A foot-up onto the property ladder, with Cameron Orcutt

We all pay a mortgage every month, just sometimes it's our landlord’s mortgage we're paying… I was in London for The Podcast Show in the last week of May and took that opportunity to record another in-person episode of HTLMTS - this time kindly hosted at OnLadder Towers by Cameron Orcutt, half of the exciting entrepreneur pair that’s using deposit loans to help first-time home buyers get on the property ladder faster.

Mortgage down-payments have always been expensive. A 20% downpayment on the average house in the UK 10 years ago, would have been about £30,000 and, at the time, that would have been 13 months of after-tax income for a typical household. So yeah, too expensive for many. But it’s gotten worse, much worse. Right now that same household would need to find 23 months of disposable income, having already paid over £100,000 in rental in the meantime.

You can learn more about OnLadder, and join their mailing list, at https://onladder.co.uk/ or find them on LinkedIn

You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24

If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.

Regards,

Brendan

The full written transcript, with timestamps, is below:

Cameron Orcutt 0:06

(laughing) It's my first podcast, I'm nervous.

Brendan Le Grange 0:17

We all pay a mortgage every month, just sometimes it's our landlords mortgage we're paying. Welcome to the 50th episode of How to Lend Money to Strangers with Brendan le Grange.

In the year it has taken me to get here, the average renter in the UK would have paid just under £12,000 to their landlord, if that same money had gone into their own mortgage repayments every month, the property that mortgage could have funded - with zero down payment, just to keep things simple - would have appreciated by £21,000. So step right up and double your money.

And I know it's over simplified, and the sort of growth we've seen isn't going to happen every year, so I am being a bit facetious, but you can see how homeownership can become such an important path to wealth.

Now, another big problem with the example I just quoted is that the mortgage I spoke about would only have funded a property purchase of £200,000 in a market where the average house is now £300,000. Plus, and this is probably the biggest problem, there is no such thing as zero downpayment.

So you need to have money available for that. And for the stamp duty. And for the solicitors fees. And for the surveyors fees. And it all becomes so expensive, so maybe we'll just have to wait until our salaries can catch up... But that's a race where the odds are heavily stacked against us. To put a 20% downpayment on the average house in the UK just 10 years ago, would have required about £30,000, which would have been a lot of money. In fact, for a typical household, that would represent about 13 months of their entire after tax income. So yeah, too expensive for many. Right now that same household would need to find £60,000 to put a 20% downpayment on the average house, having already paid over £100,000 in rental in the meantime.

Enter OnLadder, a UK based-fintech which sets out to make first time home buying feasible again. I'm speaking to their co-founder and CEO Cameron Orcutt.

Hi, Cameron, thank you for hosting me here at your offices at OnLadder, and welcome to the show. Together with Sam Hatley, you founded OnLadder as a UK based fintech focused, as the name suggests, on getting first time buyers onto the property ladder.

But before we get into that, I was doing some LinkedIn sleuthing. And I'm guessing you two met at Imperial College in London, but neither of you would have taken the obvious route there, so let's start by looking at your background a little bit, what were you doing before OnLadder?

Cameron Orcutt 3:15

Yeah, sure. It's great to be here. Great to meet you, and happy to be a part of your podcast.

Yeah, with regards to our backgrounds. You know, we're currently starting a FinTech lender to get people on the property ladder faster. But we took a bit of an unorthodox path to where we are now.

My background is: I did seven years of tax accounting for hedge funds and private equity funds in New York. I'm a CPA, Certified Public Accountant. You know, I learned a lot of great technical skills during that career. But I got to about year six of that, and decided that I never wanted to do tax accounting ever again. It's exactly as boring as it sounds.

