The global housing affordability issue is well known. In cities all over the world, first-time buyers are being shut out, forced to rent, move city or hole up with their baby boomer parents while they attempt the near impossible – save faster than price rises.
Enter proptech. We take a look at four businesses taking a different approach to the same problem.
StepLadder (UK) 2016
Launched in late 2016, StepLadder is the brainchild of Matthew Addison who came across the South American concept of ROSCAs while studying for his Masters.
A form of peer-to-peer lending, the concept is a simple one – combine ten people who are saving for the same deposit amount, each person contributes 10% of that target every month so that each month enough is raised for one person to pay 100% of their deposit. Continue for ten months allowing everyone in the group to pay a deposit each month, with 9/10 managing to do so faster than had they been saving alone.
In use throughout more than 70 developing economies, ROSCAs were once described as ‘the poor man’s bank’. The system requires trust between peers, and is exactly the type of sharing economy idea the internet facilitates so well.
StepLadder does not charge any fees for participation in the fund, instead it receives commission from any professional services introduced via the platform (lawyers, accountants, mortgage brokers etc). Early engagement with the UK’s Financial Conduct Authority has led the business to receive approval to operate as an electronic peer-to-peer platform.
Unmortgage (UK) 2016
Unmortgage (‘the missing step between renting and owning’) takes another approach.
It allows people to buy as little as 5% of a property, then pay rent on the remaining 95%. You can choose to pay the rent (fixed at the time of purchase) as a normal tenant or to increase your equity by paying a higher rent or making lump sum payments. This provides a viable option for anyone who can (a) afford only 5% of a home and (b) afford to rent that home but couldn’t afford to pay a mortgage.
In other words, it is a direct response to a commonly heard gripe: “I can afford to rent this place, but could never afford to buy it.”
The other 95% is owned by institutional investors who effectively co-own with you, while giving you the option to buy them out over time. The Unmortgage team selects properties together with you, with their criteria being a sound long-term investment. They make money by charging their investors a fee for managing their money, that is, selecting the right properties.
Owners can sell any time. They just need to provide six months’ notice, with the price based on the prevailing market value of your share at the time.
Unmortgage is the brainchild of EYE contributor Rayhan Rafiq Omar.
Landed (US) 2015
Like a shared equity scheme, San Francisco’s Landed offers to pay half of the deposit in return for sharing in the appreciation (or depreciation) of someone’s home. The example provided on their website is of an $800,000 property requiring a 20%, or $160,000, deposit. They will provide $80,000 and ask for 25% of any gains. They will also accept 25% of any loss.
Landed is only available to employees of eligible schools, recognising that the education sector is struggling to recruit teachers due to the high cost of housing, so it is a niche platform with limited scope. Like Unmortgage, it relies on rising values, meaning its success may be tied to market cycles.
coHome (Australia) 2016
According to coHome, in order to buy the median priced home in Australia you have to be in the top 10% of income earner. That sums up the current market in Australia and gives you an insight into how 90% of the population feels.
While researching the Australian mortgage market, coHome’s founders discovered that 1/5 people in Australia already get help from family when buying their first home. The ‘bank of mum and dad’ is well established, taking place informally and often without sufficient legal documentation. CoHome set out to facilitate this, providing an easy platform to get a mortgage, jointly search for property and execute an all-important co-ownership agreement.
After registering, users invite their friends or family on to the site where they fill in their details including income. Once complete, coHome’s lending partners will get in touch to talk through your options, estimating your joint purchasing power so you can start your search.
While not specifically itemised on the website, cohome’s fees presumably come from legal and mortgage commissions.
Can they really help?
Each of these platforms targets the same aspect of affordability – helping buyers with their deposit. StepLadder uses peer-to-peer lending to get there faster, Unmortgage partners with institutional capital to buy the share of the house you can’t afford, Landed invests alongside teachers sharing in the risk and reward, while coHome facilitates buying with friends.
No numbers are available so it’s hard to say how much traction each platform is getting in terms of transactions or revenue. StepLadder and coHome are commission based so they need scale to generate significant profits. Landed replies on price growth, while Unmortgage focuses on rental income; however, both require people to be willing to share ownership with someone they don’t know which could impact their adoption.
The rise of such platforms won’t solve the affordability crisis – helping the demand side of the equation is only part of the problem – but we can expect to see more of such platforms as entrepreneurs, many of whom are millennials themselves, continue to hold on to the dream of home ownership which is increasingly beyond reach.
* Jack FitzGerald is founder of DisruptProperty, a global real estate technology platform: