Is homeownership now out of reach?

Chris Hutchinson, CEO at Canopy, joins Mortgage Introducer TV to discuss how the cost of living increase and inflationary pressures are taking their toll on homeownership and whether lenders need to take into account rental payments when assessing the financial viability of a borrower.

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Canopy - Helping Renters, First Time Buyers, Letting Agents and Landlords

Esme: [00:00:12] Hello. I'm Esme Todd, welcome to Mortgage Introducer TV. The start of 2020 has had the market abuzz around inflation and the Bank of England base rates, as well as the increase in fuel prices and an overall cost of living squeeze across the UK and across all demographics. These factors are going to affect everyone in some way, but will be felt perhaps most acutely amongst renters and those aspiring to get on on the all important first rung of the housing ladder. He with me today is Chris Hutchinson, CEO of Canopy, a business which uses tech to help renters, agents and landlords make the process less stressful and more productive. Hi Chris and welcome to Mortgage Introducer TV.

Chris: [00:00:59] Thanks for having me. Appreciate it.

Esme: [00:01:01] We're going to be discussing how 2022 might play out for renters, aspiring first home buyers and landlords. And take a look at what some of the solutions might be for what is shaping up to be a year of challenges and change. First of all, Chris, can you give me a short introduction to Canopy and what you guys do as a business?

Chris: [00:01:22] Canopy is an ecosystem that exists for, as you say, renters, letting agents and landlords. We've pretty much got two purposes. The first one is to try and fix as many of the pain points that are associated with renting as possible and also help to improve somebody's financial health while they live in a property. So we know that solutions exist to a lot of those pain points, but they're fragmented and pretty much inaccessible to the average renter. So we know that there's full of pain points. We know I was a renter for many years. And in many people, including yourself, you're still a renter at the moment. There are pain points everywhere through the cycle. But why now? Why is now more potent than ever to to to try and create this ecosystem? Two reasons, I think, firstly, we saw that house prices went up by 7.4% in 2021. It's a huge rise and it means that fundamentally people are renting and renting for longer. Secondly, I think the demands of the rental demographic are changing. So everybody now expects digital journeys, seamless experiences, beautiful user experiences, and quite often flexible contracts now being the norm. So now really is the right time, I think, to to bring those solutions to the market in the best way. And that's what Canopy does.

Esme: [00:02:35] So as I mentioned at the beginning, one of the big things this year that we're looking down the barrel of is the cost of living increase and the inflationary pressures. Does that mean that home ownership is just getting out of reach for a lot of people?

Chris: [00:02:49] I think in a word, yes. You know, you can't really sugarcoat it. I think house price growth, as we said at the beginning, 7.4% in 2021 is far in excess of wage increases. So more people are being forced into renting and renting for longer. And I think that's why, to the points we've raised already, I think that's why it's so important just to make renting work harder for everybody. Right. It's not necessarily a case of you're paying somebody else's mortgage, therefore it means you can't save. There's a reality which is actually there's lots you can do to help improve your financial position and still work towards home ownership. If that's the dream that you have, if not just helping to have a little bit more money in your pocket to make decisions with. I think also in some ways there's a resetting of expectations. So within within the UK, renting is often frowned upon and home ownership is obviously something that most people strive towards. I think that's great and it will still be the case, but equally renting is okay and I think as a society we probably need to reset that expectation and go renting is okay for many reasons. It affords flexibility to live in areas that you probably otherwise couldn't afford. It also allows you to test new areas out before you potentially buy a property there, especially when you're young, 18 to 35 especially. It really allows you to adapt to changes in jobs, relationships, etc. as you go through that cycle that homeownership otherwise wouldn't necessarily enable. So I think it's twofold. I think, yes, people are being delayed in the first time that they can get on to the housing market, but it's not necessarily a bad thing. And so it's about really understanding that.

Esme: [00:04:25] Do you think we need to reassess our nationwide obsession with home ownership?

