Alternative finance has officially entered the mainstream.
Peer-to-peer funding platform, Saving Stream, have reported that bank loans to property developers have fallen off to the tune of £17.6bn in the last two years. In April 2014, banks lent £32.5bn, yet in April 2016, this figure was just £14.9bn.
In the meantime, property developers have been looking elsewhere, and finding alternative finance options that meet their needs.
Whilst risk-averse banks still view property development as a ‘speculative’ investment, and under increasing pressure to de-risk their balance sheets and reduce their debt exposure, peer-to-peer lenders can offer favourable terms for small and medium sized developments.
For bigger property developments, large debt funds are stepping in, freeing up a market that would otherwise stagnate without co-operation from the banks.
That’s not to say that banks don’t want to get involved in lending for property development, it’s just that, since the financial crash of 2008, they’re under such tight regulatory constraints that it’s simply not viable anymore.
It appears that the banking industry’s dominion over the property development lending market may truly be finished.
Now, it’s as – if not more – likely to be debt-fund, high net worth individuals and peer-to-peer lenders on the building site. Whilst ISA interest rates are rock bottom, the chance to make up to 12% returns on a loan secured against property is growing all the more tempting for savers.
The opportunity for potentially higher investment returns through peer-to-peer that simply aren’t available anymore through banks nonetheless carries its own risks. As with any investment, there’s no guarantees of profit, and not all peer-to-peer investments are covered by the Financial Services Compensation Scheme.
As always, it’s down to the individual investor to make a decision about what’s right for them. Is it worth the risk? The answer is up to you.
Source: City AM