Economic changes show rise in specialist finance


Over the last 10 years, there has been a noticeable increase in the role and volume of specialist finance in the UK. This refers specifically to alternative financial products not offered by banks but rather more privately owned finance lenders and typically involving the financing of properties. Examples of specialist finance include bridging, development finance, mezzanine and equity release.

The rise of specialist lending, as it is termed, has been largely attributed to mainstream banks and their reluctance to lend following the economic disaster of 2007. Instead, both households and investors are seeking alternatives from independent finance companies with the intention of securing faster finance, better rates, flexibility on loans terms and adverse credit histories.

The growth in specialist industries

Investors and property developers have jumped at the opportunity to apply for bridging finance as a way to access funds within a short timeframe and skip the traditional property chains and delays associated with a mortgage application.

Commonly used for mortgage delays, refurbishments and buying property at an auction, the industry has thrived from the influence of Jewish and Israeli companies entering the market including Masthaven, West One, Roma and MT Finance. The bridging finance industry was worth around £1 billion in 2011 and is now currently estimated to be worth in excess of £7 billion in 2018. 

In the consumer market, the demand for equity release has double year-on-year. In the last year, over 37,000 homeowners over the age of 55 have opted to release equity from their home to receive one large lump sum upfront, giving the market a valuation of £3 billion. Whilst many consider this an alternative to a pension, releasing equity from your home is commonly used for consolidating debts, home improvements and passing on money to children for new homes, weddings and more, without affecting their inheritance.

The economic factors that are driving the change


JPOST VIDEOS THAT MIGHT INTEREST YOU:

The housing crash in 2007 led to a significant decrease in bank lending and the criteria for approval for a loan or mortgage has become that much stricter. Fuelled by the growth in technology and the Internet, there has been an emergence of new and alternative products offering better deals, faster credit checking and funding. Whilst traditional banks require a certain credit criterion, non status lenders are able to more flexible with who they accept and their loan terms.

The increase in The Bank of England’s base rate from 0.5% to 0.75% announced in August 2018 will continue to fuel the demand for specialist finance. With mainstream mortgages being more expensive, households and property investors will look further for brokers and alternatives who can offer more competitive rates. 

It was announced in in July 2018, the rate of mortgage approvals for new house purchases dropped by 4.3% on the year, with net mortgage lending at its weakest since February. Taking into account the recent interest rate rise, which has increased the debt of UK households on variable or tracker mortgages, the ability to source credit from high street banks is becoming increasingly difficult.

The ongoing Brexit negotiations are creating constant fluctuations in house prices and their overall value is going down and down. Again, this will continue to make banks cautious with their lending criteria and give leverage to more alternate funding sources. 

Furthermore, the popularity for specialist finance is driving greater market competition. The UK economy has seen more lenders, more brokers and more competitive rates emerge, and entering mainstream advertising too. With more pressure on the UK economy and banks, it is no surprise that the specialist finance industry will continue to grow and thrive.


Join Jerusalem Post Premium Plus now for just $5 and upgrade your experience with an ads-free website and exclusive content. Click here>>



Source link

Leave a Reply

Your email address will not be published.