OwnHome is a rent-to-buy scheme for first-time buyers that aims to reverse the trend of declining homeownership in Australia.
James Bowe and Tim Harley were best friends and housemates at law school in Sydney and they always knew they would start a business together. They just weren’t sure what kind of business it would be.
While working in different parts of the world during the depths of the Covid-19 pandemic lockdowns, Bowe and Harley spent every weekend on video calls spit-balling ideas.
Harley was in Dubai leading the expansion of global payments provider TransferWise across the Middle East. This gave him insights into what it takes to launch a consumer financial proposition in a tightly regulated market.
Bowe was in London with consulting firm Bain & Company. He had just completed six years in San Francisco; a city analogous to Sydney in terms of its sky-high real estate prices.
“During these cross-continental sessions, we kept circling around the challenge of homeownership and housing affordability, which was a challenge we had lived and breathed ourselves,” says Bowe.
Neither had access to the ‘Bank of Mum and Dad’, where buyers look for financing from parents, and had struggled to save up enough to cover a 20% deposit and stamp duty.
“Tim and I had fantastic upbringings, but we certainly had no access to the intergenerational wealth transfer that’s increasingly become the deciding factor in whether you’re able to make that leap to full homeownership,” he says.
They hit upon the idea of creating a rent-to-own scheme, whereby a tenant has the option to buy the property they are living in at the end of a lease for a previously-agreed-upon price. Instead of paying the ‘dead money’ that is rent, the monthly payments go towards a deposit.
Rent-to-own schemes are popular in the United States, and especially in pricey cities such as San Francisco, where Bowe had clients participating in them.
“The homes we purchase on behalf of our customers are more modest than the mortgage they may otherwise be able to access if they had a sufficient deposit.”
– James Bowe
While still overseas, Bowe and Harley did a startup accelerate program with the Commonwealth Bank’s venture arm at the end of 2020. They subsequently pitched their business idea and received funding from the bank in 2021. This represented a turning point for getting OwnHome off the ground.
“The Commonwealth Bank is Australia’s most trusted financial brand and the largest supporter of first homeowners in Australia, so the grant given to OwnHome for seed funding enabled Tim and I to create this proposition for aspiring homeowners.”
After the pandemic caused delays in getting back into Australia, Bowe and Harley eventually made it back at the start of 2021. Their wives, however, were stuck behind following repeated flight cancellations and visa headaches, so Bowe and Harley became housemates again for eight months.
“Fortunately, we weren’t personally impacted by Covid and nor were our families, so for us the lockdowns were an opportunity to be intensely focused on business building,” says Bowe.
In February, OwnHome announced that it had closed a Series A capital raise of $31 million in an oversubscribed round led by Square Peg. It included contributions from the Commonwealth Bank via X15, as well as other existing investors GFC, Entrée Capital, AfterWork and Possible Ventures.
Half of OwnHome’s customers – who Bowe says number in the dozens but declines to disclose a figure – are first generation migrants from places such as India, Ireland and England. It currently operates in New South Wales and Queensland only.
“These first-generation migrants are disproportionately impacted by the deposit hurdle, as their parents weren’t the beneficiaries of the great Australian property boom and therefore can’t play the role of the Bank of Mum and Dad,” says Bowe.
OwnHome’s application process involves demonstrating an ability to service a mortgage. It has never had a customer default on monthly payments, but it has a hardship policy set up in case it should occur. It is also conservative in its estimates of what a customer can afford, and it helps them find a “dream home” that will support long-term happiness.
“If you can’t afford a million-dollar mortgage, you’re not suddenly going to be able to buy a million-dollar home with OwnHome,” explains Bowe. “In fact, the homes we purchase on behalf of our customers are more modest than the mortgage they may otherwise be able to access if they had a sufficient deposit.”
OwnHome has set its pricing to be about the same monthly cost as would be required to rent and save towards a deposit – though with the added benefit of the payments working towards homeownership. The pre-agreed price of the property is set at a 3.8% increase from the time the customer moves in. If it increases in value by more, the customer stands to benefit.
“OwnHome derives its profits from the monthly payments that we receive,” says Bowe. “In effect, we are sacrificing capital gains, because that growth rate is offset by the deposit accumulation.”
With homeownership out of reach to a growing number of Australians, it is unsurprising that OwnHome has a waitlist of potential customers. In the past 12 months it has received applications that would amount to $14 billion in property purchases – Bowe says they have been able to serve “a very small subset of that demand.”
“We’ve been incredibly fortunate in that we’ve tapped into the zeitgeist concern over housing affordability, and as a result we’ve been inundated with demand,” says Bowe.