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Genie: Buy a house without a mortgage

House with a red front doorGenie is a new scheme aimed at helping first-time buyers and long-term renters onto the property ladder without a mortgage. We take a look. 

Genie is a 25-year payment plan which doesn't require a mortgage.

How does it work?

Buyers, once approved, choose their home from a bank of new Genie properties.

They pay a monthly residency fee which is agreed between the buyer and Genie.

This residency fee is then subject to review every five years.

Customers acquire shares in their home as soon as they start their payment plan and at the end of the 25-year period own their home outright. 

To qualify for Genie, customers must be aged over 18 with a household income of at least £18,000 a year.

Where is it available?

Genie and its homes are owned by Gentoo, formerly the Sunderland Housing Group.

Peter Walls, chief executive of Gentoo, came up with the idea after worrying about how his children would get onto the property ladder.

According to Genie, since its launch in October 2011, 47 homeowners have moved into a Genie home.

Genie currently has a very limited number of properties to buy – only 27 newly-built properties in housing estates in the north east, including Sunderland and South Shields.

But investors are now working with the company to offer Genie homes in London and the north west of England - with the first new homes expected to be available from January 2013.

What does it cost?

Genie explained that they look to see if potential customers - primarily first-time buyers and long-term renters - can afford the residency fee.

Their examples showed that they might allow purchases at three to five times your pre-tax income, but it depends on buyers' full financial circumstances.

There’s an initial fee of £720. Buyers then have to pay a monthly residency fee which they agree with Genie.

This residency fee rises by 3 per cent a year for five years.

A spokesperson for Genie said: "The intention is for the monthly residential fee to be competitive with mortgage payments."

How does it compare with a mortgage?

Looking at a couple of Genie's properties and comparing them to similar houses in the area, residency fees for the first year appear to be roughly similar to paying 5 to 6 per cent mortgage interest.

Buyers should get their own independent valuation of a Genie property to see whether the residency fee beats buying a similar mortgaged property.

James Cotton of London & Country mortgage brokers said it is difficult to compare the scheme to mortgages.

Cotton said: "The costs are less transparent. What is a bit concerning is that the costs are reviewed every five years so at the outset the buyer doesn’t know what those increases will be.”

Pitfalls to watch out for

With the Genie scheme your ownership remains at 0 per cent until the very end of the plan, when the title deed is transferred to you and you become the full owner.

However, for the purposes of an unforced sale of the property before the 25 years is up, you are deemed to have acquired a stake in your property that is larger the longer you have been paying the residency fee.

Genie gets first rights to buy your share of the property if you can agree a price. Otherwise, you have to sell at the higher of the original price or the current market valuation.

If Genie valued the property at £150,000 but it was worth £120,000 on the market, and if it is still worth less when you want to sell, you're going to find it impossible to sell at the original value.

In this event, Genie can veto a sale. Even if it doesn't, you'll have to make up the difference by forfeiting some or all of your accumulated share of the property to Genie.

If that's not enough to make up the difference, you'd need to find the funds from elsewhere to get out of the deal.

Repossession fears

If you fail to pay the residency fee, you could lose the home. But unlike with a mortgage, this doesn't mean you can sell it and take your cut.

If you lose your Genie home for non-payment, you lose 100 per cent of the home - because you don't even own any of it yet - and you'll still owe residency fees for the time you lived there.

However, Genie says it won't consider enforcing repossession until a minimum of six months from the first instance of arrears.

A spokesperson said: "We work with the customer to understand the individual circumstances, identify the reason for arrears and apply an appropriate solution."

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Neil Faulkner

Neil Faulkner

Neil Faulkner waded his way through a mountain of claims as a paralegal before moving on to be an insurance consultant and claims manager. He is a long-term investor, and one-time property owner and landlord. He writes about property, investing, insurance, consumer issues, and helping people get out of debt misery.

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