Covid-19 Propels Alternative Finance into the Mainstream


What happened to the UK property market during and after the height of the pandemic took everyone by surprise. You did not need to be an experienced analyst or economist to pick up on the kind of housing market activity that had not been seen in years.

At a time when the UK was facing unprecedented economic turmoil, the real estate sector somehow chalked up its most explosive performance on record.

Throughout the first half of 2020, the housing market ground to a halt; Lockdown restrictions and social distancing made it practically impossible to buy or sell properties, leaving many would-be buyers and sellers in limbo.

By the time the summer rolled around, lockdown restrictions had been eased and the government was keen to breathe life back into the sector. A raft of measures was introduced to motivate buyers to make their moves, not least of which being the introduction of the Stamp Duty Land Tax (SDLT) holiday in July.

All of a sudden, there was the opportunity of saving £15,000 on the normal costs of buying a home – an incentive taken full advantage of by hundreds of thousands of buyers.

HMRC data indicates that in Q4 of 2020, over 350,000 residential property transactions were completed. This was the highest level recorded in over 60 years, and was particularly impressive given the sector’s stagnation earlier in the year.

Meanwhile, mortgage applicants faced a growing number of difficulties in gaining access to affordable home loans. Mainstream lenders tightened their qualification criteria for mortgages, while at the same time removing most (if not all) of their high LTV products.

Worse still, mortgage approval and processing times quickly doubled, due to the backlog being faced by underwriters. Given the temporary nature of the Stamp Duty holiday, this posed a major problem for those looking to take advantage of it.

Consequently, those who were unable to qualify for a conventional High Street mortgage set their sights on the alternative options available. Bridging loans in particular proved a popular choice among those aware of the time-critical nature of their situation.

Bridging finance can often be arranged and accessed within a few days – a far cry from the two to three-month average time it takes to complete a mortgage.

During the third quarter of 2020, data from the Association of Short-Term Lenders (ASTL) indicates a massive 25.7% spike in the number of bridging loan applications received by UK lenders. This continued accelerating into the fourth quarter, when the year-on-year increase in activity hit just over 39%.

Finding themselves with little alternative but to steer clear of the High Street, many thousands of movers and buyers took their business to the alternative lending sector.

Whether the trend continues as the effects of the pandemic fade remains to be seen. But given the speed, flexibility and unique cost-effectiveness of bridging finance, it is perfectly plausible. Particularly as gradual interest rate rises take the shine away from conventional mortgage products, the popularity of the bridging sector in particular could continue to grow indefinitely.

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