The Growth of Specialist Finance
Over the last 10 years, there has been a noticeable increase in the role of specialist lending in the UK. This refers to borrowing from alternatives to mainstream banks and lenders and instead, accessing finance through more independent, privately owned financial boutiques. This includes products such as bridging finance, mezzanine finance, invoice finance and equity release.
The rise of specialist finance has been largely as a result of the bank's reluctance to lend, following the housing crash and recession in 2007. Instead, households and investors seek alternatives believing that they can access finance quicker and at more favorable rates.
To put it into perspective, the bridging loan industry was worth £1 billion in 2011 and is now worth £7 billion in 2018. We discuss the reasons for the growth in specialist finance.
Speed and flexibility
The use of specialize finance allows property buyers to break the standard property chains associated with a mortgage. Whilst a mortgage is usually a very thorough process and can take months to be approved, the likes of bridging and mezzanine funding can be delivered within 2 weeks. For those working on a very tight deadline or looking to move very quickly, this provides a very formidable alternative.
Equally, the rates for specialist finance are usually likely to be a lot more flexible and bespoke to the customer, giving them rates based on their property’s value, income, credit rating and giving them the option to refinance.
All credit ratings considered
Traditional mortgage and mainstream lenders usually have very strict criteria in terms of credit scoring. As a result, this significantly limits the number of those eligible for both consumer and business finance and also slows down the application process.
By comparison, specialize lending offers flexibility to those with adverse credit histories, looking at recent activity and the value of their invoices or property to truly determine how much they can borrow. Given that business finance and non-status lending can pass as unregulated, it opens doors to those with poor credit histories who may be charged a slightly higher rate of interest to assess the risk of default.
Better products
Another key reason for growth in this sector is simply because alternative lenders can provide better rates than traditional banks who are confined to their own processes and regulation. Especially in the case of equity release, those over 55 can release up to 35% equity in their home and receive one lump sum, tax-free from a specialist finance provider.
Currently, this is not a product offered openly by banks and if you visit the website of some of the best-known banks in the UK, they simply explain the risks of it or try recommend you to a specialist lender.
Greater choice
The flexibility in specialist finance yields greater choice for consumers and businesses looking for an injection of cash. Rather than being limited to their local bank, customers now have a choice of hundreds of prospective lenders. With brokers in every industry, it increases awareness and forces the market to lower its prices as a means of being more competitive. In the last 3 years, the lowest cost in bridging finance has been reduced from 1.0% to 0.44% per month.