In an interview with Mortgage Solutions, co-founder and chief executive Vadim Toader (pictured) said 2021 had been a “transformational year” as it secured institutional debt funding of £100m in debt and equity which will allow the lender to help people buy £1bn worth of homes.
He said the team had gone from 12 employees to 45 over the last 12 months and increased its customer base from 60 to over 200 in the same time period.
The average loan amount had also gone up from £50,000 to £75,000 in 12 months.
Toader said due to the three to six month lag time on leads, this was just the start of the uptick and more business would come through.
Toader added that “biggest roadblock for customers” in securing a mortgage was the five per cent deposit, adding it was an arbitrary figure and asked why it couldn’t be one per cent or seven per cent.
He said the lender was raising funding for new products, which would offer increased flexibility.
Looking forward, Toader said the firm would be highlighting its customer stories with testimonials to prove its product. He added that it had launched a referral competition for brokers and old and new customers where if you refer people, they could get up to £50,000 of their loan paid off or a new loan for the same amount. If the loan is worth more than that they still continue to pay the balance.
Proportunity has also hired former head of media marketing from Currency Cloud, Sarah Aird-Mash, as its vice president of marketing to help build their presence and would be embarking on more PR in the coming year.
Toader said that he wanted to foster more relationships and partnerships with lenders, brokers and estate agents.
“I think these are key elements we’re trying to expand in our business, so we become more part of the ecosystem,” he explained.
The company is currently partnered with Halifax, Tipton and Kensington Mortgages, and it was looking to partner with estate agents next. He said Proportunity was going to select two or three estate agent partners and put half a million pounds behind them.
First-time buyer, second-steppers and people requiring a ‘boost’
Toader added that Proportunity was popular with first-time buyers, but it held appeal for other groups as well.
He explained: “It’s not for first-time buyers only, it is also second steppers and people…that require more of a boost, for instance most people in their early 30s, but also others who are potentially divorced so one of them wants them to keep the house.
“Generally, it’s people in their late 20s or early 30s, maybe 40s, who are at the point of starting a family have a good income, but do not have a Bank of Mum and Dad.”
Toader said the firm was also receiving a lot of interest from referrals, and this was particularly the case during the Covid-19 pandemic as it was “effectively the only solution other than Help to Buy for people who wanted to buy with five per cent deposit”.
Proportunity was founded in 2016 and provides shared equity loans up to £150,000, although Toader said it could be flexible on the maximum limit.
He said a typical customer would be just short of £300,000 without Proportunity, but the lender could increase that to around £370,000 to £400,000.
Toader said: “In today’s market, this means a 10 times increase in properties they can afford. Because below £300,000, if you’re trying to buy in London or in any kind of urban area, you’re looking at nine properties, if you ignore garages and houseboats. Well with this boost it, you can look at 120 properties.”
Help to Buy versus Proportunity
He continued that Help to Buy was limited as it was only available on new builds and had price restrictions.
Proportunity caters to all homes and has “common sense” restrictions, where it uses technology to calculate if the property is a good investment and will increase its equity, and to ensure the buyer doesn’t pay more than they should.
Other benefits of Proportunity are that a borrower can get onto the property ladder and build equity faster.
Toader explained that as the shared equity loan reduced the size of the deposit a borrower had to raise, the money that would have been used for deposit could be used to renovate and improve the house instead, which could improve its value if certain assets were added.
With the Help to Buy scheme slated to end in March 2023, lenders are debating what solutions will fill the gap.
The latest government figures show that 339,347 properties were purchased with an equity loan between 2013 and 2021, with a total value of equity loans pegged at £20.9bn, and value of properties under scheme totals £94.4bn.
Toader said Proportunity wanted to support the transition as much as possible and it wanted to become the “go-to solution”.
He said: “Everyone’s struggling towards other solutions, but to be brutally honest, there’s also a bit of paying lip service to coming up or partnering with a solution.”
He added: “I think there’s going to be some of these solutions where committees approve them and say we’re doing something when in reality it won’t be pressure tested and it won’t be customer proven. This is a hard business.
