WEEKLY NEWS ROUNDUP – 14/01/2022
A roundup of the week’s top property and proptech news stories in partnership with Proptech-X
- Online agent Strike gets £11m more cash to burn
- OnTheMarket deepens partnership with Sprift prospecting tool SmartMail
- Where is mortgage lending going to end up?
- There’s a new sheriff in town, the great leveller Michael Gove
Online agent Strike gets £11m more cash to burn
Having recently secured a further £11 million in funding to keep it going, online agent Strike has announced that it is now going national with its free-to-sell agency model.
Having been an estate agent for over 30 years, and now being an online agency analyst and real estate commentator, I think investors might have been better off putting their cash elsewhere.
When it comes to being a free service, Strike is a little opaque. With Strike, you have to pay an extra £1,200 if you want standard items like accompanied viewings or video content. Items that thousands of traditional agents in the UK offer by default as part of their no-sale, no-fee model.
Strike also says that it is scaling up with an aggressive programme of selling property in the south, as at present it is a more northern-based operation. They quote that they have helped over 56,681 people to move, which sounds big, but that is in 10 years. This only equates to 5,688 people using their service each year.
With 1.2 million people moving home a year according to HM Land registry, if you only move 5,688 of these as an average number annually, then your service is not really on the radar.
But the biggest concern I have is that Strike, which was rebranded from Housesimple, has been trading for over a decade and in that time has burnt through £56 million of capital. To put that in perspective, this is the same as giving each of their 56,881 home movers £1,000 cash just for using them.
So, doing the mathematics and estimating that if Strike does indeed go national and gains 11,000 home movers in 2022, at £1,000 loss per transaction cash burn rate, that will swallow £11 million of the capital that those dreamy-eyed investors have recently provided.
In 2022, it is time that founders take a good long look at their offering from the consumer perspective. Rather than putting a spin on things, why not actually sample what they have to offer?
To research Strikes offering, I went on to its website, punched in my postcode and did a search of a 40-mile radius from my home for property to buy – any price range. Eleven properties came up on the ‘nationally expanding’ Strike site.
I did the same search on Rightmove and it revealed 54,213 properties for sale in the same radius. Clearly, Strike is going to need to be offering a unique, value-driven and compelling business proposition to vendors looking to sell in 2022 if its dream to be a national phenomenon is to become a reality.
My last thought, from my personal experience, is this: it costs £200k to fund and cold start a traditional bricks and mortar estate agency. By the end of year two, you should get all of your investment back, and by the end of year three, you should be seeing a profit of around £80k. By year five you should be 200k in profit.
So that £11 million of recent Strike investment could have opened 55 traditional offices. The cash would have been back with the investors in two years, and in year three they could have had £4.4 million of gross profit.
My instinct says that Strike’s investors will be putting their hands in their pockets again well before 2026. Let’s wait and see.
OnTheMarket deepens partnership with Sprift prospecting tool SmartMail
At present, there is an instructions drought, with the average amount of properties listed for sale per agency branch in the UK at an all-time low. This is about one third less than normal for a January market.
Responding to this huge problem, OnTheMarket, the third-largest property portal, will give its agents an exclusive tool to prospect new stock, both on and off the market.
The tool is called SmartMail, and it will be leveraged through its existing tie-up with Sprift. OTM’s agents can now utilise the service, automating their prospecting journey, for a fee. The advanced software developed by Sprift, a company founded by veteran Matt Gilpin, acts in many ways like a heat-seeking missile, with a targeted approach that finds property for agents who need to replenish their stock levels.
Matt Gilpin is clearly proud of the even closer business ties that the new service brings.
“We’re pleased to be offering SmartMail to OnTheMarket agents, as we truly believe this is the natural next step in us continuing to empower agents and their businesses using property-centric data through our partnership with OnTheMarket.”
The value of Smartmail is that it does not just tell agents what is available and presently being offered by other agents and build a campaign to capture it, but it can also be used to communicate with potential vendors who have not yet decided to list. It achieves this through algorithms that can focus precisely on specific geographic areas, house types, etc. This means that agents can target their ‘type’ of inventory – a very hyper-specific way to win instructions.
Since Jason Tebb has taken over the helm of CEO at OTM, it is clear that his agent-centric approach is winning on many levels. Not only has he personally engaged with OTM’s agent membership, by having a listening and open-door policy, but he now is ardently supplying agent members with the digital hand tools that modern agents in the 2020s need to move forward and prosper.
Jason Tebb, commenting on the deeper tie-up with Sprift, said: “In a market where demand is still very much outweighing supply in many instances, now more than ever it really is all about inventory, and with the addition of the SmartMail prospecting tool we’re ensuring our agents are well-equipped to win more listings.”
From my point of view, having worked in the estate agency sector and opened cold start branches with zero stock…had SmartMail been around as an automated solution to powering the number of properties those branches had to sell, I would definitely have been an advocate.
The profitability of a residential agency rests solely on its flow of instructions, a mantra that big corporates like Connells understand only too well. “The agent with the most properties sells the most properties”, or so the saying goes. This is especially true in 2022, where the number of registered buyers far exceeds the number of properties that have a For Sale board wedged in the proverbial front garden.
The pandemic has made all of the property portals reconsider their role, with property technology SMEs increasingly seeing their best route to market being strategic alliances with forward-thinking CEOs like Jason Tebb.
