Part own, part rent, co-ownership
Unmortgage wants to help people get on the housing ladder, specifically targeting those who have steady salaries but still cannot afford to save enough for a deposit. Rising house prices, lack of stock, and relatively stagnant salaries have, Unmortgage argues, placed an iron curtain between houses and their would-be buyers.
From what I can tell from limited available resources, the Unmortgage model plays as follows:
A would-be homeowner tells Unmortgage what their annual household income is and how much money they have managed to save. From this, they will inform the would-be owner of a maximum budget they have to play with.
With this figure in mind, the buyer then goes out and finds a home on the market that they would like to live in. If Unmortgage ‘like it too’, the two parties enter a co-ownership agreement. The would-be owner puts forward enough cash to cover at least 5% of the price and Unmortgage buy the remainder.
They buy the remainder with money put forward by institutions such as pension and insurance funds. The would-be buyer becomes the occupier of the property and can live in it as they please. There is no landlord involved, but they still pay monthly rent to Unmortgage.
The amount of rent paid depends on how much of the property the occupier owns; they do not pay rent on that which they own. If they own 10% of it, for example, they will only pay a maximum of 90% of the market rent value. Unmortgage pledge that rent will never exceed 30% of the occupier’s salary.
They then have the option to buy more of the house over time by adding as much as they like, which can be as little as £1 at a time, to their rent cheque that month. The more they own, the less rent they pay.
This process, it is argued, allows people to have houses they really love and in areas they aspire to live in - those which they would be priced out of if attempting to buy in the traditional manner.
Perhaps more importantly, the occupier can use the house as a more profitable saving method than, for example, a savings account. Rather than putting a certain amount aside each month into a bank account, they use it to buy more of the house.
As the value of the house (hopefully) rises over time, so too does the occupier’s share. Over time, the theory is that the occupier manages to buy enough of the house that they can sell their share back to Unmortgage and use that money to get a traditional mortgage on another house. They can even use it to get a mortgage on their co-owned house, buying out Unmortgage. Cashing out is completely free of charge.
“The way we like to think about it is the security of home ownership with the flexibility of renting,” says Rayhan Rafiq-Omar, Co-Founder and CEO. On their website, an ‘unmortgage’ is described as “a stepping stone between renting and owning”.
Many, many questions….
You have to admit, it’s a compelling study. Enabling people to live in homes they love and could never otherwise have access to; allowing the freedom of ownership, absent of a landlord; offering a more profitable savings process and then allowing customers to cash-out, for free, at any time. However, there remain a lot of questions.
When Unmortgage first announced their intentions back in 2016, the response was fierce. You know what discussion boards can be like. It’s all too good to be true was the main concern; a long-term con, trapping tenants into over-expensive contracts offering benefits to nobody but Unmortgage themselves.
Whilst much of this may not be true, it says a lot about the tide that Unmortgage are going to have to swim against if they want to gain trust in their model. By offering something that sounds so sweet, they have, somewhat ironically, increased suspicion and concern. This could say more about the world we live in than the Unmortgage model, yet it remains an influential obstacle.
Rayhan himself has done a good job of responding to each and every message on the discussion boards, refuting all of the concerns and offering alternative narratives, but I suspect there is plenty more backlash to come.
What is the agent role?
To be honest, I am not entirely clear yet. It is possible that, because homes are bought off the open market just like any other, that the agent role remains the same. If so, this can only be great news for agents?
If successful, Unmortgage will be responsible for dramatically increasing the amount of houses that sell in the UK, opening up entirely new paradigms of potential income for agents across the country. If Unmortgage becomes hugely successful and they maintain fruitful relationships with major residential developers, might they then be tempted to venture into agency and brokerage themselves?
Again, these are nothing but ponderings.
One thing is for sure: if successful, Unmortgage will teach us a lot about the mentality of so-called Generation Rent. Many experts think that they are desperate to own but simply unable to afford, but others argue that Generation Rent, by and large, has little interest in buying property; times have changed and so too have attitudes towards ownership. Across Europe, after all, the expectation to own is far less than here in the UK.
What will people choose when given access to real choice? Rent or co-own? It could offer great insight into our market, influencing the way we prepare for the future.
I suspect we’re going to hear a lot from Unmortgage moving forward. They hope to fully launch in “early 2019” but, if history tells us anything, it will likely take longer than that. In the meantime, I’m fascinated to see how the industry responds and how their top representatives negotiate the inevitable debate that will arise. The debate could even be on the scale of that concerning Purplebricks. On the other hand, what is currently being fobbed off as a nothing more than a private version of Help to Buy, could prove to change the face of our industry forever.
*James Dearsley is a leading PropTech influencer and commentator. You can follow him on Twitter here.
*The original article said Unmortgage engages with private investors as well as institutional investors, in addition to saying that the company is targeting new-builds. Both these statements are incorrect, and the article has been amended to reflect this.