UK rental market ripe for digital disruption

Renting a place to live in many spots around the globe is stressful and expensive, yet in the UK it’s reached new heights. Trust is in short supply and it’s not uncommon for landlords to demand huge deposits. Tenants must raise more than £1,000 for a rental deposit to secure a home. At the same time more than 11 million people have less than a £100 in savings. This private rental crisis needs to be resolved.

There are other factors contributing to this perfect storm. Notably rents are more expensive than at any point in recent history, doubling in a decade. Already a fifth of the UK population lives in privately rented accommodation, that’s 4.5 million households and another half a million are expected by 2023. This booming industry is fuelled by stubbornly inflated house prices and lacklustre wage rises.

“With home ownership now a pipe dream for many and ‘generation rent’ firmly entrenched here in the UK, private and social tenants remain underserved and almost invisible to the property and financial sector,” says Tahir Farooqui, chief executive of Canopy, a digital rental platform, with its trademarked RentPassportTM at its core.

“Tenants are able to effortlessly rent a property with Airbnb in 191 countries from their mobile devices, yet securing a long-term rental property in the UK market is a stressful and painful experience. It involves tenant screening and upfront deposits, both prerequisites to renting a property, anywhere in the world.”

It’s crucial we find ways to improve people’s renting lives, make tenancy more affordable and build a more inclusive rental society

Renters are also cash poor. It doesn’t help that average rent as a proportion of income is now 35 per cent of people’s salaries, exceeding mortgage payments in some regions. Unaffordable rents are not uncommon. Then there’s the deposit. For each move, tenants must find five weeks rent to secure their home, which is dead money. Currently in the UK, £4.5 billion is locked away in cash deposits.

“It’s a huge sum of money that could be freed up if more trust was built into renting. Finding large sums puts tenants under immense pressure, especially if they need to relocate regularly. It’s crucial we find ways to improve people’s renting lives, make tenancy more affordable and build a more inclusive rental society,” says Mr Farooqui, whose tech-based platform aims to address this issue.

Then there is the booming gig economy, which now accounts for 4.7 million UK workers. The number of people in this sector has doubled in the past three years. Precarious work life is now reflected in precarious home life. Gig economy workers can be seen as a risky proposition for landlords and letting agents. Therefore, some have to fork out larger sums to secure a property.

“The deposit is as outdated as the UK’s Victorian housing stock. Historically, traditional tenant referencing companies have served only the needs of letting agents or landlords. They’ve largely ignored tenants as a valued customer. This has created the greatest market opportunity in fintech: low-cost, high-tech financial services for 21st-century renters, letting agents and landlords with trust at its core,” says Mr Farooqui.

“Other sectors have embraced the sharing economy, embedding trust into their platforms, whether it’s holiday rentals with Airbnb, transport with Uber or food deliveries with Deliveroo. They’ve also freed up people’s assets to be used in trusted way, whether it be houses, apartments or vehicles. We can now do this with renters’ deposits, cutting down on the upfront payment costs of moving.”

Insurance is one answer. It is now readily available and can cover the exact same areas protected by a cash deposit, without the need for the tenant to pay out a large lump sum. Canopy has achieved this with a one-off insurance policy, which is typically 10 per cent of the value of a renter’s cash deposit. Canopy has partnered with SwissRe to underwrite its cash deposits.

“By 2025 we want to eliminate the need for all cash deposits on UK properties. This is not just for the benefit of renters; landlords benefit too. Removing the need for a cash deposit increases the attractiveness of a property to prospective tenants; they could potentially afford more and move more rapidly between properties, saving time and costs registering with tenancy deposit schemes,” says Mr Farooqui, whose investors include Direct Line Group, Experian, West Hill Capital, Vision Blue Solutions and Pollen Street Capital.

The core proposition is Canopy’s RentPassportTM, which empowers tenants to build a portable digital rental history. It is powered by Open Banking and also allows a free tenant-screening solution.

Tenants are able to check their credit worthiness instantly through a soft credit check, powered by Experian. They can also instantly verify their income, historical rental payments and rental affordability through Open Banking. The platform is currently used by more than 20,000 renters.

“In the next two years we hope to eliminate tenant-screening costs for letting agents and landlords. Transparency on past rental behaviour allows tenants, letting agents and landlords to know immediately a tenant’s suitability for a property,” says Mr Farooqui, who founded Canopy three years ago.

Tenants can improve their credit history over time by adding rental payments to their profile. This is easily facilitated by using Open Banking technology. It’s why the company has teamed up with the likes of John Lewis Partnership, PwC and Estée Lauder. Employees can now use the Canopy app to improve their access to more affordable financial products, including mortgages.

“When I founded Canopy, I had a vision; I wanted to make a positive social impact. This is about real empowerment for the rental community, not just here in the UK, but globally. We have pledged to return £1,200 back to renters’ pockets, by eliminating rental deposits by 2025. We also want to boost people’s financial wellness, so they can get on to the property ladder,” says Mr Farooqui.

“The current system puts profits first and tenants last. It is time we created a more equal rental ecosystem. Globally this could help millions achieve better financial health. I think it’s a worthy goal.”

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