UNMORTGAGED: FINANCING FIRST TIME BUYERS
From being saddled with student debt, to sky-high housing prices, the dream of owning a home has never seemed more distant to most Gen Yers. Claiming to be “the missing step,” Canvas8 explore how Unmortgage is helping people put down roots with a scheme that partially finances their homes. With comment from Dentsu Aegis Network Strategy Manager Catherine Bunbury, who sets out five key rules traditional institutions should follow.
For some, the dream of owning a home has never seemed more distant – from being saddled with student debt to sky-high housing prices, it’s a reality many Gen Yers are beginning to face. And while renting is a solution for those Gen Yers who’d rather not live under mum and dad’s roof, the prospect of a landlord selling a property out from under them – or simply imposing restrictions on furnishings and decoration – has renters feeling less at home in their homes. Claiming to be “the missing step between renting and getting a mortgage,” Unmortgage is helping people put down roots with a scheme that partially finances their homes. 
In response to how many people can’t afford the £100,000+ initial down payment on a property, the service requires prospective buyers to put up just a 5% deposit on their home. And, by allowing purchases up to ten times a buyer’s salary, Unmortgage opens up a wider selection of affordable financing options than traditional mortgage offerings do. 
“Renters at today’s prices can comfortably afford to rent a property worth ten times their gross income, but if they wanted to buy, a mortgage is typically a loan of 4.5 times their income, meaning that their quality of life takes a hit,” says Josef Wasinski, co-founder of Unmortgage. “They have to move area, downsize – or both – to get a foot on the ladder. They’re caught in the rent trap.”  Thanks to the company’s scheme, rent often remains lower than pricing in the surrounding area – in keeping with the ‘Retail Price Index’ – and is capped at 30% of the buyer’s salary in order to help with affordability.
Moreover, people can overpay to buy back some of the equity in the property, allowing them to own more of their property as and when they can afford it. “People are emotional about their homes; they want stability and a place to call their own,” says Wasinski. “The idea of paying rent that ultimately goes nowhere can be very stressful.“ 
Mortgage lending to first-time buyers has been lower in recent years than for previous generations. The number of loans made was at its highest in the mid-1980s and late 1990s. It declined sharply at the start of the 2008-09 recession, with the number of loans in 2008 47% lower than the year before. Lending started to pick up again in 2012 and is only now approaching pre-recession levels. 
"When banks provide a mortgage, they place the debt against the people themselves, which is a much more volatile risk implication and means a lot of people don’t seem to qualify," Wasinski tells us.  The Unmortgage experience is advertised as being easier than even low-deposit, government-led equity loan schemes, which crucially require purchasers to be approved for a 75% mortgage.  Help-to-buy shared-ownership schemes are similarly tricky; buying a 25% to 75% stake of a property’s value looks to be still be out of reach for many Gen Y buyers. 
But while companies and schemes like Unmortgage allow people to jump on the property ladder, some argue that they are a band-aid solution, covering the wider wound of rampant unaffordability in the housing sector. David Hollingworth, of London & Country mortgages, explains that while owning a small stake in a property and “having security of tenure as a named title on the deeds" is appealing to many young people, they should be wary of how it works. "It’s important to understand the mechanics,” Hollingworth says. “It may get you on the ladder, but what about the future? How will you make the next step up later on?" 
Meanwhile, startups like Property Partner are helping people club together to buy a house or apartment as an investment, reporting growth figures of around 74% throughout 2017. This raised the worth of the startups portfolio to £100.7 million. “We've got a lot of smaller customers investing relatively low sums of around £250, and and we've got customers in the seven figures,” says Dan Gandesha, Property Partner’s CEO. Gandesha points out that rather than helping them meet an end goal of ownership, the platform allows people to reap benefits of a property bubble, without having the full risk attached to owning a property outright. 
