Lowering the ladder: how NY fintech Xrent plans to help millennials become homeowners
With the cost of living and inflation on the rise and with salary growth struggling to keep up, saving for and buying a home is the ultimate millennial bugbear.
The fintech plans to launch later this year
In the UK, out of around 23.5 million households, more than a third are either private or social renters.
Since 2007, millennials have paid the majority of rent in the UK, with the demographic paying 42% of all rent in 2021.
Many want to buy a home but can’t. One reason is rent taking up a higher proportion of monthly income.
Since 2000, the combined annual rent paid by tenants has increased on a yearly basis from roughly £27 billion to £86 billion in 2020.
The picture is similar from Toronto to Paris, and London to Los Angeles, and in East Asian cities like Singapore and Shanghai too, where property prices and high rents are squeezing more people than ever.
The market is ripe for disruption and opportunities abound for fintechs that can help address this ongoing problem.
One US fintech, due to launch later this year, says it plans to address the rising cost of homeownership and help get millennials on the housing ladder.
Xrent is a fintech and real estate start-up developing a suite of financial tools and services for residential renters designed to turn renters into homeowners within three to five years.
“I believe owning a home is one of the most important human rights in the modern world,” says Xrent CEO David Gilad.
Fixing the ladder
The rising costs of homeownership have contributed to keeping many people on good incomes in the rental market for much longer than previous generations.
“We have seen a widening wealth gap trend without much sign of slowing down,” says Xrent chief strategy officer Mitch Turner.
To combat this, the primary tool in Xrent’s arsenal is its fully automated ‘rent-to-mortgage’ programme designed to direct rent payments toward homeownership.
The start-up will also provide a security deposit service and says it can also simplify the rent-paying process when living with roommates.
Xrent also says it hopes to extend its suite of tools into the traditional mortgage space as well as develop a new model it calls ‘equity renting’.
Equity renting allows renters to build equity while making ‘rent payments’ and save for a down payment without increasing any expense for the renter.
“We envision partnering with property management companies and even building Xrent communities ourselves,” the fintech says.
Gloom and boom
In the US, even with a thriving post-pandemic economy and the creation of hundreds of thousands of new jobs, student loan payments (which are set to return after a Covid moratorium), sky-high rents and rising home prices make it exceedingly difficult to save for a mortgage down payment.
The average annual income of US home buyers has increased to over $93,000, according to the National Association of Realtors, well above the national median income of $61,937.
Despite these gloomy figures, the vast majority of millennial renters still aspire to homeownership, Xrent says, with only 7% reporting no interest in ever buying — down from 11% in 2017.
CEO Gilad says he started the company after seeing the struggles renters face “both personally and worldwide”. The start-up is headquartered in New York City, a locale in which soaring house prices, eye-watering rents and housing shortages are as acute as anywhere.
He adds in order to achieve the company’s homeownership mission in the long term, “we want to give renters better financial tools to manage rent anxieties and equip them with a real-time path to homeownership”.
Credit scores and saving roadmaps
The lack of security that renting entails can also be extremely disruptive for households, especially those starting a family.
The average age of first-time mothers is currently 26, up from 21 in 1972. For first-time fathers, it’s now 31, up from 27. Figures are similar in the UK. Inability to get on the housing ladder is one reason millennial couples are having children later than their parents and grandparents.
The potential for forced eviction and the inability to put down roots can also contribute to poor mental health, job loss and added financial stress for adults, as well as poor performance at school for children.
On top of all this, renters do not benefit from a credit history that reflects monthly mortgage payments, and many times their rental history will not be reflected in their credit history either.
This is something that Xrent is keen to address. The firm says paying rent with the Xrent debit card will boost users’ credit scores thanks to its UpiT system.
Alongside the financial tools and services it will offer, Xrent has zeroed in on a number of specific problems around renting and homeownership it wants to help millennials solve.
To address those who are uneducated in the process of buying with no plan to ownership or visibility of how to get there, the fintech will set up a planned roadmap to follow in order to receive a mortgage for a desired home within three to five years.
It also wants to address issues around cash flow, with many renters living paycheque to paycheque.
The start-up also wants to tackle some of the less concrete factors preventing millennials getting on the housing ladder, such as the fear surrounding the commitment of buying a home.
Another barrier is the initial outlay of buying or renting a home and moving in, such as security deposits and furniture movers, which may result in additional debt.
It’s a big and sticky problem. But Gilad is optimistic: “In the age of disruption, there must be a better way to alleviate stresses associated with century-old rental practices and for people to achieve ownership faster and smarter.”
Xrent’s website went live in Q3 of 2021 and the fintech is targeting a beta launch of Q2 or Q3 of this year.
