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Digital processing Act. 24 Feb 2020

The fintech startups who are reinventing the world of mortgages and rent

Fintech startups are transforming the path to homeownership with new financing models. Different companies in BBVA’s ecosystem are revolutionizing traditional approaches to home buying, creating new options that are helping consumers become homeowners, more easily, quickly, and with a more personalized experience.

The housing sector continues to depend largely on the traditional mortgage market, which often entails a long and complex process for those who want to become homeowners. However, a new generation of companies is emerging, and they are looking to turn the sector on its head, using data and new technologies to make buying a home an easy and digital process.

For many people, the hardest part of getting a mortgage is raising a deposit. To address this issue, fintechs have redefined the concept of the mortgage and have developed alternative financing models that open a whole new range of possibilities.

The Lucas Project is a digital platform that facilitates home ownership through a renting-with-an-option-to-buy model. It works as follows: Lucas will buy a property from a real estate fund and will make it available to a pre-vetted tenant, who will contribute as little as five percent towards the purchase price of the property. Once the rental contract is finalized, the tenant makes rental payments to Lucas, a portion of which goes towards the renter-cum-owner’s purchase of the house, if the renter ultimately decides to buy. After three years, the buyer decides if she wants to execute her purchase option, extend the term, or request the return of the five percent she initially put in.

This startup has participated in BBVA’s innovation ecosystem in Madrid “incubating” its creative approach to homeownership. According to The Lucas Project’s’ founder and CEO, Stephen Aitkenhead, his company was able to grow “on different levels” by virtue of its resident experience in the BBVA Open Space hub. On one hand, they were able to take advantage of the insights provided by BBVA’s fintech experts; and, on the other, they were able to avoid a lot of mistakes and ramp up their growth by learning from the experience of other startups.

Lucas is a startup which helps young tenants by providing them with a private rental plan with an option to buy.

Another business that provides an alternative to addressing the up-front deposit is StepLadder, a London-based startup that offers a model that uses a rotating savings and credit association (ROSCA) to help its customers raise the deposit they need in order to buy a specific property.

A ROSCA consists of a group of people who commit to contributing a specific, monthly amount to a shared pool for savings. Each month, the joint savings are randomly assigned (by lottery) to one of its members. This process is repeated until everyone in the group receives his or her share of the common fund. With this system, the participants receive their savings more quickly than they otherwise would, except for the last person to be drawn. This person will receive his savings in the same timeframe that he would have if he had saved it on his own.

This collaborative approach to savings has been popular in Latin America for many years where it has been used not only for home deposits but also for more mainstream purchases.

StepLadder’s founder, Matthew Addison, explains that he first came across this savings model when he was studying for a master’s degree in the U.S. He quickly saw its potential in the U.K. market where it could help aspiring homeowners buy property. StepLadder was one of the first companies to receive funding support through the BBVA and Anthemis venture studio in London. The partnership helped StepLadder accelerate its plans to help tens of thousands of people buy their first home.

Artificial Intelligence improves the process

Having overcome the hurdle of raising a deposit, borrowers may be confronted by other problems. For example, it can be quite difficult for consumers — who often aren’t aware of all the complexities associated with a mortgage agreement — to find the right financing product.

M:QUBE has turned to artificial intelligence (AI) to deal with this issue. This U.K.-based company uses AI to help financial institutions with the approval processes for those mortgages that are generated via mortgage brokers. M:QUBE digitalizes and optimizes the mortgage agreement process using its own AI system, which retrieves all the available data about the potential customer, analyzes it, and then determines the borrower’s debt capacity.

This is a much appreciated and helpful solution for entrepreneurs or the self-employed, who traditionally have found it difficult to get a mortgage, because even if they are able to repay a mortgage, it can be a challenge to prove they have a steady income.

These new opportunities are made possible by technology, which is becoming the greatest ally in improving the customer experience by simplifying and streamlining home buying processes. Aware of this, and as part of its mission to lead the transformation of the financial services sector, BBVA is sticking to its commitment to support the fintech ecosystem.

BBVA’s acquisition of Madiva, a Spanish startup specializing in big data and cloud based services provides a good example: out of this collaboration, BBVA was able to develop BBVA Valora. This online tool provides users with approximate prices for renting or purchasing a specific property and to understand the impact these payments would have on their personal finances. It therefore helps customers make better decisions during a major life milestone, helping them verify which homes represent the best investments.

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