Aspiring homeowners struggling to raise a large enough deposit to qualify for a mortgage might find they now have an alternative option – available through Instagram.
Generation Home is a brand new mortgage lender, launching earlier this month and marketing its home loans to Britons through social media.
While all other UK mortgage lenders require buyers to have a cash deposit, this lender lets buyers team up with friends or relatives who can ‘invest’ in the property alongside homeowners to boost their buying power.
Generation Home claims to create ‘better ways’ to buy with family or friends
This model effectively means buyers with a small deposit can invite others to put some cash into their home purchase and in exchange, own a share of the property.
Another option allows friends or family members to top up monthly payments.
The lender was founded by husband and wife team Will Rice and Sophia Guy-White after they tried to buy their first home jointly with some friends a few years ago.
‘This has just been a life saver’
Generation Home customers Rosalyn (25) and Peter Greenwood (23) are in the process of buying their first home
Rosalyn, 25, and Peter Greenwood, 23, discovered Generation Rent on Instagram.
They are currently in the process of buying their first home in Bath.
Rosalyn, a full-time mum, said that even with a 15 per cent deposit no mortgage lender could give them what they required even though they could easily afford the mortgage repayments.
Generation Rent’s ‘home booster’ option enabled Rosalyn’s Dad to use some of his income to help them borrow the necessary mortgage amount.
Peter, who works for Open Reach, said: ‘It was literally a pipe dream for ages.
‘We really wanted to get on the market but we just didn’t see how it would be possible in our situation without saving for a further 10 years.
‘This has just been a life saver. They have given us an option that just was not there before.’
‘When we spoke to banks, we discovered they would not consider us as a group. They only wanted to assess us a married couple,’ says Guy-White.
‘So we began thinking about how we could offer a solution to young people like ourselves that would empower them to be able to afford more by collectively pooling together with friends and family.’
In just two weeks since first advertising through Instagram, Generation Home has received applications worth hundreds of millions of pounds – all through social media platform Instagram.
Rice says: ‘I think we’re doing the world’s first Insta-mortgages. We have taken people from clicking through an advert on Instagram, all the way to now owning a house which is pretty exciting.’
While the lender is currently offering loans directly to buyers, Rice confirms their deals will be available through mortgage brokers at Mortgage Advice Network from Q1 next year and then more broadly through Legal & General’s mortgage club advisers.
Rice added: ‘While we have our own in-house advisers, we also understand that independent advice is really important to customers, particularly to first-time buyers.
‘We’re being very careful about who we partner with. We want to ensure that there’s a really high quality of advice provided by that third party.’
How does it work?
There are two options: home booster and home investor.
The home booster option allows buyers to add a friend or family member’s income to their mortgage application so that they can afford to borrow more.
This person – or people – can make regular payments or simply be on standby until you need their support.
The home investor option allows a friend or family member to help with the deposit. They can choose to be repaid, or to gift this money later on.
Say you and your partner have raised £10,000 to buy your first home together. You want to purchase a property worth £200,000, meaning your deposit is equal to 5 per cent.
At the moment, there are no mortgages available at 95 per cent loan-to-value, meaning your purchase simply can’t go ahead unless you have a willing family member who is prepared to give you £10,000 or tie it up with your mortgage lender for a fixed amount of time.
Generation Home is different. Say you have a brother and a god parent, both of whom have spare cash and want to help you get on the ladder – but not for nothing.
Using the home investor option, Generation Home allows you and your partner to apply for a 90 per cent LTV mortgage using your £10,000 cash deposit, plus £5,000 from your brother and another £5,000 from your god parent.
In return, your brother and god parent each own 2.5 per cent of your property, you own 95 per cent of it and it has a 90 per cent mortgage secured against it.
Rice explains: ‘Our research has found that over 60 per cent of parents would be willing to provide greater deposit support to their children if they were able to invest alongside them with a view to getting the funds back at a later date.
‘Their investment amount was more than double their proposed gifting amount.
‘Our deposit booster lets you do this. We provide the legal framework, securing your investment against the property and acting as your agent for the return of funds.’
Generation Home also enables users to set specific targets on how this ownership pans out.
The lender monitors the value of your home in real time, and offers the option of linking up banking details through secure open banking to enable it to monitor changes to income and affordability.
It will send alerts when your loan-to-value hits a certain point – say, 80 per cent – and inform you that if you were to remortgage, you could buy out your co-owners.
With the home booster option, those who ‘help’ boost buyers’ income and pay a small amount monthly towards the mortgage build up ‘shares’ in the property, which they can either keep and be repaid for or gift to buyers at a later date.
The ‘deposit booster’ is the big game changer
Sebastian, 32, and Liv Miller, 31, are Generation Home’s first customers and recently completed on a maisonette in Tufnell Park in North London.
Sebastian and Liv, who both work in renewable energy, were struggling to raise a sufficient deposit in order to buy in London. By using Generation Home, some friends of theirs were able to boost Sebastian and Liv’s deposit by investing directly in the property they ended up buying.
Sebastian explains: ‘Generation Home creates a framework which removes the risk to both yourself and your friends who invest.
‘Yes, it may not offer the absolute best rates, but it’s competitive, and the ‘deposit booster’ is the big game changer because it removes the awkward conversations and side deals that would otherwise be required.
