Beneath the staggering weight of climate and environment-related concerns, it is perhaps of little surprise that the ‘S’ of ESG is so often relegated to the sidelines of the corporate agenda. But though they might not always draw the same attention and ire as their environmentally-focused brethren, social initiatives are a critical element of the ESG programme and should be treated as such.
One such initiative, which launched earlier in the year, was the ‘Deposit Unlock’ scheme, which aims to further open up the new build market to borrowers with a limited deposit. ‘Deposit Unlock’ is a prime example of how the insurance industry can work as an enabler for social change, noted Steven Rance (pictured), head of mortgage indemnity reinsurance at Gallagher Re, who helped devise and develop the scheme in conjunction with the house building community and a range of other stakeholders.
The scheme, which found its first lender with the Newcastle Building Society and recently signed up Nationwide, is a prime example of the ‘S’ of ESG. Speaking with Insurance Business, Rance highlighted the difficulties facing young people in private rented accommodation who are unable to afford the deposit for a mortgage. When young people don’t have the option of going to the ‘bank of mum and dad’, they can be faced with paying more for rent than they would for an equivalent mortgage, he said, and they’re stuck on that treadmill of ever-rising housing prices, which is making homeownership seem out of reach.
“I think that often we concentrate on an older generation in this country,” he said. “And we forget that young people have got that massive debt from education which is piling on them, and they’re going to be picking up the bill for COVID for years to come. And there’s very little being done to help them get on the housing ladder, which is going to help build the equity which will keep them moving forward in the long term. So, I genuinely feel pleased that we’re able to do this to help people, and it’s something I feel strongly about.”
What truly sets ‘Deposit Unlock’ apart from other initiatives that have existed over the years is that it has been built to be owned by the house building industry, Rance said, which offers a longevity that other solutions simply cannot. Over the years, housebuilders have been dependent on government support, etc., but this initiative, its structure, and even its branding belong to that community, offering a permanence that other schemes have not had to date.
“Other schemes have always sought to address the current economic climate,” he said. “This has been built to withstand any economic environment, so that if we do experience a downturn, this scheme and its protection is there and will come out the other side of that.”
At its heart, the ‘Deposit Unlock’ is all about collaboration, Rance said, and bringing all the moving parts into place has been akin to setting a giant chessboard and aligning all its pieces.
For a scheme that’s dealing with 17 house builders, two house builder trade bodies, three lending trade bodies, 25 lenders, two regulators, and two government departments that are expressing interest in what it’s doing, having the reinsurance piece established is a real blessing. But Rance noted that this is by no means a static blessing as, when the scheme expands, its reinsurance panel will inevitably follow suit.
Looking to the other players on the chessboard, he said he has been pleased by the level of engagement that the scheme has received from the trade bodies. He has seen that these trade bodies are acutely aware of their members’ interests and look not just to represent them, but also to marshal their members into a united voice and approach.
“This has meant that we’ve had these points of contact that utterly understand the industries they’re representing and are able to guide us in a specific direction,” he said. “Of course, these are individual commercial organisations that have got to make their own commercial and legal decisions around anything that comes together but, from a macro point of view, the trade bodies are superb at guiding the direction [of new initiatives] and having a steady hand on the tiller.”
Looking at the next steps for the initiative, Rance emphasised that the core of ‘Deposit Unlock’ centres around the need for “choice for the borrower.” To create that choice requires maximum representation from the housebuilder perspective, he said, which is where the scheme excels because there is no barrier to entry, or indeed any reason why a house builder wouldn’t opt to come on board.
Rance and his team fully expect to see hundreds of housebuilders become active under the scheme, and, on the supply side of that equation, he is hopeful that mortgage lenders will embrace the opportunities it brings. As a major lender, Nationwide can provide a huge amount of mortgage funding, he said, and he wants to see that capacity expanded out across a breadth of lenders.
That’s other large lenders who can provide more scale, and building societies who can address local needs among local communities, and specialist and non-bank lenders who can broaden the product offering available so that the scheme has something to offer the broadest range of borrowers. From his perspective, it’s about expanding the reinsurance pool and continually redefining the structure of the scheme to make it as economic as possible for all stakeholders.
“And I think this has a good five-year evolutionary path to make it optimal for everybody as we go along,” he said. “But it’s working already. To have [so many] house builders represented on the demand side, and then somebody like Nationwide on the supply side, is a real validation, and an independent validation of what has been put together here.”
