New London property scheme lets buyers crowdfund to purchase a home without the need for a mortgage

A new scheme launching today is planning to revolutionise the home-buying market, potentially ending the need for mortgages altogether. Through its crowdfunding platform, Allbricks lets buyers purchase a home by crowdfunding for investors to buy “bricks” — essentially shares — in the property, then paying those investors rent while they gradually buy the “bricks” back.

The buyer chooses a property on the open market, which is then valued by a RICs-accredited surveyor and Allbricks use this and local market conditions to decide how many “bricks” are needed to make the price of a single brick affordable (this tends to be about £100 a brick). As an example, a two-bedroom, £685,000 property in Shoreditch has 6,850 bricks, each costing £112.18.

After putting down a deposit, the buyer can then crowdfund for investors to buy the remaining “bricks”. If this process is successful, the buyer then pays the investors rent on those bricks with a regular chance to buy a proportion of them back.

Allbricks CEO Shahram Shaida says: “Homebuyers can choose the home they want to crowdfund for and aren’t limited to properties below £500,000, new builds or leasehold. As there’s no mortgage and no debt, purchasing power is based on what they could comfortably afford to rent rather than mortgage-based income multipliers.”

The minimum deposit a potential homeowner needs to put down is one per cent of the property purchase price (or £10,000, whichever is higher). They need to be a UK resident, pay tax in the UK and use the property as their main residence, but it doesn’t matter if they are a first-time buyer or not. Allbricks will run standard affordability checks on the buyer to ensure that they are able to pay the rent, and once these have been completed, the buyer is free to choose their property and get their offer accepted.

Properties need to have a market rent of at least £1,500 a month, an EPC of D or above, not be a listed building or require any major work costing more than £5,000. At the moment, the scheme is only available for freehold properties in Greater London, but it’s hoped that it will roll out through England soon.

Before crowdfunding gets under way, the homeowner must pay their deposit, a share of the stamp duty and the Allbricks fee (five per cent plus VAT of the deposit). There is no application fee. As with purchasing a home the standard way, buyers also need to pay for the survey, valuation and conveyancing. Allbricks calculates these amounts on the buyer’s behalf.

The crowdfunding process sees the buyer invite investors to purchase the remaining “bricks” of their property and lasts for about two to four weeks. If not enough investors buy bricks, the reservation is cancelled and the buyer gets a full refund, including the deposit, their share of the stamp duty, the Allbricks fee and the cost of the survey, valuation and conveyancing. If successful, contracts are finalised.

The homeowner can then move in and decorate the property as they like (as long as it doesn’t reduce overall value). As part of the scheme, there is a home maintenance pot that grows over time and can be used towards major repairs or, if there is a surplus, home decoration. This is managed by a property manager, who will also arrange the gas certificate and buildings insurance. The rent is calculated using independent advice and is fixed for three years at a time.

Investors don’t need to sell any bricks to the buyer for the first three years but, after that, homebuyers are offered five per cent of what the investors own on a rolling basis. The more the homeowner buys, the smaller their rent. If the homebuyer decides to sell the property, Allbricks will ask the investors whether they want to find a new homebuyer using the scheme or put it out to sale on the general market. The investors and the buyer receive their share in the profits (or indeed the losses).

“There are a number of issues which will ultimately restrict the property owner long-term.” says Emma Morby, founder of the Female Property Expert. “The average person moves six to eight times in their adult life… the profit you make on a traditional mortgaged house is yours to keep (not shared) and often helps facilitate the next stage of borrowing. This system does not allow the homeowner to keep all the profit if they move within the 20 years.”

Morby also points out that there are issues on the rental side: “It is unclear what the tenancy agreements will cover. The buyer would be signing up to a long-term arrangement which could impact them if they wish to leave the scheme.”

She also flags that rental affordability checks are currently four times salary, so to live in a property that costs £1,100 per month, you would still have to earn in excess of £48,000 per annum.