Insights and Opportunities
In the UK, 59% of all Gen Y-headed households in the UK are being rented. Meanwhile, renting itself seems a luxury to the 14% of Gen Y still living at home with their parents. With research showing that just 4% of all Gen Y households own their home outright, there is increased demand for solutions that pave the way to home ownership. As the housing market doesn’t look set to change anytime soon – and two-thirds of renters saying that unaffordability is the main barrier to home ownership – companies like Unmortgage are helping Gen Yers dip a toe into a market they view as somewhat precarious. 
According to a survey by HSBC, two-thirds of Gen Y who don’t yet own a home say they need a higher salary to be able to buy one.  A third of those who were lucky enough to own property said they relied on family gifts and loans to get there in the first place – up 20% from four years ago.  This number is only set to grow, with the proportion of young people needing assistance from family members to buy a home projected to increase to 40% by 2019.  For those whose families are unable to provide financial support at that scale, Unmortgage can help make home ownership more attainable.
“There are a multitude of reasons people can’t get mortgages and a lot of it is about lifestyle. The self-employed community really struggle to meet the regulations of the big banks,” says Wasinski, pointing out that buyers in their mid-20s to early 40s made up just 30 to 40% of the company’s business. This presents an issue for mainstream lenders, too; many mortgage products today have simply not moved with the times, and are reflective of the values the property market held years ago.
"Banks just don’t have the time or the agility to be able to investigate these cases correctly, and are saying no to lots of people that would actually be great candidates for a mortgage,” Wasinski adds. “Banks cannot handle the ambiguity of individual cases, so it is our job to find those who have been shut out by these rigid policies. We have the time, patience and capability, unlike the banks to really unpick the profile of each person." 
What steps should traditional institutions take?
Catherine Bunbury, Strategy Manager for Dentsu Aegis Network, sets out five key rules traditional institutions should follow to stay in favour with Gen Y in this traditional marketplace.
Let’s add Unmortgage to the roster of digital-first start-ups that have disrupted the finance sector; pay-as-you-go car insurance from Cuvva, personalised health coverage from Vitality and app-only banking from Atom are now offering the consumer a range of flexible and tailored services that sit in the palm of their hand.
Unmortgage and its fellows are in their infancy and it may seem unthinkable that this type of business model could ever pose a significant challenge to a Barclays or Natwest; however, banks would be foolish to remain complacent. Disenfranchised by banks and hyper-aware of the range of alternatives that are available to them, GenY is less entrenched in traditional banking than their older counterparts and, consequently, are less willing to maintain a relationship with a bank that fails to meet their needs.
In order to avoid losing out on an entire generation of customers, traditional institutions must follow five key rules
- Know your competition: Consistent monitoring of this new breed of competitor will enable banks to learn from their successes and ensure they are adapting their proposition accordingly.
- Play to your strengths: Banks have the longevity and expertise in the market that start-ups cannot declare, giving them an opportunity to act as a beacon of stability during times of financial upheaval.
- Think mobile-first: Gen Y needs to be able to research and transact on-the-go, making it vital for banks to ensure their mobile proposition is fit for purpose.
- Know your audience: Gen Y’s personal outlook and financial circumstances are vastly removed from those of their parents, making it important for financial institutions to re-evaluate their role in the lives of these young customers.
- Use your data: Banks must take advantage of Gen Y’s propensity to carry out their journey online by using data to deliver seamless and relevant service
You can find the original Canvas8 article here.
1. ‘Unmortgage: better than a mortgage?‘, Money Week (October, 2016)
2. ‘Dream big: the new route into property’,The Times(September 2016)
3. Interview with Josef Wasinski conducted by author
4. ‘Millennials are the generation of people now in their young adulthood. Roughly aged between 25 and 34. Millennials make up 13.9% of the total UK population’, Parliament Research Briefings (April 2017)
5. ‘Alternative ways to get your own home’, MoneyMagpie (January 2017)
6. ‘House crowdfunding platform Property Partner grew 74% this year after changing its strategy to target high-value investors’, UK Business Insider (December 2017)
7. ‘English housing survey’, Department for Communities and Local Government (July 2016)
8. ‘UK millennials are starting to sour on the housing market’, UK Business Insider (April 2017)