Joint Equity Co-Ownership – an alternative way

Joint Equity offers a new way to buy a home and new opportunities for investors.

crowd 03There are over 1 million people trapped in the rental market with all the wasted money and insecurity that entails when they would rather live in their own home.

There are also many investors falling out of love with Buy to Let who still want to invest in the UK residential property market. Now we have a solution that brings benefits to both these parties.

For 35 years I have been a builder and developer selling well designed flats and houses that I am very proud of and, very importantly, my buyers are happy to live in.

But I have always been aware that for every home I built 10+ people were disappointed being unable to get a mortgage or not being able to raise a high enough deposit. This meant they remained in rented accommodation.

In my time I have lived in rented houses and I hated both the insecurity of a Short Hold Tenancy and the restrictions and interference of the landlord and agent.

And if I hated it, so do many others.

Affordable 4I really do not want anyone who does not want to to have to live in the rented sector so my vision was to devise a way to help those who needed help to get a home of their own.

Big ask? You are right but I was convinced there was a way to help people move out of rented into home ownership.

In 2006 I devised, invented, designed (call it what you will) a new structure that combines traditional approaches to buying and investing in homes in a new way – Joint Equity Co-Ownership.

As my personal targets have always been the “shoot for the moon” types, I have set the goals for Joint Equity as

  1. To help 25,000 people every year buy their own home and
  2. To provide investors with higher returns and less risk than Buy to Let.

Now with Joint Equity Bonds we have the means to attract sufficient investors to make this happen. So now my goals are within our grasp.

We can easily see what our Resident Partners get from Joint Equity.

  • Security,
  • A home of their own,
  • No landlord or letting agent
  • A knowledgeable Partner who is on your side
  • A 50% share of the growth in house prices.

But what do Joint Equity Bond investors get?

  • Their money back at the end of the Bond.Escalating Returns from Joint Equity
  • Secure investment paying a good rate of return which increases the longer they hold the investment. I call this an escalating rate of return and it seems innovative.
  • A terminal bonus that is linked to the increase in property prices over the life of the Bond.
  • No hassles associated with being a landlord or having agents always asking for more money. No voids, damage, late payments, problem tenants, increasing legislation, changing tax regimes. (I could go on but there really is none of the problems with the traditional Buy to Let process).

Investors also get the big win with Joint Equity – the feel good factor, the personal satisfaction that comes from knowing that they are helping people who without their investment could never have the security of living in their own home.

So is my vision to help 25,000 people a year move into their own homes and to deliver good returns to investors achievable? Absolutely.

I am a hard headed developer but I also know there are 1,000’s of who really do want to get involved and help while making good returns on their money.

It’s a market solution for a social need – the perfect definition for ethical investment.

Brad Bamfield

CEO & Founder Joint Equity

More information

Do Below Market Value (BMV) properties exist and are they ethical? Of course not.

Below Market Value (BMV) properties are residential properties that are (somehow) available below their market value.  This is normally because the owners are faced with some kind of financial difficulty and want to or need to dispose of their property quickly and without going through a protracted marketing and sales process.  The precursor to this is quite often the threat of repossession. In recent years,  a whole new industry has sprung up around Below Market Value properties.  Property investment chat rooms are full of individuals claiming to have found a Below Market Value (BMV) property at a 10%,15% even 20% below its market value.

Red Book 2012From my experience there really is no such thing. The guidance from the Royal Institute of Chartered Surveyors on how a surveyor should value residential property is contained in Appendix 5.1 of the Royal Institute for Chartered Surveyors Appraisal and Valuation Standards (the famous Red Book).

The basis for the valuation of a residential investment property is normally its’ market value and is defined in the Chartered Surveyors hand book as:

‘The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’

Therefore, if as an investor you think that a property is worth £200,000 because maybe a similar property sold for that last year, and you buy it for £180,000 you might conclude or be told you are getting the property for 10% Below Market Value (BMV).

Garbage, if the property has been marketed i.e. advertised by an estate agent and unless you have held a gun to the seller’s head, the market value of that property is £180,000.

SoldWhere a Below Market Value property could exist is if the property was not fully marketed first, a trick of many agents to offer it to the select few “professional” buyers. Consider this an Agent is paid 1.5% commission on our £200,000 property selling for £200k he gets £3,000 selling for £180,000 he gets £2,700, just £300 difference, for the guarantee that the landlord will ask him to let the property at 10% of the rent say another £1,000 approximately. And don’t forget that this will be recurring every 12 or 24 months when the tenant moves on.