“You will see that they might fall flat on their face, and then I think they’ll scramble at the end to pick up whatever offering from the market is available. We’re already proven and we’re building to be able to support the whole ecosystem when Help to Buy goes away.”
Toader said he thought more solutions would come to the market but they would come from new players rather than incumbents as they had “more focused teams pushing boundaries”.
“We think that everyone’s trying different flavours. I think you need to take these propositions and look at them in the detail and understand if they’re beneficial or not for the customer. There’s different elements, there’s some rent to buy options, equity options,” he explained.
Technology to predict equity
He said Proportunity’s technology, which combines 150 factors, 50 related to property and 100 to micro-economic aspects, would show what the value of a property is going to be and then give it a ranking.
It would also allow people to see if a property is undervalued and which properties were growing very fast, and this could help eliminate barriers to borrowing.
He added that there was a “bug in the mortgage formula” as it does not adequately account for different equity risk in different homes.
Toader said getting sufficient historical data was challenging but that Proportunity was “trying to turn it into a science”.
He explained: “We’re really working to fix this because we can see the benefit from it and for us. A lot of customers redo these properties and then it’s great for them because they improve the equity, they build the property they exactly want and then afterwards they get to live in a nice area in a bigger home.”
TMA Club questioned 145 mortgage industry delegates at its new-build forum last year and found that, while optimism was high, 40 per cent of brokers felt a lack of supply would be a challenge for newly built homes.
A shortage in materials and labour particularly during the pandemic has threatened the government’s target to build 300,000 homes a year by the mid-2020s.
A further 22 per cent of brokers said a lack of high loan to value (LTV) lending could also impede on the market as they cited it as a challenge when advising clients.
Some 15 per cent said the limited availability of appropriate lending criteria was their main concern.
With two-thirds of new-build enquiries coming from first-time buyers according to respondents, worries were raised around the end of the Help to Buy scheme in March 2023 and the lack of a replacement. Brokers said this could cause first-time buyers to struggle to get onto the housing ladder.
However, 80 per cent of brokers think the end of the scheme will have little to moderate impact on their business and customers.
Craig Hall, director of new homes financial services at TMA’s parent company LSL Property Services, said: “Covid-19 has caused disruption to the new-build sector since 2020, but it’s positive to see that brokers are feeling more upbeat about this area of the market in 2022.
“Despite this, there are clearly still challenges facing the new-build market, with the limited supply of new homes coming to market remaining a critical concern for brokers.”
He added: “We may well see a growing importance placed on shared ownership for homebuyers, while the government’s expanded First Home Scheme may also begin to play an important role.
“Indeed, we hope to see further lender innovation along with the emergence of new private schemes over the coming months to ensure that first-time buyers and others in the new-build sector continue to get the support they need.”
This week’s comments were in response to the findings of a House of Lords report that said government home ownership schemes did not offer value for money and inflated house prices.
DerKrobsen said: “Crikey, what a surprise. Everything the government does adds to house price inflation, back to Miras days, and the tax reliefs before then. Also, over-generous lending multiples. All in favour of the banks, of course, at the expense of personal debt.”
Barry Davis added: “Well how clever a great deduction, only just worked it out have we? It has been like this for the last 20 years since new-build shared ownership is way overpriced and the rental is calculated on what is current day rateable values, making the rent proportion excessive. Older second generation properties are far better value for money.”
ERCs limiting later life mortgage rebroking
The third comment of the week was in response to Air Group chief executive Stuart Wilson’s blog suggesting that later life advisers could learn from mainstream rebroking habits.
Adrian Seager said: “Very difficult to rebroke when having to add early repayment charges (ERC) to any rebroking exercise. Last case I tried was an existing 7.5 per cent loan with Just and [the client] considered a move to Aviva at 3.23 per cent.
