Tembo, a digital broker backed by Aviva and Nationwide, has set its sights on disrupting the equity release space.
Having secured £2.5m in funding in April, the start-up has since been growing its customer base - the majority of which (75 per cent) are parents looking to give their children a leg up on the property ladder.
Instead of advising on traditional equity release products, Tembo is aimed at allowing parents to unlock wealth from their property to help their children buy their first home.
Tembo was founded last year by Richard Dana, who has previously advised banks on underperforming loans for EY.
“Lots of parents have been living with their children these past 18 months. They’re keen to help their kids skip renting and invest straight into property,” Dana told FTAdviser.
“Historically, there’s been negative press around equity release. But it’s a huge opportunity, with the majority of property equity owned by people over 55. And yet, the equity release market is very small, generating just £4bn a year.”
The latest Equity Release Council data shows UK homeowners released £1.17bn from their property in the second quarter of 2021, a figure largely spurred on by the stamp duty and the incentive for first-time buyers to buy before June.
Equity release has been growing in popularity for some years now, with the number of products on the market sitting at a 15-year high. But the majority of these products are not the ones Tembo is advising on.
A new distribution channel
The start-up’s team of 17 advise on two main products provided by 80 different UK lenders.
One is called ‘Deposit Boost’. It is a retirement interest-only mortgage which a borrower pays interest on each month. After five years the borrower can move to a different product, or pay the loan off, without an exit fee.
Some lenders - Dana cited its backer Nationwide as an example - allow customers to make their capital repayments alongside the interest payments.
“There isn’t a clear distribution channel for alternative products, which is why they haven’t taken off,” Dana explained.
The Financial Conduct Authority brought Rio mortgages back into its standard rules in 2018. Despite this, Dana said “lots of people haven’t heard of them”.
He added: “It’s about trying to create awareness. They’re more flexible than equity release, and you can manage inheritance tax more easily.”
The other product Tembo advises on is ‘Income Boost'. These are essentially joint borrower, sole proprietor mortgages. They allow a parent to allocate income to their child so they can borrow more for their first house.
“Lots of parents don’t want to go into retirement with a new loan,” said Dana. “This means the child pays the mortgage, so there’s no need for parents to take out a loan. We’re seeing a lot more interest from lenders on this.”