The role of alternative finance is hugely important, helping those to access loans and mortgages from non-banking institutions, such as private lenders and challenger banks.
Alternative finance has been around for decades but became prominent following the financial crisis of 2008 when banks became far more restrictive with their lending criteria. As we enter 2023 with increased living costs, tighter mortgage restrictions, higher interest rates, and a looming global recession, we explain why alternative finance will be more important than ever.
The Figures
Alternative finance becomes essential when individuals and businesses cannot get approval for loans, mortgages, and remortgages from their local bank – despite having been approved or accepted in the past and there is an urgency to get funding.
Data from the Bank of England show that mortgage approvals in the UK fell for the fifth consecutive month in January 2023, at 39,600 approvals, the lowest number next to the pandemic period, respectively, and just after the economic crash in January 2009 (32,400).
Regarding the charged rates, the Bank of England raised interest rates to 2.25 percent in September 2022, making this the seventh rise since December 2021 — when bank rates stood at just 0.1 percent. The Guardian reports that the average two-year fixed-rate deal is the highest in 8 years, at 4.09 percent.
Products Available From Alternative Finance Lenders
Alternative finance companies often take a more individual approach to underwriting and look at applicants on a case-by-case basis. As such, they are unlikely to be restricted by the heavy red tape or limitations of working for a large global bank.
While most challenger banks are regulated, some to a very high degree, some private lenders fall out of the typical regulation and can offer unregulated products, with some restrictions, such as being unable to offer loans against someone’s primary residence.
However, typical products ideal for alternative finance include invoice factoring, bridging loans, business loans, and commercial and residential mortgages, depending on the terms.
Alternative providers are also more likely to take a view on those with bad credit or no credit history, preferring to consider the value of their asset or property, or indeed the opportunity. A typical bank institution is more likely to decline this customer class.
Furthermore, the average customer in a good position for a loan or mortgage approval may also look to an alternative to access better rates than those charged by a bank who have recently hiked up prices in line with the Bank of England base rate.
Opinions
Gareth Lewis, Commercial Director of MT Finance comments:
“Alternative finance is continuing to offer solutions to support customers to take up opportunities mainstream lending either doesn’t have the appetite for or the ability to transact in the timescales required. According to Bridging Trends, bridging activity increased in 2022 as brokers utilised bridging to support transactions that had become unstuck. I expect this to continue into 2023.”
Dan Kettle, Director of the alternative lender, Octagon Capital also comments:
“Alternative finance is crucial this year to keep the economy and people moving. Whether it is a business product to help grow and expand your company or simply a family moving house, if they are not going to get approved by their high street bank or are faced with very high mortgage rates, using an alternative lender proposes a viable and effective way to get the finance you need to live and grow.”
This article was produced and syndicated by Wealth of Geeks.