A property investment company has this week launched a revolutionary alternative to private renting for those who cannot afford to buy a home outright.
Joint Equity, an established property firm, is rolling out nationwide a scheme which will allow private renters to purchase a property in a 50/50 partnership with the bondholders through a Joint Equity Investment LLP (‘JEIP No1 LLP’).
The Joint Equity scheme aims to target those whose earnings are too high to allow them to quality for local authority and housing association support but who don’t have enough money to raise a mortgage themselves. It will target three core groups: ‘reluctant renters’, retired renters, divorced and separated renters and 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% deposit and be able to afford a maximum 45% LTV mortgage to qualify, with JEIP (the Non Resident Partner) providing the remaining 50% of the purchase price.
Resident Partners pay the mortgage and an interest charge for the 50% JEIP funding. Joint Equity will provide access to a mortgage from its panel of providers and will cover 50% 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, and Resident Partners see an independent mortgage adviser, who knows the Joint Equity product, who will explore all the options with them (including whether they can raise a 100% mortgage elsewhere or if they can qualify for housing association schemes). They then have the choice of following a variety of routes to try and purchase a home but all of Joint Equity’s existing customers are people who have become stuck in the private-rental trap and cannot afford to buy a house through any other route, and who don’t want to buy in a housing association scheme.
The Joint Equity plan will limit the total price Resident Partners pay for a house under the JEIP scheme to no more than £100pm more than they currently pay for their private-rental costs, ensuring they aren’t taking on unsustainable additional bills.
The JEIP scheme is a genuine partnership between the Resident Partner and the Non-Resident Partner and its bond holders with each party providing something the other partner wants and needs.
The bond holders benefit from a highly attractive yield on their investment. There is an escalating coupon of 4.5% in years 1 – 5 rising to 6.5% in year 20 – 25, and they get a terminal bonus at the end of the 25 year term worth 25% of the Halifax Property Index growth over the full term.
As the bonds will have a known income stream and a known capital value due to quarterly pricing of the HPI, we believe there will in due course be a vibrant secondary market for the bonds and an on-line market place is already being structured.
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.
Following the success of the initial scheme, Joint Equity is now looking to expand nationally and has joined forces with FCA authorised and regulated Ingman Capital Partners to launch the new mini-bond offer aiming to raise £3.5 million in the first round to allow between 48 – 50 properties to be purchased. Subsequent mini-bonds will then be issued in tranches of £3.5million.
Joint Equity currently has more than 1,000 home buyers from across the UK on its waiting list to join the scheme and is looking to recruit more buyers as new funds become available. It believes the UK market for schemes of this type could be around 250,000 homes a year.
Joint Equity CEO Brad Bamfield states: “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. 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.
Last year the number of homes lived in by owner-occupiers fell to around 65% of the property market, the lowest level since 1987 while at the same time the number of people living in private-rental accommodation has risen from 2.2 million in 2002 to nearly 3.9 million last year. There are many people now caught in the private-rental trap and who want to buy their own home but can’t afford to and that’s where we come in.
We have more than 1,000 resident-partners who want to join the Joint Equity scheme and we believe the coupon available will be highly attractive to investors and that the escalating nature of the coupon combined with the terminal bonus will create a vibrant secondary market for bond-holders.”
How it works
The scheme unites bond-holders through the Joint Equity JEIP and lower-income house-buyers in a mutual partnership that sees both parties benefit from the capital growth of the property. But it is also about real partnership between the Resident Partner and the Non Resident Partner over the life of the building.
Home buyers apply to join The Joint Equity scheme and if they pass the eligibility criteria and are able to demonstrate they have the 5% deposit and can raise a 45% LTV mortgage they are accepted onto the scheme and are then able to find the property they want to buy.
Joint Equity then approves the property and purchase price and manages the property purchase on behalf of the buyer (including organising surveys and conveyancing and assisting with the mortgage).
The Resident Partner and JEIP (the Non-Resident Partner) then own the house 50/50 with the resident partner having full ownership rights and able to decide when they want to sell their share. The JEIP has first refusal on buying the Resident Partner share and Joint Equity may be able to help the resident partner buy their next home through a new arrangement.
Joint Equity is also about to launch a series of new-build developments which will be sold under the Joint Equity scheme starting with a development of 12 new Joint Equity homes just North of Norwich and nine 1 and 2 bedroom flats in Norwich City Centre.
