We’ve all been there or we know someone with a very good job, yet still struggling to afford to buy their home. The average Renter is currently paying 2 x in rent than they would if they owned the very same property. It sucks!
So why would someone who can afford 2 x in rent not be deemed ready to afford to buy their own home? Well, the answer is simply: That’s how mortgages work. A mortgage is like any other loan from a Bank, you qualify for it only if you can prove that you don’t need it! 🙂
(Cheeky comment aside) To qualify for a mortgage loan, in addition to having a good income, the lender typically needs to see proof that you have at least these three things:
- Minimum 10%-20% deposit of the home you want to buy. If you’re in London or South East England, the average first-time buyer deposit has now hit £115,000 according to Halifax
- A good credit score, so you’re out if you haven’t had prior credit exposure or you’re new to the UK
- Proof of permanent employment, oops, sorry if you’re a self-employed freelancer, a path now followed by many millennials
Having these criteria in place has helped to protect Mortgage Lender’s interest (excuse the pun) for many years. If it works, why fix it, right?
Except that the world is changing
- People are now ‘more terrible’ at saving than they were a few years ago, so saving up for a deposit is a lot harder. According to the Money Advice Service, 4 out of 10 working-age people had less than £100 in savings at any time. The Independent reported that the percentage of income assigned to savings dropped from 12% in 2010 to under 5% by 2016. I suspect it’s even a little lower now in 2019. The point is it’s a lot harder to save up a deposit now than it was a decade or two ago, so what are the chances of saving up 20% deposit upfront?
- What about credit scoring? Years ago, a low credit score meant you had defaulted on a loan or missed a payment. Today, a low credit score often just means you’re new to the UK (by the way, 38% of people living in London are migrants or 14% across the UK) or it means you’ve had no prior credit exposure (code phrase for you’ve been prudent and never needed to borrow). So does traditional credit scoring still work for these new generation of Buyers?
- And with millennials leading the way as self-employed freelancers in the gig economy, the ONS reported the number of self-employed people has increased from 3.3 million in 2001 to over 5 million people today. Yet mortgage lenders still only prefer permanently employed homebuyers.
Little wonder the Institute of Fiscal studies reported that Homeownership has ‘collapsed’ among young adults with the chances of owning home now halved within the last 20 years.
So the world is changing, but are mortgage lenders keeping up?
I’ll leave you to guess the answer.That’s where MortgageLadder comes in.
We’re using data science and machine learning to really understand this new Generation of Buyers and tailor a solution that works for them. Our advanced technology helps ensure we can give people access to own their own homes 3-5 years sooner than with mortgages.
We use technology to solve the deposit problem by allowing renters spread their deposit contributions in monthly instalments under the MortgageLadder programme, whilst living in the home they desire and without the need to save all upfront.
We’re solving the credit scoring problem in a similar way by allowing our Buyers to build up their credit score over a 3-year period using our programme.
MortgageLadder effectively turns your monthly rent into both a deposit and a credit score record
And we love self-employed millennials. Our data-driven algorithm allows us to underwrite self-employed applicants better than any mortgage lender can!
As we launch soon, we’ve already seen a lot of interest with hundreds of customer applications each month; we have an amazing team in place and our soon-to-be launched digital assistant will help anyone get purchase-ready giving you a tailor-made score and a personalised checklist to guide you through every step from renting to owning.
There are over 10 million renting households in the UK and we’re on a mission to help 50,000 of these become homeowners within the next 5 years.
We’d love to get your feedback as you help us build this solution together. Please join our community of Customers and Partners to share your thoughts and help someone you know own their home much sooner than they thought.
About the Author
Founder, MortgageLadder. Passionate about all things Property, Finance and Technology. Ex Banker...