Help to Buy alternative set to be launched
An alternative form of financing for first-time buyers is being launched in the summer, courtesy of a startup called Proportunity.
Providing interest-only loans with a rate in the region of eight per cent, the startup will allow first-time buyers to take out an equity loan of up to 15 per cent on the value of a property, regardless of whether it is a new build or not. This will mean that if the buyer has a five per cent deposit, they will need to obtain an 80 per cent of value loan from another mortgage lender.
The service is due to launch in July and the company behind it is currently seeking approval from the Financial Conduct Authority (FCA).
The value of the loan offered by Proportunity will appreciate or depreciate according to fluctuations in house prices and after five years the borrower will be expected to remortgage and pay it back. There will also be an option to extend the loan or reduce the size of it.
At present there is £20 million worth of funding behind the venture, along with investment from Savills and Starwood Capital. It is initially focussing on the London property market, although there are plans to roll it out to other UK cities further along the line.
Speaking about the potential Help to Buy alternative, the director of business development at Family Building Society, Keith Barber, said: “I’ve seen three or four of these propositions in the last six months, which work with investors trying to create a Help to Buy equity loan for the private sector. If they can be made to work I think the regulator would be fine with them.
“As long as the outcomes in different scenarios are reasonable and consumers know what they are getting into there isn’t a reason why it wouldn’t work. The key is always what happens when something goes wrong.”