@gilynn Thank you! To be honest it came about in quite an unexpected way but alhamdulillah I am pleased I took the jump.
so to be clear, with Gatehouse, you own X% of your house and the bank owns (100-X%). You're slowly paying the (100-X%) off whilst also paying the rent to stay in the home on a pro rata basis?
I paid a 20% deposit so I own that much and the bank own 80%.
At the time I took it out, the rent was set at 3.94% and is fixed for 2 years. After this time period the rent is recalculated. It isn't set by area but will be determined at a rate similar to LIBOR.
With regards to the ownership element, is the valuation of the house solely based on the house fundamentals (ie Real Estate agent valued it) or did Gatehouse apply a mark-up on a 'profit' basis? How did Gatehouse come to the home valuation?
The house was advertised by the estate agent for X amount. I put an offer for X - 3K and the seller accepted. The bank then arranges a survey and for me fortunately the value was X + 10K so the bank was willing to go ahead with X - 3k. They will only purchase up to the value of their survey and not more but essentially no there isn't a markup.
in terms of risk sharing, what mechanism is in place if God forbid the home burns down? Is there an insurance company used? Would the insurance company clear what the bank is owed?
If the place burns down then my payments will stop, as you cannot rent out a non function place. This is what differentiates it from a conventional mortgage as I believe (but may be mistaken) that the interest continues to go up in this time. The bank have taken out an insurance policy which would cover costs / cost to rebuild.
How does Gatehouse make a profit?
I'm paying them rent for 20 years.
What happens if you miss either rent payment or ownership payment? are you charged interest as a fine?
Its only one payment that leaves my account each month. They say if you run into financially difficulties you should contact them as they may be able to pause the acquisition payment for a bit. If you don't contact them, I think there is a £25 fixed fee.
out of interest, was there a minimum/maximum in terms of the value of house you could look at? were they able to cover all houses in the UK or were you restricted to particular places? I only ask as given you purchase the home jointly with Gatehouse, I wonder if the bank has any say or cares in what house you can own?
I think there is a defined minimum. As for maximum that is based on your income. The bank assess your salary and outgoings and run affordability checks. I think the maximum is 4.5x your salary although in my case I did not go for maximum. I hear they do not operate in Scotland but I live in England so wasn't an issue.
The place has to be habitable, and if a leasehold property has to have a long enough lease to cover mortgage period. I think those are the main criteria.
was there a minimum deposit you had to pay? are you expected to own at least 20% of the home?
When I applied, it was a minimum of 20% deposit, however I believe since then they've also introduced 10% as well. Bear in mind, the multiples of your salary would have to cover the rest though. Al Rayan used to also have 10 - 20% deposits but with covid increased the minimum to 35%. Then a lot of people went over to gatehouse due to lower deposits.
If you had time on your side, do you think you could of have paid for the house in one lump sum yourself? Ie saving/investing etc. I only ask as I'm 23 and I still have some time before I really need to buy a home, but its a big priority for me, so I wonder if looking back you regret not doing something or know of a strategy that could of have got you the property without the mortgage. I hate mobile phone contracts so a mortgage seems way worse.
I live in London, so realistically to buy a property outright is not realistic for most people. What I have done, is not tried to reach for the stars and max out what I can get. But I have gone for something reasonable for me; which ended up being a 2 bedroom flat. To make it more financially worthwhile, I have agreed to a 20 year mortgage to reduce the monthly payments, but in reality I aim to pay it off in 10 inshallah. After 2 years, you are able to make extra acquisition payments, so that each month less of your money is going to the 'rent' and more to the 'ownership'.
I am probably not very financially savvy, and yes with investments you could also make money, but I am not too concerned about losing money with this particularly property as it is in a well located area and decently sized in London so I would imagine I would also be able to sell or convert it to a buy to let.
As Muslims I think we have been taught to be afraid of debt, but if I imagine I am borrowing it from my future self, then £10 now is worth much less in the future.
Hope this helps.