Tarlochan Garcha, CEO of Kuflink
In the aftermath of the 2008 recession, fewer and fewer traditional lenders were willing to lend – let alone at attractive terms – to consumers, investors and businesses seeking to complete vital investments and transactions. At a significant cost to the UK economy, this unfortunate funding gap held back thousands of people from purchasing homes, making lucrative investments or growing their businesses. Thankfully a UK-based financial revolution was already in the making that would reduce dependency on traditional bank lending structures.
The rapid rise of alternative finance, pioneered chiefly in the peer-to-peer sector, offered a revolutionary service proposition – the disintermediation of finance between lenders and borrowers. By providing a swift, tailored and more democratic service offering, alternative financial platforms were able to meet the heavy demands of the market and consequently provide a needed boost to the nation’s economy. Now, almost a decade later, the industry is worth £3.9 billion, with BI Intelligence forecasting UK peer-to-peer lending alone will reach £15.9 billion by 2020.
The property market has also emerged as a sector inspiring particularly significant innovation, supported by both peer-to-peer and bridging lenders. As mortgage approvals fell during the recession of 2008, the emergence of a lucrative bridging lending sector has provided a vital boost to the market. According to Techround and the Association of Short Term Lenders (ASTL), the value of UK bridging lending has increased from £750 million in 2011 to £4 billion at the end of last year.
Bridging offers property buyers a vital service – by providing swift and efficient finance, bridging has created an environment where missing out on a property because of issues such as gazumping or ruptures in a chain is no longer necessarily fatal to a deal. In the year ahead the potential for innovation in the alternative finance sector to resolve longstanding market problems poses a significant opportunity for investors, consumers and the wider UK economy.
Critical to the success of the UK’s world-leading alternative finance industry has been its ability to create innovative solutions across a wide number of financial markets. Peer-to-peer has grown from what was initially a largely consumer-led sector into business and property lending. In full knowledge of the exponential growth the sector has witnessed, peer-to-peer lending is now regulated by the Financial Conduct Authority (FCA), providing additional protections and assurances to borrowers and consumers alike. The approach of the FCA overall has been relatively fluid by comparison with other regulators globally, with the authority recognising the need that exists in the market for alternatives to traditional lending structures.
The rapid rise of the UK’s alternative finance sector is one of the most significant financial trends to arise over the past decade and highlights that extraordinary opportunities can emerge at unexpected moments. To capitalise on the opportunities that are already being presented by Brexit and the calling of a snap General Election, it’s vital that the industry continues to innovate in order to sustain its remarkable growth rate – this includes providing the borrowers and lenders of the future with the education and awareness they need.