As you buy a home, the Capital you accumulate is difficult and expensive to access for other purposes. You can use the house as collateral for a mortgage but that is expensive and risky as it puts the whole house at risk. In contrast, Consumer (Public) Capital turns your home into a store of money like a bank account and makes it easier to access small amounts of capital without putting the whole house at risk. The downside is that you can only access the capital you have invested in the home.
The conditions for accessing your Capital will vary across Cooperatives, and a typical set of rules follow.
- Each time you pay rent, a minimum of 50% of your payment becomes Capital in the home.
- You pay a minimum rent, typically 3% of the home Capital value per year.
- You can pay extra rent as you wish and the excess you pay becomes extra Capital in the home.
- You can sell the Capital you have accumulated to other members of the Cooperative or to the Cooperative itself for a small transaction fee.
- When your Capital is equal to the value of your home, any extra money you deposit accumulates discounts.
Typical reasons why members would use Consumer Capital rather than a bank are:
- You are in a shared house and wish to build up a deposit for your own place.
- You have lost your job and need to reduce your living costs.
- You have purchased your home but need money for repairs.
- You have retired but do not wish to downsize but you wish to use the Capital in your home for living expenses.
- You want to save for a holiday and get a higher return on your savings than offered by a bank.
The advantages of using Consumer Capital over storing money in a Bank are the lower transaction costs, more straightforward procedures, protection against inflation, and higher discount rates than most bank deposit interest rates.