So I ended up deciding that I didn't want to do that anymore, and then started looking at my options. And an MBA seemed like a good way in which to diversify the skill set, broaden my network, and just do something different. So I ended up looking around at my options - a lot of the MBAs in the US are overly expensive, but some of the MBAs in Europe are just as good for essentially half the price. And from a value perspective, that's something that was important to me, approaching age 30 and after a couple years working. So I ended up deciding on Imperial, they have a great entrepreneurship programme there, and essentially I was surrounded by very entrepreneurial-minded MBA candidates, including Sam. So that's where we ultimately met. And that's where this project originated.

Brendan Le Grange 4:48

As you said, your background is in tax planning, which isn't an obvious precedent to either entrepreneurship or mortgage innovation - so what was it that turns your minds together towards I'm glad.

Cameron Orcutt 5:01

Honestly, it just started with networking. I had zeroed in on FinTech as something I might want to go into, just because with my financial tax, financial services background, it just seemed like a logical next step. But I didn't know a lot about the space.

I did some desktop research - you can learn so much by just going out to events and talking to people, and London is a great is a great place for that. So when I was just getting my feet wet in London, having just moved, I started going to these fireside chats, fintech founders events, and seeing the CEO of Augmented FinTech or Fluidly or wherever. And it's just like a couple of experienced people in the FinTech space, talking about the big challenges that people face, just the opportunity to go to things like that, and talk to people from different parts of fintech.

And I think there was a point where I was talking to a founder who actually was from Imperial as well, was working on a prop tech app to help first time buyers buy their own home and organise the home buying process. And I think the the original iteration of this project was, ultimately, to use the equity in the home to help homebuyers accomplish their financial goals. And it actually originated with potentially tokenizing property. As we went along, as Sam and I worked on this, we eventually zeroed in on the first time homebuyer problem, though. And the best way to go about doing that, was to provide a deposit loan.

So there was a bit of an arc to this starting off with something that maybe wasn't exactly doable from a regulatory standpoint, or practically speaking, after we talked to a bunch of experts. But we iterated and we whittled it down to something that could work. And we're currently building towards right now.

Brendan Le Grange 6:42

Yeah, and I'm going to come back to that a little bit later, because it is one of those problems that it doesn't sound very sophisticated but is fundamentally the biggest problem in the market, where inflation is on the rise again. But even before that, the rate at which houses get more expensive, for a long, long time has outstripped the rate at which real wages are growing. And that means every day you don't have the downpayment, it becomes harder to get a down payment. And yeah, until that problem solved, it's going to remain an elusive goal.

But it's a goal... I mean, I've said this before, in other shows, almost every FinTech, almost any lender who's talking about access to credit, talks about 'that mortgage down the line' and why it's important to build a credit file. It's always for that mortgage, for buying that house. It's a goal most people have. So yeah, great to hear some innovation happening here.

When you were building OnLadder, you would have started this right in the heart of those on and off lock downs. when the fireside chats and discussions, that casual research, those all went away. So what was that like? I mean, it's a risk as well to take on a new business... I mean, the world's not settled yet at the moment, either, but certainly it was an unsettled time to strike out, and in a foreign country. What was that like?

Cameron Orcutt 7:58

No, certainly, it was. I mean, there are a lot of people that had a worse time than I did, you know, make no bones about it I feel very privileged to jump from a career in New York to London, but it was still nonetheless, it was a strange time. And, you know, just to set this up and provide context, you know, Sam and I are using this MBA this still expensive MBA in order to propel our careers to the next stage of our lives - and a pandemic happens., and everyone has to change the way in which they work, which they network, and yeah, that affects MBA candidates as well. So there's, there's disappointment when it initially happens, there's the shock of 'oh, my God, we're all getting locked into our apartments or flats.' But there's also just like, this little bit of disappointment that the plans that we had been ironing out for the past six months have just gone up in smoke.

And I think after like the first two weeks of just trying to get used to this new normal, really, I think that was when it was apparent that things have stopped, but they haven't truly stopped. And it's up to us to make the best of this. I think that was when like the switch kind of just flipped. I was not exactly willing to let this MBA experience blow up. So what ended up happening was, we had had this idea around supplemented deposit. But we still need to learn a lot about the UK home buying process, how things are done here.

