The UK property finance market has undergone a major change over the last couple of years. With peer-to-peer lending being preferred by many due to falling costs and headline interest rates, conventional banks now see the need to step up their game. Among the sectors that benefited immensely from crowdfunding is the property market because of its ability to clinch enticing rental yields which could readily answer interest charges and other funding needs. Analysts foresee this trend lasting for a long time with private banks adopting a similar mode.
The pressure is on for traditional banks
The Internet played a big role in bringing about changes to the UK property finance market. It allowed the streamlining of operations resulting to lower costs and at the same time, made it possible to tap into a vast market. Such capability was immediately noticed by peer-to-peer lenders. Since traditional banks and crowdfunding platforms are funded and operate in dissimilar manner, with varying degrees of flexibility.
It is interesting to note though that while traditional banks seem a bit reluctant to clash head on with peer-to-peer lenders, many of the former are happy enough to fund the latter. This removed the tedious operation of alternative funding services and replaced them with commercial profit along with investment returns. Could this be the win-win situation traditional banks are looking for?
Recent policies on crowdfunding
Many know that a host of new crowdfunding policies and regulations are being crafted by the European Union financial managers. The objective is to provide a better structure for this young sector which can help increase confidence. However, there are still those who are not able to fully comprehend the point when new crowdfunding regulations are discussed.
Existing crowdfunding firms are still governed by a comprehensive financial regulation in the UK. It is not merely an example of “every company for themselves”, rather, the new framework will be more focused. When this new structure is fully implemented, it is highly possible that smaller crowdfunding firms will either drop out of the race or merge with bigger crowdfunding companies. Usually, more regulations and policies have the tendency of increasing the cost of doing business, which are then passed on to end-users or customers. Whether or not the same thing will happen with crowdfunding remains to be seen.
Flexibility will play a vital role
Conventional banks have historically been quite unbending when it comes to business and property loans. Their culture of arrogance made them conclude that off-the-shelf products provide the best solution instead of putting together a property lending scheme tailored to the needs of the customer. The entry of peer-to-peer lending and private banking into the scene has put this arrogance in check. Today, traditional banks are shifting their focus when it comes to property investments.
It is also noteworthy to mention that both groups, the crowdfunding and private banking entities, are much flexible as regards collateral or security. Many of the small crowdfunding borrowings are secured with personal guarantees instead of property charges. In the case of companies, they need to supply their bank statements, proof of earnings and projections of where they will be in the next couple of years. Nevertheless, the practice of strict requiring collateral as security has dramatically changed.
Property-based crowdfunding permit investors spread their investments in a range of diverse projects. Before crowdfunding came to the scene, such type of risk investment would not have been allowed. The chance of buying small ownerships in huge developments in contrast with putting all eggs in one basket, metaphorically speaking, has been greeted by many investors with a sigh of relief.