“Even after 19 years, the gross loan amount repayable to Just when compared to the projection for Aviva, after adding ERCs to the start loan amount, was still lower with Just. Existing lenders know that during the ERC period the business is fairly safe, but once outside of any ERC, that will be a different story soon.”
The Built Environment Committee’s Meeting Housing Demand report concluded that “too many people currently live in expensive, unsuitable, and poor-quality homes and housing supply needs to be increased to tackle the housing crisis now.”
The report looked at social housing, private tenancy and owner occupancy.
It said while many commentators were generally in favour of interventions to support home ownership in challenging market condition, they emphasised the need for an overall increase in housing supply to reduce the need for public funds and to “prevent subsidised home ownership from adding to house price inflation”.
It said spending on the Help to Buy scheme was expected to reach £29bn in cash terms by March 2023. The National Audit Office said the spend on the scheme had resulted in the overlooked opportunity to put this money towards house building.
While the Home Builders Federation told the committee that the Help to Buy scheme created demand and led to investment in land and labour to deliver homes, Professor Christian Hilber, professor of economic geography at the London School of Economics and Political Science, conducted analysis which showed homes were primarily being built in locations where it was easy to construct, such as the near the English-Welsh border.
Hilber added that in areas where “jobs are located and housing is severely supply constrained (such as in Greater London)” the scheme has “led to a substantive increase in house prices, with no statistically significant effect on construction numbers.”
Affordability and ownership desires
The report said owner occupancy was the most popular form of tenure with 87 per cent of people preferring to own their home compared to 12 per cent who would rather rent.
It also found home ownership among those aged 25-34 had declined over time. In 2003/4, 59 per cent of households were owned by people in this group but by 2019/20 this had fallen to 41 per cent.
The committee put this down to the increase unaffordability of home ownership, citing the rates at which house price growth had outstripped wage growth. As of 2020, someone on a median average salary of £31,000 in England would expect to pay 7.7 times their earnings to purchase, compared to a ratio of 3.5 in 1997.
The report also noted the discrepancy of affordability between regions. London as found to be the most expensive area with workers having to pay 11.8 times their earnings, compared to those in the North West where 5.8 times their earnings would be needed.
The report said tightened mortgage lending rules also impacted affordability, which was explored in the House of Lords 2016 report ‘Building More Homes’.
Supporting housebuilding
The report said the role of SMEs in housebuilding had “collapsed” and to address this, planning risk should be reduced, more small sites should be made available and access to finance should be greater.
Baroness Neville-Rolfe, chair of the House of Lords Built Environment Committee said: “The government’s ambitious target of 300,000 new homes per year will only be met if government takes action to remove the barriers for housebuilders, particularly for SMEs who 35 years ago built 39 per cent of new homes but now build just 10 per cent.
“The planning system needs urgent reform.”
She added: “Skills shortages in the construction, design and planning sectors must be addressed to unlock the required development, including the green skills needed to address climate change.
“Uncertainty and the absence of a clear policy direction has only exacerbated housing problems. Our report provides a package of proposals to help deliver much needed housing and address the critical undersupply of new homes.”
The full report can be found here.
On the new business side, mainstream products between 60 per cent and 95 per cent loan to value (LTV) have had their rates cut by between 0.2 and 0.3 per cent.
Two-year fixed rates start from 1.25 per cent, three-year and five-year fixed rates begin from 1.41 per cent.
Cashback for fee-free three and five-year fixed rate products at 80 to 90 per cent LTV reduced to £500, whilst cashback for three and five-year fixed rate at 95 per cent LTV has increased to £1,000
In its professional mortgage range, it has cut two and five-year fixed rates by up to 0.11 per cent and 0.3 per cent respectively.
Its new business professional mortgage two-year fixed rate now starts from 1.61 per cent, and its five-year fixed rate begins from 2.07 per cent.
Two and five-year buy-to-let fixed rates have been cut by up to 0.1 per cent, and premier products in range have fallen by 0.06 per cent.
For instance, two-year fixed rates start from 1.3 per cent, and its five-year fixed rates start from 1.56 per cent. On the premier side, rates start from 1.17 per cent.
