Crowdfunded mortgages gain popularity, but experts warn of risks
Crowdfunding mortgages is a growing trend, but experts say investors risk losing their money on this type of loan, according to Trouw.
The practice of raising money for mortgages online may seem appealing at first. Investors band together to help buy a cheap home that would then be rented out at a higher price.
However, these investors risk not getting a return if the housing market suddenly changes, experts told Trouw. “This is the segment of the housing market that is the first to find room when prices start to fall," said Peter Boelhouwer, who is professor of housing markets at TU Delft.
With inflation on the rise, real estate prices are likely to fall, Pim Huijgen, professor of notarial law at Leiden University, told Trouw. In the long run, this creates more debt than the property was worth. While banks are somewhat protected because they usually do not lend more than 80 percent of the home's value, real estate investors can get 100 percent via crowdfunding platforms.
"Then a property becomes 'under water': with a 100 percent loan you immediately have more debt than the house is worth," Huijgen explained.
Inflation could also lead to an uptick in vacancies. If people can no longer afford their rents, investors in crowdfunded mortgages will also not see a return on their investments.
Another issue is the legitimacy of crowdfunding platforms. Although the European Union introduced a licensing requirement for crowdfunding platforms in 2021, the rule doesn't go into effect for existing platforms until 2023. Right now, only one Dutch crowdfunding platform is licensed.
“In principle, crowdfunding platforms must comply with the same rules as banks when providing credit,” said Hylke de Vriend, who is the crowdfunding project leader at the Netherlands Authority for the Financial Markets. “But there are no regulations on how to do that.”