For many people, the United Kingdom is becoming an unaffordable place to live. It’s not simply that the cost of food, heating and lighting are set to rocket due to a combination of floods, drought, broken supply lines and the impact of the war in Ukraine. At the fundamental level of a roof over one’s head, significant numbers of young people are finding that ownership of a flat or a small house is beyond their reach. That leaves the rental market. It’s accessible because there is no borrowing required but is also increasingly expensive.
There are many reasons why housing is unaffordable, particularly for young people. A mismatch between supply and demand is the most commonly cited cause and it’s certainly true that the U.K. is not building – or even renovating – enough houses. Some pundits will also point to low interest rates, arguing that when repayment costs are low, borrowers effectively have more buying power, which in turn forces up prices in a market where supply is limited.
Added to that is the fact that incomes have not kept up with prices. Even those enjoying above-average salaries finding they can’t borrow enough to buy property. As a recent article in the Observer newspaper put it, when it comes to finding a decent place to live, Generation Z faces a lifelong struggle.
An opportunity, perhaps,for a new generation of propertytech entrepreneurs. According to PI Labs – an investor in the sector, U.K. propertytech attracted £1.6 billion in VC cash in 2021, compared with £347 million a year earlier. But can entrepreneurial businesses really make much of a difference to the lot of homebuyers?
Time to ask an entrepreneur. As luck would have it, I’d had just finished reading the Observer piece when I was contacted by Proportunity, a company that provides first and second-time buyers with “equity loans” covering the cost of deposits. The aim of the service is to enable buyers to offer sellers bigger deposits which in turn reduce the amount they will have to borrow through a conventional mortgage.
It’s another example of a “fintech” or “propertytech” startup – choose your preferred terminology – offering aspiring homebuyers a product designed to help them get a foot on the property ladder. But given the deep-seated forces that seem to be driving property prices inexorably higher, what impact can this really have? And does any solution that increases the buying power of a subset of purchasers, simply push up prices across the market as a whole?
When I spoke to Proportunity CEO and founder Vadim Toader, I was keen to get his take on what propertytech in general and his service in particular can bring to the marketplace.
Based in Britain, Toader studied engineering at Oxford before going on to an internship at FTI Consulting. From there he progressed to a consultant’s role at Bain & Company. His interest in the property market was triggered – perhaps not surprisingly – by his own experience of attempting to purchase a home. Despite a good salary, he found it wasn’t that easy. “I set up a spreadsheet and entered the details of about 100 flats,” he says. I couldn’t afford any of them. It was very frustrating. I was earning £39,000 a year – more than the national average.”
Later, he did go on to buy a house with his wife, but he retained an interest in the problems facing property buyers.
In 2016, Toader launched Proportunity. The company will lend up to 20 percent of the value of a property purchase in the form of an equity loan that is paid back when the home is either sold or remortgaged. This additional loan – serving as the deposit to the primary mortgage lender – increases the amount that a borrower can spend without pushing up the cost of monthly mortgage repayments. Proportunity estimates that its service increases buying power by as much as £150,000.
The secret sauce is data. The company clearly wants to make money. To make this work, it has to lend against properties that are going to rise in value. Based on the data analysis techniques he became familiar with at Bain, Toader has developed a platform that takes all the available information on districts, streets and properties and projects the likely growth. This data is shared with the prospective purchasers and is used to underpin the lending decisions. “The analysis we do,” he says. “Is very granular.”
The metrics are quite wide-ranging, covering everything from transport links and house price trends in neighboring areas through to the number of hipster coffee bars and sports facilities. If a particular property is likely to grow in value, then it is eligible for a proportunity loan.
But is this a good thing? The idea of giving purchasers a leg up certainly isn’t new and the U.K. government itself has sought to increase the options for first-time buyers by introducing a “help to buy scheme,” also underpinned by an equity loan covering 20 percent of a property’s value. This has certainly provided assistance for buyers but it has also been criticized for helping to drive prices higher.
Will Proportunity’s have a similar inflationary effect? Good for its own customers but perhaps pushing up prices further down the line for others. Toader doesn’t think so. The government scheme was limited to new-build houses being put directly on the market by construction companies. As he points out, in these situations builders control the assets and can simply raise prices across the board knowing that first-time buyers have more money to play with.
Toader says his company’s service is unlikely to fuel inflation. That’s partly down to numbers – it currently provides funding for a relatively small number of people when compared the Government’s help to buy – but also because the focus is not on “new builds.” Toader argues that prices will be negotiated by individual buyers and sellers rather than set by builders selling multiple properties.
To date, Proportunity has helped 200 buyers and with funding of $175 million raised, that figure will rise.
Propertytech is an expanding field and you will often hear claims that new ventures are fixing a broken mortgage, estate agency or rental market. But there are limits. The high level of property prices overall will mean that home ownership will continue to be out of the reach of a good many people for a long time to come while rental costs are also likely to remain high. So, in big picture terms, there is no quick fix. However, what entrepreneurs can do is design solutions that help individuals overcome some very real obstacles. Demand for such solutions is likely to rise.