BrokerApr 1 2022

Why mortgage advisers are using fintech lenders

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Why mortgage advisers are using fintech lenders
Fintech equity loan provider Proportunity landed £114mn funding in October

Proportunity, Generation Home and Even are just some of the names cropping up in brokers’ inboxes promising to help their younger clientele.

So, what do advisers think of these lenders, and why are they choosing their products over ones developed by pre-existing high street or specialist lenders? FTAdviser spoke to brokers to find out.

In London, fintech lenders are the only option for some first-time-buyers.Josh Lillie

Josh Lillie, a mortgage, insurance and equity release adviser at Boon Brokers, advises on products developed by Proportunity, a startup which promises to increase a home buyer’s budget for a deposit by up to £150,000, or 25 per cent.

“In the last few years, fintech lenders have seen an opportunity. High street lenders are slower to adapt, because they’re so large they have all these processes,” Lillie explained.

“From an adviser’s point of view, it’s nice to be able to offer a fintech lender as an alternative. You’re seen to be more knowledgeable and it gives clients more options.

“More and more of them [fintech lenders] have been reaching out to us in the past year.”

According to Lillie, guarantor mortgages “aren’t really a thing anymore”, and while buyers can consider joint borrowing with mum or dad, the age disparity often upsets affordability.

“In London, fintech lenders are the only option for some first-time-buyers,” he said.

The equity loan is an extra monthly payment on top of the mortgage. On Proportunity’s website, it says with a 5 per cent deposit, a 25 per cent equity loan, and a 70 per cent loan-to-value mortgage on a £420,000 property, monthly payments would be £742 for the equity loan.

Big networks could be in trouble if Big Techs encroach.Bulent Kandemir.

Lillie said for some, these monthly payments on top of the mortgage are not affordable, leading him to suggest fintech lenders could look at ways to reduce them.

For the broker, another bonus when using a lender like Proportunity is it will, unlike a high street bank, send them leads. Though Lillie clarified he is independent and not tied to them for the mortgage recommendations.

Ahauz and Even are similar to Proportunity, in that they offer borrowers a loan on top of their existing mortgage. Ahauz - which goes by the tagline ‘the bank of mum and dad’ - also lends up to £150,000, while Even goes up to a lesser £100,000.

Preparation ‘for something bigger’

In recent weeks, Proportunity launched Home Me, a new whole-of-market brokerage which is an appointed representative of IntraPrivate Finance, a 25-person brokerage run by adviser Bulent Kandemir.

This brokerage will focus on helping first-time buyers struggling to raise a deposit to get onto the property ladder. 

"What makes it [Proportunity] fintech is the algorithm, which was built by Oxford and MIT [Massachusetts Institute of Technology] graduates. It predicts what the property price will be,” said Kandemir.

"They’re [Proportunity] realistic and know Big Techs will enter this space looking to buy into companies like these. This feels like preparation for something bigger. Big networks could be in trouble if Big Techs encroach."

Kandemir echoed the thoughts of Billy Grimley, chief commercial officer at Smartr365, who said on FTAdviser’s podcast last year that Silicon Valley is the real threat, not digital brokers.

“There’s a worry that somebody somewhere from a Silicon Valley-sized company is going to look at the [UK’s] mortgage space and realise the amount of money that's moving through here,” he explained.

Their presence on social media has got lots of people engaging with the idea of homeownership.Richard Merret

“With a few per cent here and there, the amount of money that can be made could see a true tech player come in.”

Not everyone, however, is innovating for first-time buyers using artificial intelligence. While fintech lenders are one path, Family Building Society - founded in 2014 - is determined not to use a huge amount of automations.

Alistair Nimmo, the lender’s marketing director, said: “Each customer is very different. They aren’t simple enough to be matched to a checklist.”

His argument was that real, human underwriters will likely have heard of anomalies before, versus a line of code. 

“Fintech doesn’t generally work unless you’ve got a vanilla case, and most high street lenders can do those already,” said Nimmo.

Its ‘Joint Mortgage Sole Owner’ product allows parents to draw on a mixture of their savings and property equity to provide as collateral or security against the child’s loan.

‘They’re engaging people’

Richard Merret, head of strategic development at mortgage club SimplyBiz, advises on products developed by Generation Home, a startup offering ‘deposit and income boosters’

“It’s addressing both issues, the difficulty of getting a deposit and the difficulty of qualifying for affordability,” Merret explained.

The deposit booster, a twist on the guarantor mortgage, allows an unlimited number of people to increase a buyer’s deposit. It’s essentially like crowdfunding a deposit.

“Brands people engage with these days are more likely to be startups and have used these routes themselves,” said Merret. Digital bank Revolut, for example, is now one of Crowdcube’s biggest success stories, valued at $33bn (£28bn).

Meanwhile, an income booster helps someone earning £30,000 or £40,000, by allowing them to put their parents’ income on the mortgage.

“They’re using different language - ‘booster’ versus ‘guarantor’ - and their [Generation Homes’] presence on social media has got lots of people engaging with the idea of homeownership who otherwise thought they couldn’t,” said Merret

By contrast, Merret said more traditional lenders and intermediaries “just don’t” engage on the same level.

“They make it really simple and easy to digest. The three 90 second videos on their website just talk in a language which makes it easier to understand how family can help. It awakens a need.”

Merret said this sort of content can really help advisers, who often find the first conversation with first-time buyers is an education piece, more than anything.

Having spoken to his clients, Merret is finding lots of parents who have had children live with them at home during the pandemic now ask how they can help their children. 

“The pandemic has sparked these thoughts, so it’s important to recommend a whole range of solutions.”

ruby.hinchliffe@ft.com