In some ways it is a simple equation. Most agents have an analogue, extrovert mindset, with little time to work out the best tech to power their business. If the big architecture is sourced for them like this exclusive deal between OTM and Sprift, agents can get on with the day job, relaxing in the knowledge that their best interests are being looked after.
Where is mortgage lending going to end up?
For many years, when I was an estate agent in the 1980s and 1990s, the amount of income required to buy a home was a simple equation. The multiplier was three or three and a half times a person’s salary, varying depending on the lender.
In those days, a semi-detached home was £60,000. Now in some areas, the multiple to be applied is seven or more times a standard salary to get on the lowest rung of the property market, even accounting for inflation. Something seems to be out of line.
Another thought worries me, that of the PRS Private rental sector and the housing association sector, where many people are now renters for life. The tenants may be paying over £1,000 a month in rent, yet they cannot get a mortgage.
But the person next door, living in the same property type, who has a deposit and could get a mortgage, only pays £460 a month with the option of a mortgage holiday, or they can take chunks of cash out of their equity and leverage their property asset. It is clear that something strange is happening and things do not add up.
Let’s do some maths. If a tenant pays £1,000 for ten years, which is £120,000 in rental payments, they own nothing.
Meanwhile, next door is on a 10-year fixed mortgage, paying £55,200 in the same period. They’ll probably see a rise in their equity, by about 20%, and the size of their mortgage would have reduced by some tens of thousands of pounds.
Yet the lenders and underwriters would say that the tenant is the greater risk. But if they actually are good for nearly twice as much cash as the mortgage payer next door, how can this be? The number one thing that all people want is to keep a roof over their head, so not paying the rent is as likely as not paying the mortgage.
Another thing that worries me a lot, and I have dealt with over 18,000 properties going to market, is the cost illusion model, which unfolds when a first-time buyer sits down and applies for a mortgage. That mortgage is for 25 years, or perhaps even 35 years.
In fact, this is fiction. How many people stay in a relationship that long these days? How many people stay in the same home for that period? If they sell, they’re just going to start another fiction with a new full-term mortgage.
Maybe with artificial intelligence and some coding and some machine learning, all that technical stuff that makes the world go round, when a couple sits down in the near future will the lender know even more truth about what they are underwriting?
They will know on average that couples stay together X amount of years, and the likelihood that this couple will move in Z years is Y. Based on that, a credit agreement or mortgage tailored to this reality can be put together.
Mortgage lending has a lot of growing up to do in this rapidly changing world of fintech and proptech, a world where the digital locusts want everything fast and furious, arriving in a cardboard box with a big smile.
Take, for example, Revolut, which is just applied banking software rather than being a bank, is scaling up ferociously around the globe, allowing people with cash to do things quickly, so much so that Revolut has a market capitalisation greater than the Natwest banking group.
Maybe we are about to enter a watershed moment, where mortgage lending and even the mechanics of lettings will change to give a fairer deal for all. After all, new technology’s reach doubles each year and it waits for no one. It’s a thought.
There’s a new sheriff in town, the great leveller Michael Gove
According to the following posted on the official GOV.UK website – Michael Gove, the great leveller and newish housing secretary has pinned on his pointed tin star and has jumped in where his predecessor feared to tread.
Mr Gove outlined a four-part strategy to the government to solve the woes of leasehold and high and now lower-rise properties. He said:
- Opening up the next phase of the Building Safety Fund to drive forward taking dangerous cladding off high-rise buildings, prioritising the government’s £5.1 billion funding on the highest risk
- Those at fault will be held properly to account: a new team is being established to pursue and expose companies at fault, making them fix the buildings they built and face commercial consequences if they refuse
- Restoring common sense to building assessments: indemnifying building assessors from being sued; and withdrawing the old, misinterpreted government advice that prompted too many buildings being declared as unsafe; and
- New protections for leaseholders living in their own flats: with no bills for fixing unsafe cladding and new statutory protections for leaseholders within the Building Safety Bill.
- His fighting rhetoric continued with some punchy soundbites that pointed towards a concerted effort to name and shame those in the supply chain of housing who were found wanting. And to dare to say that he would bring them to account.
Gove said: “More than 4 years after the Grenfell Tower tragedy, the system is broken. Leaseholders are trapped, unable to sell their homes and facing vast bills.
“But the developers and cladding companies who caused the problem are dodging accountability and have made vast profits during the pandemic whilst hard working families have struggled. From today, we are bringing this scandal to an end – protecting leaseholders and making industry pay.”
“We will scrap proposals for loans and long-term debt for leaseholders in medium-rise buildings and give a guarantee that no leaseholder living in their own flat will pay a penny to fix dangerous cladding.
“Working with members of both Houses, we will look to bring a raft of leaseholder protections into law through our Building Safety bill.
“And we will restore much needed common sense on building safety assessments, ending the practice of too many buildings being declared unsafe.”
Gove then goes on to say that high noon will be Easter, and all the ‘cowboys’ need to come out with their hands up and suggest how they best make amends or the government will draw their revolver first.
The pushback from the building sector has already begun, with some national house builders stating that if they are forced to contribute to remediation costs and fire safety upgrades, this would be seen as a punitive and hostile measure.
I also wonder if the former Housing Secretary, who seemed to have a very different relationship with property developers, would choose this precise moment to call out the providers on the 178,000 new homes built annually.
It is a long time before we start unwrapping our Easter eggs, but probably not long enough for everyone caught up in the present mess to get their collective houses in order.
If you have a view – please let us all know by emailing me at [email protected] – Andrew Stanton Executive Editor – moving property and proptech forward.