Lower prices also occur where property buyers are able to access so called ‘distressed or motivated sellers’ who cannot afford or want to go through the normal marketing and sales exercise as they are facing eviction by the mortgage lender. Now I do not think that is very ethical or nice way to buy property, you really have to be one very hard person to look a distressed seller in the eye and squeeze the last £ from them. Not a person I want to be.

auction 001The one instance where you really can buy a BMV property because of the speed and unpredictable nature of the auction process (you are never sure how many and what buyers you are going to get) it is possible that properties bought through auction will be cheaper than the market value.

But beware, the auction market is full of sharks and pitfalls.

Firstly the auction market is made up of “regulars” and “virgins”. The regulars can spot a virgin a mile off and as long as they don’t go for the properties the regulars have staked out then they are left alone. However, if as they often do the regulars let each other know which properties they want and the spoils are divided up, the unwritten rule is “don’t bid against your fellow regulars”.

But you go against a regular they will bid you up, often working together so you think it’s a real bargain, just so you pay well over the real price. If I cannot get it then I want you to pay well over the real price is the attitude.

I have been in the property buying and selling market for 35 years and attended auctions but never sold or bought a property through one. A telling statistic.

The property market is full of sharks and robbers and recently the ones that were selling worthless lots of land in fields that would never get planning approval have moved into the new fertile area of the new Below Market Value property industry. It emerged during the previous property boom because unscrupulous companies latched onto the large potential profits of buying property at a discount and then renting these investment properties back to their original owners. (This is distinct to the now well established and regulated Equity Release or Lifetime Mortgages)

Favourable financing conditions, and institutions that turn a blind eye to the ethics of the whole thing, have meant that these companies have used their instant paper profits made on these transactions to borrow additional funds to expand their operations offering to purchase a distressed sellers property for cash as well as sorting out the legal side of the transaction.

DispareMorally there are arguments for and against these companies who use their ‘negotiating’ skills and the desperate situation of the seller, (who often need to get their hands on cash fast;) to obtain a significant discount to the value of the property.  They argue that they are providing a useful service for their clients; others (including me) would say they prey on the vulnerability and desperation of the less fortunate members of our society. As the BMV industry settled down the and many of the early adopters moved on they developed a spin off sector aimed at equally unethical landlords & property investors who want to emulate the success of those companies by locating their own ‘motivated sellers’ and purchasing Below Market Value properties that they either keep or sell on at an instant profit.

Companies and individuals have set up to exploit this property investor led greedy feeding frenzy.  Property investment chat rooms have been taken over by almost crooks masquerading as property professionals.

These individuals set themselves up as Below Market Value gurus and introducers either offering to sell their fooll-proof Below Market Value finding system or increasingly to sell potential investors so called Below Market Value leads to individuals they have tracked down who are ‘desperate to sell’.

The obvious question is always, why? Why would these individuals be passing on leads for so called Below Market Value properties if they are such great deals? The simple answer is that they are ‘chancers’.

If they can sell a few leads for a couple hundred pounds and then an introducer’s fee for the sale of a property at a couple of thousand, it’s not a bad days’ ‘pay’! One only has to look at the whole off-plan debacle for parallels.  Here again naive and overly ambitious property investors were manipulated by unscrupulous middle men out to make a ‘fast buck’.  The result is that many property investors have been left high and dry having over paid for new investments and are now facing financial heartache for many years to come.

These are not the only dangers lurking with Below Market Value properties.  Even where a landlord manages to side step the middle men and does all their own leg work there is a little know hidden danger with so called Below Market Value property which all relates to the provisions of the 1986 Insolvency Act. The result is that a landlord who legitimately purchases a Below Market Value property could find that several years down the line and unbeknown to them that the seller has become bankrupt and suddenly their trustee is coming after the landlord with a court order to either reverse the sale or claim back the difference between the open market value of the property and it’s distressed sale price.

This is because the Insolvency Act allows trustees of a bankrupt to protect themselves from the bankrupt giving away their assets or selling them at below the market price. A landlord purchasing a Below Market Value property is potentially exposed to these provisions for up to 5 years assuming no fraud or the parties are associated in any way. The older I get the more I believe in the karma of property investment-

‘what goes around comes around’.

We must not forget that much of the promised profit from Below Market Value properties is at the expense of desperate and easily exploited individuals who have ended up in financial difficulties.

