Gentoo hopes to create a £150m portfolio of new homes for young families across the UK and attract institutional investors
Since the financial crisis, the housing market has become increasingly dysfunctional, in particular for today’s generation of first-time buyers. In 2011, first timers took out 193,000 mortgages, half a million fewer than the 2007 peak of 700,000 mortgage arrangements. It’s a massive drop.
Five years ago the average deposit for a first-time buyer was £12,000. Now it has reached £26,000, with 77% of buyers relying on family and friends for assistance – another all-time high.
The banks’ appetite for risk has reduced. They’re happy to offer good mortgage products for those with large deposits, but they are less interested in those with small deposits. Of course, this disproportionately affects first-time buyers.
The result? Firstly, we have a rapid increase in the number of renters; the total value of private rented stock in the UK is now £840bn – a 42% increase in the past five years – and there are now an estimated 4.8m private rented households, up from 3.4m just five years ago.
Despite this, the vast majority of British households still aspire to owner occupation. The government’s latest housing strategy agrees that improving affordability for aspiring homeowners is critical. Meanwhile housebuilding is still at a post-war low: in 2011, just 109,020 houses were built – the second lowest figure since 1949.
These statistics all indicate how dysfunctional the housing market has become. So the market needs innovation and 21st century solutions to these new housing problems. While the property market is focusing on restoring high loan-to-value mortgages, we need to look for new ideas.
The genesis of the idea for our new housing product, Genie, came from Gentoo Housing Group. Some years ago the housing association held a workshop asking participants to consider the question: where are our children going to live?
This is a problem for my generation’s children. Either we as parents will have to help by giving them a deposit, or by having them live with us while they save for a deposit. What Gentoo came up with is a 25-year home purchase plan, helping customers to access homeownership without the need for a mortgage or a deposit.
Home purchase plans are already a regulated product monitored by the Financial Services Authority, but this is the first time they’ve been made available to first-time buyers.
This 25-year product – Genie – received FSA authorisation at the end of September last year. We built the product. We built the systems and processes that need to be in place to deliver it and we’ve launched a new brand – but there have been challenges.
Genie is only in the north-east of England at the moment and it’s completely funded by Gentoo. We want to secure funding from other sources outside the region. We anticipate these will be other institutions similar to Gentoo, other housing associations and potentially local authorities, who are interested in investing in this new home ownership scheme – organisations with the same desire to see access to ownership made simpler.
The reason that more housing isn’t available yet is because there’s no point building lots of first-time properties because young households don’t have the means to buy them. In the next two years we are aiming at a portfolio of £150m home purchase plans and to move outside the north-east by attracting investment from the north-west, the midlands and London.
We think the Genie fund will ultimately attract institutional investment and that investment will be converted into new homes that lower-income households will be able to access using a 25-year arrangement through Genie.
We’re trying to attract investment into something new and there is a lot of uncertainty out there. Our long-term plan is to make Genie a mainstream purchasing arrangement of choice, across the UK, to compete with more traditional mortgages.
Another of our challenges is trying to make sure consumers understand that Genie is a form of homeownership and not renting or a rent-to-buy product, as provided by many housing associations. We had underestimated how difficult getting that message across would be.
The good news is that, of those who have applied for Genie homes and been approved, there is an almost 100% take-up rate. There are 47 people now living in houses that they wouldn’t have been able to own otherwise.
Steve Hicks is managing director of Genie, part of Gentoo Housing Group
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