The fintech business, which formally announced itself in December at the UK Finance dinner, also has hopes of working alongside brokers to help first-time buyers achieve their required deposits.
Proportunity will make its deposit loan available to borrowers buying properties in locations it has identified as poised for substantial property value growth in the next couple of years. Borrowers will be able borrow up to 20% of their required deposit.
Speaking exclusively to Mortgage Solutions, Proportunity CEO and co-founder Vadim Toader (pictured right) explained he had been in discussions with lenders and had already worked with Post Office Money.
“We’ve been talking to lenders and they are fairly excited – we’ve had conversations with heads of mortgages, risk officers and heads of compliance,” he said.
“It looks like we are on course to start the scheme pilot in the next six months. So it’s a matter of time, it’s not a matter of if.”
Toader added: “Initially this will be a pilot so we won’t be able to give it to everyone and won’t be able to give it to absolutely any home – we have to limit it when testing.
“But the long-term mission is that at some point we won’t even need to charge them an interest rate, it’ll just be paid back through the capital appreciation at the end.”
Working with brokers
At present potential first-time buyers having trouble raising big enough deposits are being asked to register their interest on the Proportunity website.
However, in the future Toader believes working with brokers and potentially lenders too would be a more effective way of securing eligible borrowers.
“The key question is always going to be where are these potential first-time buyers dropping off?” he continued.
“Are they giving up on buying after going to a mortgage broker and realising they don’t have enough deposit? Or are they not even going to a broker? If so then initially we’re going to have to get to them directly.”
But Toader added: “If brokers do have clients they would like to lend to who don’t have the deposit then obviously we are more than happy to take that too.
“Dealing with consumers is not necessarily our expertise and judging whether a borrower has a qualifying salary for a mortgage is not what we’re best at – I’m happy to leave that to the mortgage broker side.”
‘High degree of certitude’
The firm began as a pure technology business when Toader and his co-founder Stefan Adrian Boronea (pictured left) realised the level of analysis and insight into property value movements in the UK was very limited.
They targeted areas that had potential to rise in value though signals such as new developments, new schools and increased bank lending. After growing the team Toader believes the firm is “now in a place where we’re quite comfortable we are forecasting well”.
It has already worked with Post Office Money on a piece about first-time buyers which reversed the places the lender had highlighted as property value hot spots following its original analysis.
Once they realised the barriers first-time buyers were experiencing, they saw the investment opportunity.
“There are areas that grow 50% in the first year – e.g Waltham Forest in 2015,” Toader explained.
“If someone comes in with a 95% loan to value (LTV) mortgage and sees that growth, then in a year, that LTV is going to drop to something like 60% and be one of the best mortgages any bank has.
“If we know that’s going to happen with a fairly high degree of certitude, and we know this person has a qualifying salary, then why is this person not getting a mortgage, because fairly shortly that person is going to become one of your best customers,” he added.
The product, which acts as a second charge on the property, is very similar to the government’s Help to Buy offering but has two key differences.
An interest rate that will be applied in the first five years but this is intended to be cheaper than any 95% LTV mortgage available.
The time of issue will be shorter too – most likely at five years which will then couple with a five-year fixed rate mortgage. Most borrowers should then be able to buy out the Proportunity loan when remortgaging, but for those unable to do so, replacement products will be made available.
Regulation is one of the biggest challenges to getting the business up and running.
Toader notes that: “We want to be fully authorised, but we think it’s better to help buyers earlier rather than wait three, four or five years for the full authorisations.”
So with that in mind it is working on solutions that will allow it to come to market this year while continuing its regulation process.
The business is funded through private backers, but is also gaining interest from institutional investors who want to access the residential market without needing to directly handle the risk and costs of buying and managing hundreds or even thousands of properties.
“Some people jump to the conclusion that some sort of vulture fund will charge them a high interest rate – but it’s the opposite of that,” Toader continued.
“We concluded the reason people do that is they [lenders] don’t have any ability to differentiate between houses, they don’t have the technology to de-risk what’s going to happen with that property going forward.
“However, going into this our mission is to not over-charge,” he added.