And for that you need to talk to people. Now there's no events that are out there that we can go to, obviously, but there are other ways to contact people. And for us, for me, LinkedIn was a huge source. This all started and like the initial motivation to really go for it was, I just started messaging people we had no business talking to. One of them was Mark Prescott, former housing minister here who helped bring about Help to Buy back in 2013. I sent him a message, 'this is what we're working on, would love to pick your brain about things'. He was more than happy to take the call and him just going like 'you should continue talking to people', that was definitely a motivating factor in propelling this forward.

And from there, we just started reaching out to over a dozen different mortgage lenders, brokers, capital providers, dozens and dozens of home buyers. And we were able to over the course of less than two years, iterate into a product. That is something that homebuyers want. brokers can sell mortgage lenders can lend alongside. And that backs into what is a good investment for capital providers.

Brendan Le Grange 10:22

You're listening to How to Lend Money to Strangers. This is the 50th episode of the show, and we greatly appreciate all the support we've had to date, both from first time listeners and subscribers. Now, let's get back to the show.

Let's turn our focus from the 'why' behind OnLadder to the 'what' you're doing. So technically, I've bought a house before, but in the UK context, I'm a first time buyer. And I'm actually currently looking for a house. So if I was to work with OnLadder, what does that look like in practical terms, what are you offering to people in my sort of position?

Cameron Orcutt 10:58

Essentially, what we're offering is a deposit supplement. It's a deposit loan, that will push down the amount of the first charge mortgage you need in order to buy that first home. By lowering the amount of that first charge mortgage, it lowers the payments for it makes it more affordable and thus makes the home more affordable.

On a more detailed basis, the way it works is, let's say your first time homebuyer, you go to buy a house, it's a 5% deposit, which is unfortunately just the standard for first time buyers now. And let's say you go to, you know, a first charge lender, a Lloyds, a Nationwide, and they only give you an 80% LTV mortgage - there's still 15% of the home that's missing that you'd need help with.

If you don't help have help from the parents, you were talking about earlier, you know, wages and house price growth, they do not line up and they haven't for nearly two decades. So what we do is, in order to get around that problem, we provide them with a deposit supplement for 15%. And what we want to do is make this a flexible form of financing. It's not fixed principal or interest, but it's tied to the value of the house. And there's small monthly repayments as you go along to not trip up the first charge lenders affordability assessment, but you can pay the majority of it back when it best suits you. So when you go to our mortgage, you use the first charge loan to consolidate your debt or when you go to sell. And this way, it makes it easier from a personal financing standpoint, and also easier for the first charge lender to accept our clients.

Brendan Le Grange 12:22

Yeah, it's such a powerful need. And it's one of those ones that sometimes is brushed under the covers as it were just left, as you said, for the bank of mum and dad to resolve, but never directly addressed.

And it's quite interesting to me when I was in Hong Kong, I noticed an odd little trend there where the mortgage demand from Generation Z, from a young borrowers, used to move in parallel with the personal loan demand for borrowers age 70+, and the average value of those personal loans was really high. So what was happening there was that whenever young people were looking to buy a house, the grandparents were taking out a personal loan, and then moving the money across to the youngsters to make the deposit. So there was a little triangle going where the exact same process was happening to get into the property ladder. And young borrowers, or first time borrowers in general, have been first time borrowers are probably not that young anymore, given how hard it is to get these but you obviously dealing in this day to day and in see much closer than me. Why are first time borrowers having such a hard time getting onto the property ladder?

Cameron Orcutt 13:27

Certainly a part of it is definitely what we were talking about before, with wage growth not keeping up with property price growth. That's definitely a part of it. But another part of it is what has happened since the financial crisis.

