investment LLP (‘JEIP No1 LLP’).
The Joint Equity scheme targets those whose earnings are too high to qualify for local authority and housing association support but who don’t have enough money to raise a mortgage themselves.
The scheme is available to help buy homes worth under £250,000. The average home funded through the existing bond schemes is worth £150,000.
The home buyer (“Resident Partner”) needs to have a minimum 5 per cent deposit and be able to afford a maximum 45 per cent loan-to-value mortgage to qualify, with JEIP (the “Non Resident Partner”) providing the remaining 50 per cent of the purchase price.
Resident Partners pay the mortgage and an interest charge for the 50 per cent JEIP funding. Joint Equity will provide access to a mortgage from its panel of providers and will cover half of the conveyancing and survey costs and manage the purchase process.
The bond is managed by an FCA regulated and authorised company Ingman Capital Partners.
The Joint Equity plan will limit the total price Resident Partners pay for a house under the JEIP scheme to no more than £100 a month more than they currently pay for their private rental costs, ensuring they aren’t taking on unsustainable additional bills.
Meanwhile the bond holders benefit from a “highly attractive” yield on their investment. There is an escalating coupon of 4.5 per cent in years one to five rising to 6.5 per cent in year 20 to 25, and they get a terminal bonus at the end of the 25-year term worth 25 per cent of the Halifax Property Index growth over the full term.
Joint Equity is the brainchild of property developer Brad Bamfield and has been running since 2007. Since the launch of its first pilot scheme, Joint Equity has helped 21 buyers secure a home despite the fact that they couldn’t raise sufficient deposit or mortgage to buy that home outright through other routes.
It is now looking to expand nationally and has joined forces with Ingman Capital Partners to launch the new mini-bond offer aiming to raise £3.5 million in the first round to allow between 48 and 50 properties to be purchased. Subsequent mini-bonds will then be issued in tranches of £3.5million.
“Joint Equity aims to help people who couldn’t otherwise afford to buy a home to do so. Having spent 40 years as successful property developers and financiers we wanted to give something back,” said Bamfield, “Our goal is to help those unable to get onto the housing ladder, to do so in a way that still enables them to choose the home they live in and gives them the flexibility to remain in it for as long as they choose and sell it when they want.”
Simon Tyler of Tyler Mortgage Management, a mortgage broker, raised a few reservations about the scheme.
“Key questions here for potential buyers are how much of the profits they receive on sale, what interest rate they are paying on their portion of the loan and what happens if and when they want to sell? Also, what happens if the property falls in value or falls into negative equity? These are really key points that I can’t see properly addressed,” he said.
“We would always advise clients to try and obtain a larger deposit through collecting funds from family who can release equity from their own properties, or guarantor schemes, or even buying with friends. Entering a partnership with a commercial organisation will always come with risks that are usually not as flexible to negotiate with as friends/family or other less commercially minded sources of funding for your first home.”