When challenged to buy his family home and considering what it might be like for future generations, including his own family, it became apparent to Shahram, founder of Allbricks, that the mortgage model needed to be updated.
Other businesses have tinkered at innovating elements around the mortgage model, such as saving schemes or finding ways to increase affordability. Still, he realised none got to the heart of the problem. Leaning into the tried and tested idea that you can’t solve new problems with old solutions, Shahram believes it’s time to rethink the mortgage model, starting with getting rid of it. Read more to find out why.
By Shahram Shaida | Wed 14 December 2022
Mortgages have become a staple of modern living, with very few people able to avoid the process when looking to purchase a home. Apart from cash buyers or those gifted a home, most home buyers must resort to some form of mortgage.
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 home buyers; a model where instead of a bank mortgage, investors step in and invest in the home along with the home buyer. 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 home buyer. 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
The original article can be found on PropertyWeek here