Obviously, that was a very turbulent time for financial markets, and regulators took notice of what was wrong with the market. And there was a lot of else there was something in the UK market where there was a high rates of people self certifying their income, which fortunately they did away with that. But the main reasons that you know, first time buyers are having issue, it does have to do with rules that regulators put into place in order to make the financial system more resilient. And two big ones are loan to income ratios that lenders have to abide by - only 50% of their new lending can be above 4.5X debt to income. So if you look at any of the metrics from, you know, the UK property market, I think right now, like the highest income, the value is like 11x, depending on where you are in the country, that is one thing that's gonna put the brakes on a first time buyer getting on the ladder. And that's what makes bank a mom and dad so important and what we're doing thus important. Another big rule that they have here is the interest rate stress tests. So the way it'll work is they won't test the fixed interest rate that a borrower is paying, they'll test the standard variable rate that it reverts to after the fixed rate deal. So let's say you have a two year fixed rate. It could be a 2% interest rate you're paying for now, but then could revert to 4.5%. What lenders are required to do is to test at that 4.5% rate plus 3%.

And so really, even though we're well now it seems like interest rates are going up. But previously, we're in historically low interest rate market and people were being tested at 7.5%.

Brendan Le Grange 15:17

It's a very extreme level on top of extreme prices.

Cameron Orcutt 15:21

Now that last one is actually in the process of being changed. So the PRA has done a review, and they've looked at that one, the stress test, and I've said that they're going to allow the FCA rules to reign, like the FCA rules were only like 1% above SPR. So that's gonna provide a little bit more flexibility. But you still have that one of the income rule, which is really putting the brakes on things for first time buyers.

Brendan Le Grange 15:45

And I think the heartbreaking thing is, you're paying a mortgage anyway, whether you get a mortgage or not, you're paying a mortgage - it's just either as your mortgage for your house, or your landlord's mortgage for the house that you're renting. And so I can understand the need for affordability checks, I can understand we want to avoid the subprime type crisis where people lose their homes because of bad lending, but mortgages are... there's bad credit, we all know the sort of story of payday lending, there's credit that's a bit in between around the credit card space, the buy now pay later space, those sort of areas where, depending on your point of view, could lean one way or the other, mortgage, as I already said, it's that goal of almost all middle income, low income families. Unless you are really sitting on great wealth, mortgage is that route to financial stability.

And if we think now with inflation, it's also a fantastic inflation hedge because Sure, whenever you buy a house, you buy the nicest house you can afford. It's a stretch for the first few years. But every year after that, relatively speaking, and more so as it's inflationary, your mortgage repayments become less and less of a problem to be, whereas rental doesn't work that way rental just goes up and up. And I think that's what makes mortgages special and sitting on the outside looking and saying, well, this market, this dream that we've always had, gets further and further away. It is very difficult to bare.

Yeah, as you said that regulation environment isn't easy to understand. And I guess that's one of the reasons we don't hear a lot of FinTech or disruption in mortgages. I've spoken to quite a few people doing personal loans. And now, credit cards become a little bit easier as well, for a FinTech to get up, create a brand and start going. But in my mind, at least mortgage has been the Badlands where the banks are sitting on these huge vaults of free capital, they can price you down and the loan is such that you'll take the cheapest one because small differences make a lot in terms of cost. But now you are going into space, so within that financial services ecosystem, where do you see on ladder existing?

Cameron Orcutt 17:50

Right? So we view our role as complementary, we're there to get first time homebuyers on the housing ladder. But also, it's to better enable workers lenders to provide their loans to first time buyers. Mortgage lenders are currently hamstrung by the rules that we just outlined. And they know that first time buyers are a huge source of growth for them. So partner with a company like us will help them from a commercial aspect. Of course, the commercial aspect is there. Yeah, we have all the, you know, the ingredients for them in order to take this forward. And they all they all recognise it. But it's really after that when things get start to get tough talking to them.

Now, it's about proving that, you know, this is something that is something that they can partner with that they can trust us that this loan is going to get them on the ladder and help them stay there. So we believe that the people around us, our advisors, our director, Jackie Bennett's, our advisors, Richard Tugwell, we believe that now it's about breaking down the barriers. It's tough to make change in there.