There is poetic justice in a property investor motivated by greed and prepared to exploit vulnerable individuals to end up with:

  • a ‘crap’ investment property,
  • occupied by dodgy and bankrupt tenants,
  • who are then taken to court by disgruntled trustees and
  • to top it all because of a falling housing market end up paying more than the property is in fact worth.

My dislike of a significant proportion of the people who work in my industry led me to develop the Joint Equity Co-Ownership structure which is the complete opposite, we are ethical, transparent and honest.

When we say we have Resident Partners and Non Resident Partners (our investors) the key word is Partners. When we buy into a property it is for 25+ years, and we want that property to be one that grows in value over that period not makes an artificial profit in year 1 because we have screwed the seller who is between a rock and hard place.

We look after our Partners as if they are our own family, and when we wake up at 4am (as we all do) I want our investors and our residents to have a clear conscience and with Joint Equity we all do.

As you will probably be aware I have also been a developer for most of the last 35 years and now I will rarely support ba Resident Partner who buys a new build from other developers.

Why? Developers have a different view of the world to long term investors. They build and sell and walk away with the profits.

The buyer is then left with any issues the property has in the future due to small room sizes, plot irregularities, poor workmanship or estate issues.

Joint Equity and our developments are quite the opposite, we build for the future and we are the co-owner for 25+ years so any problem the Resident Partner has is equally our problem. We rely on the asset value increasing to make our money and the only way we can ensure that is to design and build the very best we can.

So beware whether you are a buyer or investor you can get into deep trouble if you let greed overrule good sense.

JE Small 002Here at Joint Equity we are not infallible but we do not set out with a black heart and the intent to turn everyone over.

We are ethical in all our dealings with Partners and sellers and we are proud of it.

Brad Bamfield

CEO and Founder of Joint Equity Co-Ownership Scheme

Another blow to Buy to Let investments and number of rental homes available will drop and rents will rise

In continuing moves across finance providers, Barclays has announced that it is increasing its rental coverage ratio from 135% to 145%.

Rental coverage ratio is how much more the rent is than the cost of the mortgage. So for a £200,000 loan at 5% the cost is £10,000 per year.

Under the old norm of 125% cover the rent would need to be £12,500 now at 145% it will be £14,500; a 16% increase.

Barclayshow-much-for BTL confirmed that it will continue to carry out income and expenditure assessments, allowing customers put disposable income and bonuses towards any shortfall in rental cover. This will only work if you don’t already have a mortgage on your own home or another Buy to Let which will all be added into your affordability calculations.

On the up side Barclays is also reducing its stress test from 5.79% to 5.5% which means can you afford the mortgage at 5.5% instead of 5.79%.

Barclays said: “These changes are being introduced as a result of the reduction in landlord tax relief available from next April (phased in over four tax years). As a responsible lender we want to ensure that our clients can afford their repayments plus, other costs associated with the property where the borrower is responsible for payment such as, council tax and management/letting fees.”

Foundation Home Loans also joined in the general tightening of mortgages when it announced earlier this week that it is changing the basis of its rental calculation for individual applications from 125% to 145%.

Armageddon 002Despite concerns, the industry has said that increases in buy-to-let stress test levels should not be viewed as an ‘Armageddon moment’ for the sector.

However, many landlords see it differently they see it as part of a concerted attack on the option of investing money into UK residential property through Buy to Let.

The unfortunate effect of less Buy to Let investors is less property to rent which means the rental costs will rise and some renters will not be able to find homes.

George-Osborne-01As you know form our previous posts we think that the Chancellor is trying to drive individuals out of the market by reducing tax relief, increasing stamp duty and making mortgages more expensive. This then leaves the market open for institutions to enter the BtL market.

This has been Osbourne’s desire for many years but unfortunately the returns on investment have not been very good after all the agent’s costs are taken into account and institutions have not been keen to invest.

Now with private landlords being squeezed out of the market rents will rise and the market will be wide open for the big institutions so another example of social engineering by politicians and moving equity from individuals to institutions.

However, there is an alternative with the Joint Equity Bonds which pay 7 or 8% interest depending on the Bond or you can link the terminal bonus to Halifax Property Index to take advantage of house price movements. More on Joint Equity Bonds Here

It is now easier to invest in the UK property market through Joint Equity Shared Home Ownership scheme which has the security of property but does not exploit the person leaving in the property as Buy to Let does. All our Resident Partners share in the capital growth of the property while paying about the same as renting*.

*The maximum we will allow is £100pm more than they are paying in rent now.