Why international markets should take note of the UK’s alternative finance sector
Paresh Raja, CEO of Market Financial Solutions
15 September 2018 marks the ten-year anniversary of the Lehman Brothers collapse a catalysing event triggering a series of economic depressions eventuating in the now infamous Global Financial Crisis (GFC). Few countries were left unscathed by this worldwide recession, with the UK experiencing a slump in consumer and business spending. At the same time, stringent lending measures imposed by high street banks made it significantly more difficult for people to access credit, undermining investment in many sectors, including real estate.
Nearly a decade on from the beginning of the GFC, the UK’s financial landscape has experienced a profound transformation, fuelled by technological innovations and a willingness from consumers and investors to go beyond traditional financial products offered by mainstream lenders. At the core of this transformation has been the rise of alternative finance, a term used to denote financial channels, sources and instruments outside of regulated banks and capital markets. Debt crowdfunding, peer-to-peer business lending, cryptocurrencies, bridging finance these are just some of the products now available for investors, borrowers and businesses to achieve their financial goals.
The rise of alternative finance is a global phenomenon, with the UK one of the countries setting an international benchmark. In 2016, the UK’s alternative finance market grew by an impressive 43% to reach a total of £4.6 billion, an increase of £1.4 billon on the previous year’s figure. Moreover, since 2010 alternative finance has facilitated £11 billion worth of funding. This is an astounding statistic, and an impressive feat for a sector which had virtually no market presence a decade ago.
Of all the financial trends to emerge in the UK since the onset of the GFC, alternative finance has done the most to opened doors for prospective buyers keen to access the real estate market a sector renowned for its competitiveness and attractiveness among both domestic and foreign investors. For individuals seeking to consolidate and expand their existing property portfolio, or use their real estate as leverage to quickly close a lucrative investment opportunity, bridging loans are becoming an increasingly popular option. Since 2007, total annual lending from bridging providers has grown from less than £1 billion to more than £4 billion.
By offering short-term loans for those requiring immediate access to capital, with existing assets used as security, borrowers can use bridging to overcome the stringent measures and time-consuming processes employed by mainstream lenders. This is particularly helpful when taking advantage of instant investment opportunities, be it using the capital to purchase an additional property or expanding existing business facilities.
Real estate has long been a popular asset class for those seeking a secure and tangible investment that will deliver long-term returns. Based on the bridging sector’s impressive rate of growth in the UK, and its versatility in delivering tailored loans in a range of circumstances, international markets are now taking note. This is particularly true of Asia, which boasts an exciting mix of established and rapidly rising economies. So far, state regulations in the region have made it difficult for bridging services to take hold; however, in places like Singapore, general attitudes towards alternative finance are changing.
Singapore is a gateway for Western businesses looking to expand into Asia, with a sizeable expat population and easy access to neighbouring markets such as Malaysia, Indonesia and India. The Singaporean Government has begun actively supporting the growth of alternative finance, recognising the long-term potential of fintech in supporting its financial sector. Last year, the Monetary Authority of Singapore (MAS) published an industry transformation map outlining the city-state’s long-term plan to become Asia’s leading global financial centre. As part of this strategy, the MAS stated that it would encourage fintech innovation and promote Singapore’s position as a base for foreign fintech startups.
The city-state also boasts an exciting real estate market property sales in Singapore rose in volume by 50% in the first half of 2017, while the value of residential homes is expected rise by 5.5% in 2018, making it the highest projection of any Southeast Asian nation. In light of this, bridging loans are ideally placed to offer an alternative finance solution to borrowers in Singapore. Market Financial Solutions (MFS) recently became the first UK-based bridging lender to expand into Singapore with the launch of a subsidiary office, setting the trend for UK lenders looking to an overseas expansion.
The alternative finance sector may be in its formative stages, but based on the UK’s own experiences in the years following the GFC, there is little reason why the same momentum will not take hold in Asia. Easing regulations and positive market sentiment towards alternative finance has made Singapore an ideal market to set the benchmark for alternative finance to flourish in Asia, with bridging loans effectively positioned to ensure more borrowers are able to quickly access capital, particularly when it comes to property purchases.
Looking to the future, the global rise of alternative finance will present investors, borrowers, businesses and consumers exciting new financial options, enabling them to choose lines of credit best suited to their individual needs. For this reason, it is important for government and industry bodies to take note of the leading trends defining the sector’s growth, both in the UK and in Asia.