Smart contracts, De-Fi and Buying a Home

We live in a world today where if you want to buy your dream home, or anything expensive for that matter, we usually enter into an agreement with a third party (typically a bank) and borrow that money up front. You take out a loan for let’s say $900,000 as you have $100,000 saved. Even at today’s low interest rates of ~3%, you will be paying a whopping $~27,000 in interest in your FIRST YEAR. On top of that, add in 5.5% ($49.5k) stamp duty or land tax, mortgage lenders insurance (if you’re deposit is less than 20%), transfer fees, government fees, lawyer’s fees etc. You get the deal. It ends up being quite expensive, much more in fact than what you might have expected.

Now imagine, that instead of paying out all that interest, a digitally encoded contract existed which ensured that as long as you made the sufficient number of payments over a given period of time, you would come to own the house at the end. No interest payable. None. What about transferring of titles and lenders insurance etc.? Again, none, the transfer can be handled entirely, with penalties in place if conditions are broken. No need for expensive paper shuffling in between. This is one use case scenario for what is called a smart contract. A form of decentralised finance application. According to Njord Law: “A smart contract is a computer code generated electronic protocol, the essence of which is the transaction execution rules. The conditions programmed into a smart contract are monitored by software code and if the conditions are met, the transaction is executed automatically [1]. So long as both parties are able to meet the conditions of their contract, the exchange of funds for the property will be completed in a safe manner for both the buyer and seller.

Smart contract technology is still in its infancy and the complexity of the contracts can present genuine issues for developers and parties involved, for example, some conditions such as physical inspections, disputes over condition of the property etc. are still going to need a degree of human intervention. However, we are moving towards an increasing exciting, innovative and hopefully cheaper future for home buyers.