Small amounts add up…
We noticed that we are all open to spending a £1 (or two) on things we know we will never win. The lottery, raffle tickets, prize draws, SMS competitions… you know what we mean.
What struck us is that when people club together and enter these games of chance they end up making somebody a lot of money. If 15,000 people spend £14 a month (£3.50 a week) on the lotto then they have created a pool of funds worth £210,000.
Imagine a prize draw that might be for a £50,000 car, someone gets a car, most people lose their £14 and the organiser makes £160,000!
People enter these competitions all the time and are ‘happy’ to lose their ‘tenner’ for the chance to win a car even though they know they will probably never win.
But stop for a minute, what if instead of a car the prize was an affordable house? What if, instead of a company making money, it was run by a not-for-profit using each prize pool to buy the home in full?
That’s what we are doing. A not-for-profit prize draw for an afforable home.
How much does it cost?
The numbers above say it all. The total membership is 15,000 people with a minimum of £14 per month per member into the pool of funds.
Our affordable houses in each of the Home Zones have been discounted to a price range of £145-165k. They are all suitable as starter homes or for a small family of 3-4 people.
The monthly membership fee gets you 30 entries to the draw. You can topup for more entries as much as you want to increase your chance of being selected in the draw.
The money you put in basically stays as your money. Although it is used every month to buy at least one home, it continues to add up and comes off the price of your home when you are awarded one.
So if you contribute £20 per month for 18 months, that would be £360. If you won the draw in month 18, the £360 is subtracted from the cost of your discounted home so, for example, £150,000 less £360 = £149,640.
Once you are awared a home you then pay off the balance at an affordable level each month. This would typically be about 80% of the market rate so around £550-£600 per month.
Once you’ve paid off the home it is yours forever. There is no interest, no mortage fees, nothing. So if your home costs £150,000 you will pay £150,000 for the home and that is it. The same home with a 25-year mortgage would cost you an extra £85,000 even at today’s low interest rates.
That’s the power of people working together.
How many homes are we talking about?
15,000!
That’s right, we keep going until every member has a home.
Between members topping up monthly amounts, using some clever tools we have to add money to the pot and from the extra money coming in each month from those who have already been awarded a home, we are looking to reach 10 homes awarded per month within the first few years and keep growing from there.
Profit Free Homes works by having a mix of members. Some joining to get a home as soon as possible and others looking to the longer term for children or loved ones. This mix helps balance everything out so that we can award a house to every member in a timescale that works for them.
As a community we will work together to meet this awesome goal… together. If you ever want to leave you can request to cash out and the membership will work together to buy out your spot.
How do you fund this?
The difference between the minimum fund of £175,000 per home and the cost of the home goes to the running costs. This includes the legal expenses of buying the house and everything else needed to run the project.
As a not-for-profit we will share all the costs openly with the membership so they can see how the money is being used for good.
Any money over the £175,000 per month goes somewhere very special… on the next home for the next lucky member!!
How did you chose the Home Zones?
The focus of Profit Free Homes is to help first time buyers get on the property ladder without having to take on the huge interest costs and deposit overheads involved in a mortgage.
This objective of making home ownership afforadable and open to anyone is based on the traditional building society model that has been proven for hundreds of years… basically, people working together to fund the purchase of homes.
It is important that the number of people involved in each area is realistic and that the base membership cost is fair and open to all. We surveyed the average price for a starter home across the UK and chose three areas where a group of 15,000 people clubing together at least £14 each a month could afford one of those starter homes from their combined funds.
Birmingham, Manchester and Newcastle all match this criteria and have big enough populations to gather together 5,000 or so people from each city.
We will expand to other areas over time and they may have different membership sizes based on the average cost of a starter home in those areas (say 20,000 members at £15 each a month).
For now, we are actively taking on board members from Birmingham, Manchester and Newcastle so we can start the process of awarding homes to our empowered community.
Where does the idea come from?
The first ever Building Society was setup in Birmingham way back in 1775. It was based on people pooling their money together collectively to fund homes for each other with no profit involved. Everytime the pool was big enough to fund another home, they drew lots to determine which member got it. And that’s exactly what we are doing. (You can read more on the 1st building society here.)
Why are you doing this?
We want to counter the excessive profit taking of mortgage providers. Housing is a basic human right. Despite being a default human requirement, there’s been zero price innovation in the mortgage market. We’re going to change that… together.
How are you going to do it?
The Internet can deliver much greater efficiency and cost reduction than the mortgage providers have delivered. Instead of using technology to get people to click on yet another advert, we will use the social power of the web to build a community of Members all working together to provide each other with profit free homes. Just like that very first Birmingham Building Society did 250 years ago!
How do I get involved?
Simple…