‘For the home investor, they know their money is safe, while we as a recipient felt better about it because we don’t feel like we have taken advantage of anyone.’
‘Each pound put towards the deposit and mortgage repayments is captured by our accounting system and reflected in each individual’s stake in the property,’ explains Rice. ‘So, if you’re paying more, you are issued with more shares.’
Guy-White adds: ‘Our ledger ensures the fair division of ownership in the property where the owners – and any family supporters – want to manage their finances separately.’
Examples would include an unmarried couple who keep their finances separate, siblings or friends owning together, or a parent providing repayment support for a mortgage.
How does it compare?
A selection of rates on offer to first-time buyers from Generation Home
Generation Home offers a full range of options for those looking to borrow with a deposit from 40 per cent to 10 per cent.
Rates are not the cheapest in the market, but those looking to use Generation Home are probably not able to qualify for the best buys anyway.
You’re paying a few decimal points more to be able to take advantage of the much more flexible approach to measuring what you can afford to borrow.
Generation Home offers a two-year fixed rate up to 90 per cent loan-to-value, with an interest rate of 4.25 per cent and no fee. An option with a £999 fee is available with a lower rate of 3.99 per cent.
In comparison, the cheapest offer currently on the market for someone looking to buy with a 10 per cent deposit is with Virgin Money which is offering a two-year fixed rate of interest at 3.64 per cent with a £745 fee.
If you were to purchase a £200,000 home with a £180,000 mortgage over a 25-year term, your monthly repayments would amount to £918 with Virgin and £975 with Generation Home on its fee free deal.
While the latter does cost more, most mortgage lenders have restricted the number of mortgages available to first-time buyers with less than a 15 per cent deposit amid worries that house prices could fall and an overwhelming number of applications putting pressure on their systems.
Andrew Montlake at mortgage broker Coreco said: ‘With the widespread withdrawal of 90 per cent mortgages the outlook for first-time buyers is quite bleak at the moment.
‘Especially at a time when they would want to be making the most of the stamp duty holiday.’
Montlake praised Generation Home’s ‘innovative’ and ‘inspiring’ approach to mortgage lending.
‘It’s a nice concept and it’s actually pretty easy to understand once you arrive on its website. It’s trying to help people onto the property ladder,’ he said.
‘It has taken an innovative and inspiring approach during a time when other mainstream lenders are struggling to service first-time buyers.’
Alternative options for buying with family
There are several options for buyers who need help with their deposit.
Barclays Family Springboard mortgage lets home buyers borrow up to £500,000 deposit-free at an interest rate of 3.25 per cent fixed for five years by linking their mortgage to a friend or relative’s savings.
These savings – the equivalent of 10 per cent of the value of the home – are locked away in a Barclays fixed term savings account for five years as security for the home loan, while the home buyer pays down the mortgage.
While it’s called the Family Springboard mortgage, it doesn’t need to be a family member doing the helping – Barclays says anyone with the equivalent deposit can act as the guarantor.
On the same mortgage amount as above, monthly repayments on this deal would be £877.
The Post Office’s Family Link mortgage is currently unavailable due to the pandemic and Post Office doesn’t yet have a date when this will be reintroduced.
All of these restrict who can help to family members – usually a parent, whereas Generation Home doesn’t restrict who can chip into the deposit, so long as they have the money, can afford to invest it and understand how doing so will affect their own ability to borrow.
Are there any limits on who can apply?
Generation Home requires borrowers to have the permanent right to reside in the UK whilst it does not accept applications from borrowers with bad credit.
The lender will allow for anywhere between one and six people to be on the same mortgage.
Britain’s banking is increasingly online
The dawn of open banking at the start of this year promised a revolution in the way individuals manage their money, allowing different providers’ technology systems to ‘talk’ to each other if customers give their permission.
It promises customers safety online and indeed, the most recent statistics from the Open Banking Implementation Authority show over 3 million uses of API calls in July where a customer accessed a service that required open banking – up from 2 million in June.
Guy-White says Generation Home is keen to reduce the number of documents required from purchasers by using open banking which they hope will particularly appeal to the self-employed.
This essentially allows the lender to automatically see what your financial position is so that they can give a more accurate assessment of how much you can borrow.
While not yet available to the self-employed, they are planning to offer this ‘real-time’ affordability underwriting next year.
This would mean no longer having to submit annual accounts and bank statements when applying for a mortgage. It would also allow for a more complex calculation on how much these borrowers can afford. At the moment, lenders typically take an average annual income based on the past three years and lend against around half of that.
Buy-to-let is not on offer, and both Rice and Guy-White say they’ve no plans to extend into this market.
What happens to investors’ money if couples break up?
According to Rice and Guy-White, their Generation Home agreement establishes legal parameters which removes the risk of parents losing out were their children to break up with a partner whom they had bought with.
‘The money is still theirs, it is secured against the property and Generation Home acts as their agent for repayment of the funds.’
Should you apply?
Raising a deposit is the greatest barrier for most young people hoping to buy their first home and Generation Home is trying to help address this.
The new lender is also offering 90 per cent mortgages which will be a huge draw considering the disappearance of these products across the sector.
Boris Johnson might claim he is going to transform ‘Generation Rent into Generation Buy’ but at the moment Generation Home is the one putting its money where its mouth is.