Vadim Toader, founder of Proportunity
For many people, the UK is becoming an unaffordable place to live. It’s not just that the costs of food, heating and lighting are skyrocketing due to a combination of flooding, drought, broken supply lines and the effects of the war in Ukraine. At the fundamental level of a roof over the head, significant numbers of young people find that owning a flat or small house is beyond their reach. That leaves the rental market. It is accessible because there is no need to borrow, but it is also becoming more and more expensive.
There are many reasons why housing is unaffordable, especially for young people. A mismatch between supply and demand is the most frequently cited cause and it is certainly true that the UK is not building – or even renovating – enough houses. Some experts will also point to low interest rates, arguing that when repayment costs are low, borrowers actually have more purchasing power, which in turn drives prices up in a market where supply is limited.
In addition, incomes have not kept up with prices. Even those who enjoy an above-average salary find that they cannot borrow enough to buy real estate. as a recent article The Observer newspaper states: When it comes to finding a decent place to live, Generation Z faces a lifelong struggle.
Enter Propertytech
Perhaps an opportunity for a new generation of real estate technology entrepreneurs. According to PI Labs – an investor in the sector, UK property technology pulled £1.6 billion in VC money in 2021, compared to £347 million a year earlier. But can entrepreneurial companies really make much of a difference to the fate of home buyers?
Time to ask an entrepreneur. Coincidentally, I had just read Observer’s piece when I was approached by Proportunity, a company that provides first and second buyers with “equity loans” that cover the cost of deposits. The goal of the service is to enable buyers to offer sellers larger deposits, which in turn reduces the amount they 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 foothold on the real estate ladder. But what impact could this really have, given the entrenched forces that seem to be driving real estate prices inexorably upward? And does a solution that increases the purchasing power of some buyers drive up prices across the market?
When I spoke to Proportunity CEO and founder Vadim Toader, I was eager to hear his thoughts on what propertytech in general and its service in particular can bring to the market.
Priced out
Based in the UK, Toader studied engineering at Oxford before doing an internship at FTI Consulting. From there he grew into the role of consultant at Bain & Company. His interest in the real estate market was sparked—perhaps unsurprisingly—by his own experience trying to buy a home. Despite a good salary, he did not find it so easy. “I made 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 making £39,000 a year – more than the national average.”
He later bought a house with his wife, but he remained interested in the problems homebuyers faced.
In 2016 Toader lanceerde launched proportionality. The company will lend up to 20 percent of the value of a real estate purchase in the form of an equity loan that is repaid when the home is sold or remortgaged. This supplemental loan — which serves as a down payment to the primary mortgage lender — increases the amount a borrower can spend without increasing the cost of monthly mortgage payments. Proportunity estimates that its service boosts purchasing power by as much as £150,000.
data mining
The secret sauce is dates. The company clearly wants to make money. For this to work, it must borrow money against properties that are going to increase in value. Based on the data analysis techniques he learned at Bain, Toader has developed a platform that collects all available information about neighborhoods, streets and properties and projects the expected growth. This data is shared with the potential buyers and is used to support the credit decisions. “The analysis we do,” he says. “Is very grainy.”
The statistics are quite broad and cover everything from transport links and house price trends in neighboring areas to the number of hipster coffee shops and sports facilities. If a particular property is likely to increase in value, it qualifies for a proportionate loan.
But is this a good thing? The idea of giving buyers a head start is certainly not new and the UK government has itself sought to increase options for new buyers by introducing a “help to buy scheme”, also backed by an equity loan that will provide 20 percent of a value of the property. This has certainly helped buyers, but it has also been criticized for driving up prices.
Will Proportunities Have a Similar Inflationary Effect? Good for its own customers, but maybe for others who push the prices further. Toader doesn’t think so. The government regulation was limited to new-build homes that were put on the market directly by construction companies. As he points out, builders in these situations are in control of the assets and can simply raise prices across the board knowing that new buyers have more money to play with.
Toader says his company’s service is unlikely to fuel inflation. That’s partly due to the number – it currently provides funding for a relatively small number of people compared to government aid to bribe – but also because the focus isn’t on ‘new build’. Toader argues that prices will be negotiated by individual buyers and sellers rather than builders selling multiple properties.
To date, Proportunity has helped 200 buyers and with $175 million in funding raised, that figure is set to rise.
Property tech is a growing field and you will often hear the claim that new ventures are repairing a broken mortgage, brokerage or rental market. But there are limits. Due to the high level of real estate prices in general, owning a home will remain out of the reach of a large number of people for a long time to come, while rental costs are also likely to remain high. So by and large there is no quick fix. However, what entrepreneurs can do is design solutions that help individuals overcome some very real obstacles. The demand for such solutions is likely to increase.