And the communication aspect of this is key. How do we take what is a great product, and make sure that they understand and empathise with their situation and make sure that they're in a position to say, yes, partnering with the first charge lender is certainly important to us, we want to make sure we're on a first name basis with them so that they feel comfortable lending alongside us, but we're ultimately going to be an intermediary based lender. So what that means is we want to partner with the mortgage intermediaries that are out there that can bring the kind of scale we need in order to you know, actually make a dent in the first time homebuyer problem and solve it.

I had a conversation with the Mortgage Club yesterday and it's the same conversation. It's, you know, how do we make sure how do we bridge the gap between the innovation that we're bringing to the market versus what they know, and what their what their their fears could be based off of past products that have been a market. So really, it's it's right now. It's about communication. It's about patience. It's about empathy for us. And we want to make sure that we partner with these intermediaries because they provide the crucial advice to first time buyers who are vulnerable in this process. They've never bought a home before and the home buying process is to put it simply an absolute nightmare to go through. So a broker that can, you know, take a accurate financial snapshot for that customer, break down the process a bit for them, make them feel comfortable about them, you know, making the largest purchase their life is important for our customers. And that's why we want to make sure we partner with them.

Brendan Le Grange 20:22

It is a formidable challenge in terms of all the paperwork, you've got to do all the the thoughts of going through income checks that stress, there's not a time we need more stress in people's lives.

Cameron Orcutt 20:33

Right. There's so many different aspects of this when you're going into it for the first time, that are ultimately pitfalls. It's not just about getting the financing together. It's also about things like home surveys, the difference between that and evaluation. I'm writing article around this right now, because this is one of the big problems. It's the information gap for first time buyers. It sounds boring, it sounds like something that is you know, they'll just learn about but we've talked to homebuyers, and they've made they've made some serious mistakes with theses and choosing the wrong kind of survey, which if they had only spent on a more stringent survey, which is maybe £200 more, they could have potentially saved £3,000.

Brendan Le Grange 21:12

Well, yeah, I'll add my my vote to that we bought a house. And the surveyor came and then he sent me a photo and there was a couple of inches of water underneath in in a cellar. You know, we left Hong Kong in large part because our daughter had a lot of problems with the with breathing in the air. And we don't want mould and all those sort of things and that family be living there happily that notice. It probably wasn't a big deal, but for us, that was why we pulled out the house. And yeah, if we had lived there, it wasn't the house was going to fall down, so by all means we could have paid the money and had it fixed and learned an expensive lesson, but in a country where the houses might be 1,000 years old, you can't just kick it and see what it's like!

Now, you mentioned the bank of mum and dad - I interviewed Craig Smith from JustLend, right near the beginning of the show, he's reinventing the bank of mum and dad, but why is it been so long that that's the only alternative that you need to have come from sort of a middle income or richer family to have had access to mom and dad and maybe some uncles and aunts helping out to give you the money to make this deposit? When it's been such a clear problem, you know, everybody can see that wait a minute is really, really hard to make a down payment these days?

Cameron Orcutt 22:31

I think a big part of this is the regulation, you know, the same aspects of it, that protect the financial system, protect customers, and you know, try to ensure positive outcomes, it's the same thing that ultimately makes it a lot more difficult, that provides more friction for new innovations that are coming to market. And I don't think I fully understood this. But it takes a while. And like it's it's about it's about brand building for yourself and like what are you really trying to do here, it's about proving out that this product works with lenders and the FCA.

