Unmortgage: Everything You Need To Know About Buying A Home Without A Mortgage

Since I initially wrote this post, Unmortgage has undergone a rebrand and it’s now called Wayhome. I’ve left the rest of this post as it is and have continued to refer to it as Unmortgage because many people are still searching Google for this term. Any future blog posts I write about Wayhome will use its new name.

What is Unmortgage and how does it work?

In short, Unmortgage is a company that helps you to buy your own home without having to access a traditional mortgage.

When you purchase a home with Unmortgage, you aren’t taking on a loan and therefore this isn’t classed as debt.

Instead, you’ll buy a property with the help of investors selected by Unmortgage. You’ll pay for at least 5% of the property’s value up front and the investors will purchase the rest for you.

You’ll pay ‘rent’ to the investors each month on the portion of the home you haven’t paid for already. Over time you can make additional payments until you own the property in full.

Do I need a deposit to qualify?

Yes. You need a 5% deposit. This must be at least £12,500.

How much do I need to earn?

You need to have a household income of at least £30,000. If you’re buying a home with your partner or a friend, this can be split between you. If you’re buying alone, your own income will need to be £30,000 or more.

After I’ve paid my deposit, where does the rest of the money come from?

The money comes from Unmortgage’s investment partners.

The Unmortgage website says: “Our investment partners are long-standing institutions that like long-term, low-volatile investments. Your rent payments help them pay their liabilities like pensioners’ retirements.”

“Residential homes fit their investment criteria but so far our investment partners haven’t been able to invest in them. They couldn’t buy enough of them to make it worth their while and they didn’t want to be a landlord for lots of homes.We give them access to investments in residential homes on a big enough scale and we take care of finding people like you to call them home.”

To learn more about buying your first home, take a look at Can’t Swing a Cat’s first time buyer blog section.

How much rent do I pay and how is this worked out?

Rent is worked out by looking at the average rent of similar homes in the area. For example, if you buy 10% of a home that normally rents for £1,000 a month, on day 1 you only pay £900 (90% of £1,000).

Although you’ll be ‘renting’ a large portion of the property, you’ll be able to treat it as if it’s your own from the outset. This means that you can decorate the place, put up pictures, get a new kitchen etc etc.

How do I get closer to owning the home in full?

To own the property in full, you need to put more money towards it. This is referred to as ‘topping up’.

If you’re familiar with the concept of mortgage overpayments, ‘topping up’ works in a similar way. The exception being you’re not paying off debt.

There are two ways to top up:

1. You can increase your rent payments every month to top-up automatically. If your rent is £900 and you set up a direct debit for £950, the extra money buys more of your home
2. Or, you can make one-off payments. When you’ve had a good month and have some spare cash, put it towards your home

You won’t face any fees when topping up and you won’t be charged to buy more of your home.

What’s the difference between Unmortgage and an actual mortgage?

When you get a mortgage, you’re basically taking out a loan. You’re borrowing money from a bank, building society or other type of lender and securing this loan against your home.

When you use Unmortgage, however, you’re not borrowing money and therefore you’re not taking on any debt.

Instead, Unmortgage’s investment partners buy your home with you and together you pay for it in full.

What’s the difference between Unmortgage and shared ownership?

According to the Unmortgage website, its offering differs greatly to Shared Ownership schemes. I’ve taken the table below from the website.

As explained at the start of the post, Unmortgage has been rebranded to Wayhome, hence the heading in the table.

How will the Unmortgage team decide whether to help me buy a home?

When you apply for Unmortgage’s help, you’ll be assessed on the following factors:

• How much money you have for a deposit (minimum £12,500)
• Your household income (minimum £30,000)
• How your household income is split if you’re buying with a partner
• How many kids you have, if any
• Your credit score
• Your track record of paying rent
• Whether you’ve ever been declared bankrupt
• Referenced from landlords and/or employers

Who is Unmortgage for?

Unmortgage claims their scheme is designed to help people who can’t get a mortgage for a home they could easily rent. However, there are various terms and conditions that rule out many of the people struggling to get on the property ladder through more traditional ways. Let me elaborate…

Is this a good option if I’m self-employed?

This depends on your income. If you meet the minimum household income requirements (£30,000 per household), you could be in with a chance of using Unmortgage.

I’ve been rejected for a mortgage because of poor credit. Is this a good alternative?

I’m afraid not. The team at Unmortgage will assess your credit rating before deciding whether or not to help you buy. If your credit rating is low or you’ve had difficulties paying off debts in the past, this is unlikely to be an option for you.

Should I do this instead of getting an actual mortgage?

If you’re in a position to get a mortgage, it’s probably best that you do that.

It’s likely to be more straightforward and since mortgages have been around for centuries, you know what you’re getting. Unmortgage is a completely new concept and therefore there’s a lot of uncertainty and potential risks around it. This isn’t to say mortgages are risk-free, but thanks to extensive rules and regulations, they’re much more reliable and stable than Unmortgage is likely to be.

What’s the point in Unmortgage?

Good question…

If I’m being completely honest, don’t really like the idea and I think the number of people it will actually benefit is really small.

If we look at all the reasons why people struggle to buy their own homes, Unmortgage fails to address most of them:

• If you’re struggling to save a 5% deposit, Unmortgage is unsuitable for you.
• If you have a poor credit rating, Unmortgage is unsuitable for you.
• If you earn less than £30,000 a year and you don’t have a partner to buy with, Unmortgage is unsuitable for you.

The main reason I dislike the sound of Unmortgage is that it fails to address just how difficult it is to save a deposit while renting.

If you’re currently living in a rented flat and you’re finding it hard to save, an Unmortgage home is unlikely to make it that much easier because your Unmortgage ‘rent’ is only going to be slightly cheaper than it would be ordinarily.

Also, since you can treat the home as your own from the outset, I wonder whether some buyers may be in less of a hurry to actually make the top ups necessary to one day own the property in full. For example, let’s say Unmortgage’s reduced rent leaves you with an extra £100 a month. Can you trust yourself to put that money towards the property’s worth? Or are you likely to be tempted to spend it on other things? You won’t be penalised for doing so, but it will take you longer to achieve true home ownership and you’ll still be paying rent in the meantime.

So who can actually benefit from an Unmortgage?

Friendly reminder that I’m not a financial advisor and have no formal finance qualifications. The only way to truly find out if Unmortgage is right for you is to speak to a finance expert.

I guess Unmortgage could be helpful for those who are able to access a small mortgage but are unable to access a mortgage big enough for the type of home they want to buy. It also could prove helpful for those with a small deposit.

However, if you’re unable to access a mortgage big enough for the type of home you want to buy, there’s usually good reason for this. Mortgage affordability criteria exists to stop people taking on more debt than they can afford to repay.

Unmortgage might help you move into a nice house that you’d struggle to get a loan for, but if you ever want to own it in full, you still have to pay for it and this could take an incredibly long time. As I said earlier in the post, if you’re struggling to save a deposit now, it’s unlikely to be that much easier to make Unmortgage top ups.

Lastly, Unmortgage’s marketing suggests it’s been created to help people get onto the property ladder. But please remember that ultimately, your home will be used to make investors money and you will be still be spending a significant amount of money on rent each month.