Chris: [00:04:30] I think so. I think so. And if you also look more broadly outside of the UK towards Europe, for example, actually the UK doesn't have a particularly high rental population in most of mainland Europe. Actually, home ownership isn't necessarily something that people strive for. They actually like the fact that they can pay a certain amount every month and they don't have to worry about the roof coming off and what it means. They don't have to worry about fixing a wall if it falls down or there's various things that actually I think the Europeans have that mean that they're probably at about somewhere between 40 and 60% on average home rental population, whereas we're predominantly 30% rental population, so we're quite substantially below. So yeah. So I think there is an element of of expectation setting, but equally I don't think that's any small thing, you know, it's not going to take rather it is going to take a lot for most people to to not strive towards it. And I think if that's the ambition of most people, then absolutely there's no reason we should change that. It's just, I think probably accepting that it's going to take a bit longer. And then actually, what does that mean? Does that mean I have a bit more flexibility for a bit longer? That's not a bad thing in itself, right? So I think it's just really understanding what it means to people and helping to address it and making it more of a positive rather than necessarily a negative.

Esme: [00:05:49] So on that note, you mentioned in the past that we need to see a concerted effort between the government and the industry in order to support renters, especially if people are going to be renting for longer. What does that actually look like on a more practical level?

Chris: [00:06:03] Yeah, I think from a practical level, deposits are clearly a big problem for both first time buyers, but also for renters, you know. And so I think smarter solutions need to be found in that in that particular part of the market to reduce the huge barrier to getting on the property ladder. Clearly, it's a it's a huge thing for home ownership, but it's also the same for renting. You know, when you move into a rental property, you still need to put down a deposit plus a first month's rent, which actually does create quite a big barrier to people getting in the market. So I think broader solutions are needed for that going forward. And I think actually the most important thing is something we've already touched on, which is that educational point. So giving people the tools to make the right choices for themselves and their families when outside of an environment like the Canopyapp. That's actually the key thing. Nobody teaches us how to manage our finances particularly. Nobody teaches us how to save money. Nobody teaches us what to look for in an insurance policy wording to ensure that we actually have the right cover, rather than just choosing the cheapest cover available or going on a list and picking the third one down because it's not the cheapest you expect it's going to be okay.

Chris: [00:07:11] So I think we need to create financial education and improve financial education. We're actually kicking off a financial education initiative with some partners in the coming weeks, as well as building modular education into our platform to help guide and support renters. So more than just offering them the right product at the right place in the right at the right time, actually, we're then going to start backing that up with why should you be looking at this? Why is it important? What options do you have? We'll be starting with things like deposits. So what are the options for deposits? Should you put one down in cash? Should you take out one of the other alternative solutions? But we'll be going across the board. If I have some savings, where should I be putting them? What should I be doing with them? So I think building that into a platform where a renter or any consumer is willing to interact with, I think that's sort of the power that we have as businesses, and we'll be looking to kick that off in the next couple of weeks.

Esme: [00:08:11] That's really interesting. And does that factor in this idea of your finances being something holistic? And it's not just about your existence as a renter, it's who you are across all aspects of your finances.

Chris: [00:08:24] Yeah. And household expenditures are where your household expenditure is typically about 60 to 65% of your income. So actually it's a huge part. So we can work to round up your coffee to the nearest pound, etc., which are all super valuable and helpful things. But what we also need to do is really get hold of that 60 to 65% of your income, which is your household expenditure and go, how's that working for me? Because there's probably bigger savings there. And as I say, also, we have that ability to to interact with somebody at some pretty big life stages when they're moving into a rental property, when they're looking for a mortgage, etc.. And so giving them the guidance when we have that kind of trust built up is actually really important, as I say, for helping them just make better decisions in their in their outside world. And it's pretty incumbent, I think, on businesses like ours, given that traditional education doesn't surface how we should manage our money. It's kind of all down to our parents and friends and to kind of help us get there. I think if companies like ours and there's some other great companies out there, if we can start to bring it in at the right point in time, then that's just beneficial and it's easy for us to do, right? So why shouldn't we do it? Why wouldn't we do it?

Esme: [00:09:35] Well, on that note of increasing our financial education, would you ask those with aspiring first time buyer clients make an effort to point them into apps such as yours to try and help these buyers get a holistic feel of their own finances?

Chris: [00:09:49] Yeah. I think for sure. I think. Those those brokers essentially at the point of their wanting to get onto the property ladder or their customers are wanting to get onto the property ladder so they they can do a bunch of things to help them get there and get there faster. Obviously, there's financial savings tools, other apps platforms which do a really good job. I think where we kind of step outside of that is how does if you're currently renting wood, you probably are doing before you move into your first, first home. How can we make that work better for you? So how specifically, if you track your rent, how can that improve your credit score? It's unlikely that unless somebody is using as already that they'll be getting the benefit of those large rental payments, probably their biggest expense actually counting towards their credit score or the credit profile. Well, let's make it happen. I mean, it should be happening. The government said a couple of years ago that obviously they were imploring the credit risk agencies to accept the data. And so they do now accept the data. But obviously it still relies on companies like us to pull it together, sense, check it for fraud, etc., etc., and then portray it to make sure that it's in line with people's rental agreements and tenancy agreements.

