Floris ten Nijenhuis
What is gradual homeownership?
With gradual homeownership, you find a home in the open market and your private provider will buy it for you. You are normally required to pay a deposit, which on day 1 equates to how much you own. Say that is 5%, you will pay rent on the remaining 95%.
Unlike Rent to Buy or Home Repurchase Plans, you are free to increase your equity stake as you please rather than on a strict schedule.
How do you come to own 100% of the property?
In a similar way to the ‘staircasing’ in Shared Ownership, except this is made much more simple and cheap. Unlike Shared Ownership you do not get a mortgage on day 1, instead you only put down a deposit of what you can afford. Over time you can purchase more of the property as and when you have the cash. Once you get to a certain ownership stake or once your credit improves you can apply for a mortgage and buy out the private provider in full.
How is the value of the property determined?
This is up to the private provider. Some will choose to use inflation as a metric to increase the property price, some might have proprietary valuation systems, others may use third party valuation providers.
Who is it good for?
Anyone who may not qualify for a mortgage today, anyone who doesn’t have a constant income (self-employed) or anyone who wants to buy somewhere more expensive than a mortgage will allow today. It can also work for those who do not yet have a deposit, but wish to move into their dream home already.
What’s good about Gradual Ownership
In the same way as the other private providers, you will have more options when it comes to choosing a home, as there is no eligibility criteria for who can apply or what homes you can buy.
Gradual ownership is a very flexible way to get onto the property ladder. It allows you to invest your savings into a property today and call yourself a homeowner. It also allows you to increase your equity as and when you want rather than on a predetermined fixed plan.
You can also treat that home like it’s yours from day 1 and decorate it as you please, and normally you will have full security as your partner cannot kick you out.
What to watch out for
Going back to the notion of renting versus buying, if you are gradually buying a property rather than getting a mortgage today, you will likely pay a higher price, given the property will go up in value over time. However, if you cannot afford to buy today, this allows you to at least invest your money into the property market.
When choosing a Gradual Ownership provider make sure you understand how the rent is calculated, how the house value is calculated and who your landlord is. You do not want to end up in a situation where you are part of a large portfolio of poorly managed properties.
Want to read about other alternatives to buying a home with a mortgage? You can find out more here