Roxana Mohammadian-Molina 10 September 2019

Alternative lending sources

Alternative lending sources image

The UK’s housing shortage is a high profile issue, with the 300,000 houses that need to be built annually by the mid-2020s being a commonly cited figure in current debate. What is less discussed, however, is how the Government should actually solve this problem.

Boris Johnson’s drive to make housing a priority is welcome news, but his policies focus on traditional funding methods, ignoring new, innovative sources of funding such as Peer-to-Peer lending, crowdfunding and proptech investment platforms.

With the number of houses needed being so high all avenues should be explored with four in particular deserving more attention: tax breaks for private investors who fund new builds; encourage SIPP operators to consider including Peer-to-Peer loans in their portfolio; allowing local authorities to deploy funding through alternative lending; educating property developers.

Tax breaks for private investors

Small and medium sized property developers, especially outside of the South-East, have found it extremely difficult to find funding from traditional lending sources, as banks aren’t willing to lend in such small amounts. This is a problem as house building needs to be targeted; it’s not enough to simply build more houses anywhere, they have to be built in the right places, which smaller developers play a key role in doing.

Alternative lending sources have been crucial in channeling funding through investors towards these smaller developers, but more needs to be done in order to increase funding through this channel. If investors are given tax breaks on their investments there is greater incentive for them to invest through this avenue.

Encourage SIPP operators to consider including Peer-to-Peer loans in their portfolio

Some SIPP operators may be discouraged from including Peer-to-peer loans as this will dramatically raise their capital adequacy requirements (i.e., the amount of capital they are required to hold by the regulator to ensure they do not take on excess leverage and become insolvent). This restricts a key channel through which P2P loans can be invested, decreasing their popularity. If SIPP operators can get a firmer understanding of the P2P market, and they are satisfied with the due diligence process and risk profile offered by a particular platform, they should consider including Peer-to-Peer loans as this could add diversity and potential benefits.

Give more power to local authorities

While this is a national issue, local authorities have a key role to play. Indeed, local councils play a crucial role in driving housing developments in areas of high-population growth, but many council schemes are ill-funded and ill-coordinated. A comprehensive programme in which local councils and P2P property platforms cooperate to fund local, targeted developments would allow housing to be built in the areas that it is needed most.

Educating property developers

Despite the array of funding options widening after the financial crisis, many property developers remain unaware of the variety of investment channels open to them, particularly those outside of London. In order to remedy this, there needs to be a concerted effort by the Government (national and local) to educate property developers across the country, of the multitude of options including P2P platforms, crowdfunding options and proptech investment platforms. Organisations such as Innovate Finance can play a key role in collaborating with Government on this.

When it comes to the housing crisis we need to stop talking about the problem and focus greater energy on possible solutions. With funding through mainstream sources still tight, there needs to be a widespread collaboration between developers, Government and alternative lending sources to solve this issue once and for all.

Roxana Mohammadian-Molina is chief strategy officer of BLEND Network

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