Esme: [00:10:59] Do you think that we also need to push so that lenders do start to take account of things like rental payments and the financial burden of renting more seriously when they look at the viability of the borrower?

Chris: [00:11:10] Yeah, for sure. For sure. I think to your point on affordability and we touched on it briefly before, I completely agree with you, there's pretty old fashioned models for checking affordability for both renting and via ownership or for mortgages. So for example, in renting, it's pretty much traditionally accepted that it's your annual wage, your gross annual wage, divided by 30. Now that's a pretty broad brush assumption. It doesn't take into account spending habits. It doesn't take into account whether you have plenty of savings in the bank. I think actually now that we have more data than ever to work with, actually we need to advance that forwards in the market to enable us to account for more of that data in a more positive way. Updating old fashioned risk profiles with improved data. You know, three months of payslips, as we said, can now be updated with actually personalised income trends. So we should be able to look over a period of time and say, well, actually, somebody's income profile. Yes, they might be earning £25,000 now, but they were earning £18,000 three years ago. We know what their job is. We know where they live. And therefore, we can probably have a decent predictor on what their income profile looks like over the next few years. Something like home ownership is not a short term game, right? You go into it for a long period of time. So if we can get better trend analysis and better data to start to be a bit more predictive with our risk profiles, and I think that would open up the market quite a lot more. I think the other thing that we'd like to see is, is also moving to more predictive measures in rates applied. So for example, your credit score is typically six months out of date at any point in time. If you overlay that with open banking data, you get a better score, right, because it starts to bring in some of those factors. Are you spending more than you earn, etc.? But even more than that, how can we get more predictive? How can we in a in a society that kind of wants instant gratification and doesn't want to have to wait six months for something to be reflected? How can we actually reward somebody that's taking action now to improve their financial position rather than having to wait six months? So if, for example, our view is if somebody is tracking their rent, right, that's a really positive indicator that they're going to be looking to get on top of their finances, that they're being incentivised for paying their rent in full on time if they're undertaking some financial education modules. So they're going through the process. They're starting to learn about how to manage their finances again. Predictably, they are turning into a better financial risk. So how can we work with partners in what we're trying to do at our side is really to try and work with the partners to more appropriately reflect that in an individual's, I guess, rates, whether that's mortgage, credit, loans, etc..

Esme: [00:13:53] Are there any other really big trends that you see coming to the fore during 2022 or even as a result of the pandemic?

Chris: [00:14:01] I think there's a couple of things, actually. So I think firstly, renters specifically are experiencing huge competition at the moment for rental properties. Supply is relatively limited. There's a lot of people post-pandemic who want to or need to move property. So I think what we're going to see this year is probably a shift towards renters really trying to find ways to stand out from the crowd, set themselves above the competition. And equally, I think for landlords and letting agents, they're really going to want to find more and more ways to sift through that sea of leads, find the hot leads, identify the strong candidates who are most likely to move into a property to really kind of improve their efficiency. So I think that's going to be quite a big trend this year. We're working with a few partners to try and get that moving at the moment. So I think by the time we get to peak summer house move season this year, there should be some some innovations in the market that really help to bring that forward. But I think also there's a risk of obviously COVID and how that still obviously plays out this year. So it is going to be interesting to see how that unwinds itself. Clearly, post pandemic, post impacts on people's income profiles, the risk of rent arrears should hopefully go down, but it's still going to be around. And so rent guarantee insurance, for example, which we've seen a lot of landlords move into, it'll be interesting to see whether or not they still see value there or whether or not they start to pull away from that product. And I think also whether or not people actually have the ability to recover that income loss. So if people have been on furlough or they self employed and they have seen an impact to their income, is that going to recover? There's an assumption that it will just recover as soon as the pandemic kind of eases off. But will it? We don't know. But I think there's a there's a macro macro trend as well for 2022, which is, I think, quite important that we're seeing, which is that there's a trend for self improvement and growth within the rental demographic. And I think that's very likely to continue. So we'll see more people actively trying to improve their financial position, actively try and get on top of their finances. And I think that's useful because that's going to obviously make sure that people are in a much better place for home ownership, homeownership in the future when when the time is right for them.

