Getting that mortgage is a hassle. If you go through traditional lending institutions with their “institutional” regulations and requirements, there is an arduous process of providing income and debt documents, credit history, etc., and then coming up with that required down payment that the traditional institution requires before approving a mortgage loan. For millennials, this presents a major barrier to homeownership. While 70% of Chinese millennials have already managed to purchase their first real estate, only 35% of their Malaysian peers have followed suit according to HSBC data. For 64% of millennials around the world a combination of low income and soaring property prices make the prospects of owning a house rather gloomy. A lot of them also do not qualify for traditional loans and do not have the family support for making that downpayment. New technologies, however, have opened the doors for alternatives to lending, specifically, crowdfunding, a phenomenon that bypasses the “red tape” of traditional borrowing.
Merging Crowdfunding and BlockchainCrowdfunding is also known as P2P (peer-to-peer) lending. A borrower accesses crowdfunding sites, identifies his need, and provides the details of their plan to repay lenders who are willing to put up money. Now, some crowdfunding is for charitable purposes (medical expenses, for example) and contributors do not expect repayment. But it has also moved into a lending arena in which borrowers and lenders enter into agreements for repayment. Such would be the case for a mortgage down payment. Add to this new concept the technology of blockchain, and you have a method by which borrowers can access an alternative down payment funding source, and an immutable record of each borrower-lender agreement is permanently recorded. This serves four purposes:
- Blockchain eliminates the traditional borrowing method, with its middlemen and fees. The repayment details are worked out between the borrower and the individual lender.
- Blockchain democratises borrowing, because credit scores, history, etc., are not factors in obtaining the loans. If a borrower can show basic ability to repay, an individual lender will be willing to put up the money at an interest rate that is mutually agreed upon.
- The borrower-lender arrangement is codified and recorded in a blockchain that is secure and permanent. Both borrower and lender have the security of knowing that their agreement cannot be changed except by mutual agreement.
- Re-payments are also recorded in the blockchain environment, so there is never a question about the amount or the ultimate meeting of a borrowing obligation to any individual lender.