The mortgage model dates back to the 12th century, and the basics of the modern-day financial product were present even then; the borrower held title to the property, but the lender had the right to sell if the debt wasn’t paid and so recover their money. Over time, mortgage rules have been either tightened or relaxed, depending on governments or sentiment, but the basic premise remains the same.
However, a different model could empower homebuyers; a model where instead of a bank mortgage, investors step in and invest in the home along with the homebuyer. This would make it more affordable to buy a home without debt or the impact of mortgage interest rates, but could also enable a new wave of potential property investors.
Governments, mortgage providers and even start-ups have tinkered at the edges and played with existing levers within the mortgage framework, finding ways to help get more credit, save differently or leverage parents’ mortgage or credit, for example. But ultimately, that tinkering has resulted in little change to the system or additional benefit for the homebuyer. The rise of digital technology may have made the application process more manageable, but while we have all embraced the ease of a digital mortgage, it is still a mortgage.
As the cost of living soars and mortgage rates increase, mortgage holders or those looking to buy now are feeling the pinch and impact of the confines the mortgage places them under. With no alternatives, there’s no escaping the limitations of stagnating wages versus rising home prices, deposit requirements and the effect of mortgage affordability calculators that are required to consider interest payments. According to Nationwide’s chief economist, a 10% deposit on a typical first-time-buyer property is now equivalent to almost 60% of annual gross earnings
The reality is most people can’t buy the homes they currently rent. ’Generation rent’ is not a voluntary trend, but the symptom of an antiquated system that is reaching breaking point.
Some of the best, most successful innovations have come out of times of significant disruption. Challenger banks, such as Monzo or Starling, were born out of a desire to change UK high street banking in the wake of the 2008 financial crisis. Just as these challenger banks changed the face of banking, empowering the consumer, it’s time to find a genuine alternative to the mortgage.
With technology empowering new platforms and methods to exchange resources, and a healthy dose of entrepreneurialism to approach the problem without the historical ties to a traditional mortgage, now is the time for consumers to have access to a safe and effective solution that can do for the homebuying process what challenger banks did for the banking system.
Shahram Shaida is founder and CEO of digital homebuying and investment platform Allbricks