Help to Buy products in its new business range, both two and five-year fixed rates, have been cut by 0.06 per cent. Its two-year fixed rate starts from 1.75 per cent and its five-year fixed rate starts from 1.91 per cent.
In Platform’s product switch range, mainstream products have had their rates reduced between 0.1 per cent and 0.36 per cent, with the higher rate cuts applying to products at 80 to 90 per cent LTV.
Buy-to-let and Help to Buy products in its product switch range have also had their rates cut.
The lender has also increased its standard variable rate (SVR) from 4.34 per cent to 4.49 per cent for new business from today, following the Bank of England’s decision last week to increase the interest rate to 0.25 per cent.
The move will open up BTL borrowing to new and existing customers.
Small landlords and like-for-like remortgage cases will no longer be required to provide proof of income on submission. Applications will be put through a reduced underwriting process which means a faster broker and customer journey.
The stress test rate is now set at 4.5 per cent for five-year products and like-for-like remortgages.
New and existing BTL borrowers can also apply for additional borrowing for any legal purpose except gambling, any form of business purpose or unsecured debt consolidation.
Previously, landlords could only capital raise for permanent home improvements to the mortgaged property, to buy out an existing title holder or partner or to raise money to buy another property.
The lender has previously launched two implication indication calculators, which could benefit customers looking to remortgage with Natwest.
Luke Christodoulides (pictured), head of corporate accounts at Natwest, said: “We’re pleased to further support the BTL market and help customers with their additional borrowing needs. These changes follow on from the simplifications we made to our BTL proposition earlier this year and show our commitment to this important market sector.”
The lender has also increased the rates of select shared equity, BTL and green mortgage products across it new and existing range by up to 0.15 per cent.
This includes a two-year fixed rate shared equity product at 70 per cent loan to value (LTV), which has increased from 1.48 per cent to 1.63 per cent. It has £500 cashback.
In its BTL range its two-year fixed rate purchase product at 70 per cent LTV has increased from 1.48 per cent to 1.53 per cent.
On the green mortgage range, its five-year fixed rate at 60 per cent LTV has gone from 1.5 per cent to 1.6 per cent. This product comes with a cashback £350.
The trio of products are subject to a £995 fee.
Proportunity, which is a shared equity loan provider that was launched in 2016, will offer up to £150,000 or 25 per cent of the property’s value. Kensington will then offer a first-charge mortgage at a lower loan to value (LTV).
This combined loan will allow consumers to borrow up to six times their salary, and according to Proportunity the deal also has a lower interest rate than a 95 per cent LTV mortgage so the overall cost of the mortgage is lower.
According to its website, blended rates, which is Proportunity’s initial rate paired with a main lender rate, range from 2.09 per cent to 2.64 per cent. Rates vary depending on the LTV, which range between 10 per cent and 25 per cent, and on whether the £499 or £999 product fee option is selected.
Proportunity works in a similar way to the government’s Help to Buy scheme, which is set to be discontinued next year, but is available on existing properties and those already on the property ladder rather than solely new builds and first-time buyers.
Paul Lewis, head of intermediary partnerships at Proportunity, said: “This partnership is good for Kensington, good for Proportunity and, more importantly, good for the borrower.
“Kensington Mortgages is known as a leader in the specialist lending market, and its forward-looking approach makes it stand out still further as a lender who will reach out to credit-worthy borrowers with real and practical solutions.”
Craig McKinlay (pictured), new business director at Kensington Mortgages, added: “This innovative shared loan from Proportunity fills a much-needed gap which will increase in importance as the Help to Buy scheme tails away next year.
“There is a real need to help people who only have a small deposit and don’t have the luxury of a parent or grandparent to help them onto the housing ladder or to move home, this partnership with Proportunity means we can do that.”
He said that Proportunity’s shared equity loan worked well with its specialist range of mortgages and helped borrowers to scale up their current property or buy their first property. He added that as the loan was available on existing properties and for current borrowers, more people could access it.