Esme: [00:16:19] So going back to the use of data, obviously it's a fantastic thing to be able to get more of a granular sense of someone's financial health and have it based on less outdated information. However, is there a risk of becoming too reliant on the data and potentially penalising anybody who can't or perhaps won't engage with technology?

Chris: [00:16:38] Yeah, I think it's a really good question, actually. I think. I think there's potentially a risk of that in some niche circumstances for sure. Right. And that's always been the case. So prime example is there's 5.2 million people within the UK at the moment who are pretty much invisible or near enough invisible to the financial services industry. They don't have a credit footprint. So if we're able to solve the challenge through data to actually make some of those more accessible to the financial services industry, allow them to access products that are going to help them, then I think we're never going to be able to solve the problem for everybody. There's always going to be edge cases, but I think data will inevitably help to solve it for some of the big forgotten few and edge cases. And then I think the other piece on that is how do we how do we make sure that, as I say, the data is super valuable to everybody. So there's a real trade and as part of that. It's really understanding the nuances. So, for example, somebody with savings, well, if we're doing open banking and people are able to connect bank accounts, they're actually able to connect savings accounts as well as current accounts, etc.. So actually it's not leaving that many people out. In some instances, you're actually more likely to be able to take into account a broader range of people from that data set.

Chris: [00:17:57] So yeah, so I would say that data is the way forward. I think it is the way forward. But as you say, it's never going to capture all the use cases. I think just just to finish on that, actually, while I'm thinking about it, I think where there will be cases are a couple of places that we've seen recently. So actually people who are less digitally literate, let alone financially literate, but people who don't necessarily have the ability to use phones or digital apps and the web. Those people will need additional support and different support, so they might need hand-holding through the process. Equally, people who could really benefit from some of the advances that we've seen, such as the homeless and we're trying to work with Beam at the moment, actually working with them to really understand how some of our solutions can help some homeless people get back on their feet quicker. They don't necessarily have phones and they don't have the ability really to understand how they can go about tracking their rent and what it means to them. So there's an educational piece, but there's also a hand-holding piece for those type of users that I think is important not to miss out.

Esme: [00:18:59] On that note of the safe use of data, have you guys come up against any kind of pushback from customers who might be worried about what you're going to be doing with their financial data and how do you address those concerns?

Chris: [00:19:11] Yeah, I think it's fair enough, as well as consumers and as renters ourselves. I think any time that somebody says, can I get access to your bank account, fills us with a little bit of dread. So I think there's a confidence piece within that, being able to convey to somebody exactly how we're going to use their data, what we're going to do with it, and why it's useful and important for them to share it. I think that is almost a trade, right? There's an element of you're providing your data to somebody, but what am I getting out of it? Why is it useful for me to do so? And if we can actually portray that properly, then I think that's why we're able to get relatively high connection rates. Interestingly, for us, we have around about an 80% open banking connection rate. So typically 80% of people therefore coming through the platform are actually happy to share their open banking data with us because they know that it's going to benefit them. They're able to, as I say, complete a reference within minutes. They can still do it the old fashioned way. We still obviously operate in that methodology for people who don't want to share open banking data, but it will take a longer period of time. So I think, like with everything, if there's a if there's a trade and there's a there's a reason and a rationale for why you do it, then I think that that helps. But as you say, there's also the security element. So being really distinctly clear on we will not share your data with anybody else. We actually independently as ourselves only look at certain things within the data. As a technology driven business, we can dig into it autonomously, find the elements that we need, present it back to a renter to confirm. And then obviously they only share that with a potential landlord or letting agent when they want. So as I say, I think it's being very clear about what you're doing. That's that's the key to making it work.

Esme: [00:20:48] That's such a great point and possibly a good point for us to end on that need for a diverse approach, which doesn't necessarily boil down everyone to a stereotype. So, Chris, is there anything you want to add before I let you go?

Chris: [00:21:02] It's going to be a difficult year ahead, but I think technology advancements in general are really, really good for the industry. And I think it's just about proving that worth to everybody in the cycle, not forgetting anyone. So it can work for renters, letting agents and landlords and actually potentially brokers and into mortgage advisors. So I think, yeah, it can work for everyone. We just need to show that. Show that in force.

Esme: [00:21:26] While all that remains is for me to say. Thank you so much again, Chris, for sharing all of that with us today. It's been fantastic speaking with you and thank you for watching Mortgage Introducer TV. We look forward to seeing you again.