And so that's one aspect, it's the it's the regulatory side, I guess another aspect of it would be all the stakeholders that you need to really partner with because we have a unique view of the market. Yes, we're providing a loan to first time buyers. But there's so many other different parties that you need to have on board in order to make this happen. There's the brokers that need to sell this and advise on it, there's the lenders that need to lend alongside this product. There's the capital providers, and potentially home builders as well, you know, you need to make sure that you talk to everyone understand their position, and then that's where the creativity, and that's where really the fun kind of starts. And we're at a point where I don't wanna go into details, but we're gonna place where we're feeling fairly confident right now, as to where we're going. It just takes time, takes empathy, it takes patience, in order to do this

Brendan Le Grange 23:59

It's alway good to see innovation, it's always good to see people removing friction in a process and giving you better customer experience, making people's lives better, but there's only so much you can improve somebody's life by giving them access to a personal loan or credit card. It does take some of the costs away and there is a poverty premium for people to access credit, but none of that makes quite the same difference set a home does. And I think in terms of the size of it and what it means for sort of future wealth building but also just, you know, buying that first home, it's usually, you know, tied in with so many life events, you want to be able to make that get that stress out, settle down, turn your mind to other things that it's to me where you know, the most benefit can come and it's great to see that global FinTech running through that space. And this isn't just, you know, the world of the cheapest capital wins. There's spaces. Yeah, I think it's really pleasing to hear that, you know, there's going to be a way to get onto that, well, that ladder, which used to be is a lot easier 30-40 years ago, then seemed impossible, and bring it back to a world where it's possible is...

Cameron Orcutt 25:05

I want, I want to say for ages in the UK 25 to 34, back in 1990, the homeownership rate was 60%. Now it's around 23|% - it's just gotten to a point where there needs to be a change of mindset about how we approach financing the home purchase. I think that now is that time, for this change, there are, 100%, ways in which to do it that's in a safe, customer friendly manner, that it gets them on the ladder and helps them stay there. This comes back to some of the innovations that are going to be coming to the market over the next few years.

Brendan Le Grange 25:35

You spoke there about being confident and having some things going on the background, you're almost ready to announce what is next for OnLadder, what should we be looking out for?

Cameron Orcutt 25:46

So we're still looking to solidify our partnerships, we have a few parties that are interested in conducting a pilot. But you know, right now, it's getting all our ducks in a row, making sure that you know, we answer all their questions before being able to get to market. Once we get to market, we'll conduct the pilot, perhaps 100 to 200 loans. And then from there, we'll feel confident we'll have enough input in order to make sure that we're delivering this properly. And then from there, hopefully, we can go into the scale up mode and see how much of an impact we can truly have.

Brendan Le Grange 26:17

If people do want to go somewhere to learn more, or just to check in from time to time, what is a good place for them to head to learn more about OnLadder?

Cameron Orcutt 26:25

Yeah, I would recommend people going to www.onladder.co.uk It's our website, sign up for our subscriber list. You know, I try to write up you know, interesting stories here and there currently working on getting some input from actual, you know, an actual surveyor. But we also do things like stories about how we built OnLadder and just like how we you know how we came to the product that we have right now. We're not going to blitz your inbox, don't worry. But yeah, look at our website, subscribe, and stay tuned for when we're going to officially launch!

Brendan Le Grange 26:55

Yeah, and I think that's it can feel when the world is like it is at the moment for homebuyers that the system is sort of stacked against them. And then the banks who obviously they're not the enemy, but they don't feel like partners because they're these 300 year old Institute's with marble statues. And it's refreshing I think to be able to see innovation that's come from the ground up from a problem experienced by yourself said it's not the bank having come with hey, we've got a new mortgage product where it can sometimes be a little bit out of touch with a thing like a first time homebuyer and Yeah, been a pleasure having you on the show. Yeah,

Cameron Orcutt 27:32

Thanks very much, Brendan. It was it was a pleasure.

Brendan Le Grange 27:35

And thank you all for listening. How to Lend Money to Strangers is written and produced by myself Brendan Le Grange, and recorded today, on location. Show Music is by Iam_Wake. And you can find more information more content and full written transcripts at www.HowtoLendMoneytoStrangers.show

And I'll see you again next Thursday.