September 15, 2018, marks the 10-year anniversary of the Lehman Brothers collapse—the first falling domino that would go on to trigger a series of economic crashes eventuating in the now infamous global financial crisis (GFC). Few countries were left unscathed by this worldwide recession, with the United Kingdom experiencing a slump in consumer and business spending. At the same time, increasingly stringent lending measures imposed by risk-averse 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 onset 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 the 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.
The demand for access to finance, particularly from high-growth SMEs (small and medium-sized enterprises), has led to an increase in the number of different solutions that cut out the middleman and provide alternative methods of obtaining funding. Crowd-funding, peer-to-peer business lending, cryptocurrencies, invoice financing, bridging loans—these are just some of the products now commonly available for investors, borrowers and businesses to achieve their financial goals.
The rise of alternative finance is a global phenomenon, with the UK being one of the countries leading the way. In 2016, the UK’s alternative-finance market grew by an impressive 43 percent 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 that had virtually no market presence a decade ago.
Alternative finance and property
Of all the financial trends to emerge in the UK since the onset of the GFC, alternative finance has done the most to open 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 portfolios, or use their real-estate assets as leverage to quickly close a lucrative investment opportunity, bridging loans are becoming an increasingly popular option.
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 mortgage providers. 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.
Elsewhere, alternative-finance markets such as crowd-funding have also become popular among property buyers looking to raise a deposit for a purchase. Again, these new finance options are creating fresh opportunities and helping all manner of people to overcome the challenges that exist in purchasing real estate.
Looking to overseas markets
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 such as Singapore, attitudes towards alternative finance are changing.
The rise of alternative finance in Singapore
Singapore has long been regarded as 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.
Indeed, the city-state’s alternative-finance sector has grown significantly over the past few years. In 2016, the value of the market in Southeast Asia (SEA) reached a record US$215.94 million—a growth of 362 percent compared with the previous year. As a leader in the region, data shows that Singapore’s alternative-finance market alone was valued at $163.75 million in 2016—an impressive 363-percent increase on the previous year’s figures.
Singapore is clearly paving the way when it comes to alternative finance in Asia. In 2016, it accounted for more than three-quarters of the online alternative-finance market volume in SEA, with the largest segments being P2P (peer-to-peer) business lending and equity-based crowd-funding. The figures reflect changing economic habits and a growing reliance on unconventional funding options. Moreover, the growth in property investors seeking alternative-finance options is reflective of a steadily maturing market.
Building on this momentum, Singapore has been notably active in its efforts to promote the alternative-finance sector. For example, 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, 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 percent in the first half of 2017, while the value of residential homes is expected to rise by 5.5 percent in 2018; this is the highest projection of any SEA 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 and company (Market Bridge Solutions), setting the trend for UK lenders looking to expand overseas.
What does the future hold for alternative finance in the UK and Singapore?
Perhaps one of the defining characteristics of the UK’s alternative-finance market has been its ability to withstand the fallout from political and economic events, whilst maintaining an impressive rate of expansion.
Brexit, rather than threatening the alternative-finance market, has increased its appeal in comparison to traditional lenders. With banks responding to the consequences of a difficult economic climate by adopting tighter regulations, individuals and businesses are increasingly looking elsewhere to secure funding. The growing difficulty of securing a mortgage through traditional lenders, for example, has led to bridging loans becoming a popular means of obtaining the funds needed to purchase a property.
Looking to Asia, 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. 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.
In the future, it seems certain that the global rise of alternative finance will provide investors, borrowers, businesses and consumers with exciting new financial options, enabling them to choose lines of credit best suited to their individual circumstances. 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, to help support the development of these rapidly expanding markets.