By Uma Rajah on Wednesday 22 July 2020
The retreat of traditional lenders is exacerbating a chronic problem for property developers, writes Uma Rajah, co-founder and CEO of CapitalRise.
The COVID-19 crisis has been an overhaul in many ways and has made us question everything—from how we want to work and live, to where we put our money.
I see this period as an important turning point for fintechs in the lending space; it is a true test of our agility and ability to adapt in a rapidly changing environment.
The alternative lending sector was born in the aftermath of the global financial crisis with alternative property lenders aiming to fill the ever-widening funding gap produced by the retreat of traditional lenders as a result of post-crisis regulatory changes.
In property, traditional lenders have fallen from serving 100 per cent of the market, down to 75 per cent of the market, creating a large gap for new lenders to fill.
The situation has now been further exacerbated by the impact of COVID-19. Some lenders have either paused or stopped lending in order to focus attention on their current book, especially if they are also exposed to consumer or SME credit.
This new breed of alternative lenders now have a key role to play and, more than anything else, an opportunity to step up to the plate and display their value to a whole new base of borrowers.
Like us, other lenders are typically specialised in a certain sector, which they have deep expertise in. Whether it’s property, small business or personal loans, borrowers can largely be assured that they are dealing with specialists.
Prime real estate, a sector I know well, is already heavily underserved by mainstream lenders. Operating in a niche market requires deep specialist knowledge, as its dynamics are unique—for example, Prime Central London is in a totally different place in its property cycle, compared with the wider London or UK property market.
The further retreat of traditional lenders from the space is, therefore, exacerbating an existing chronic problem.
From an investor perspective, on our platform institutional investor appetite has remained unaffected during this period and individual investor appetite has increased as a result of volatility in the stock markets and bank interest rates being at record lows.
These factors certainly increase the appeal of secured lending against real estate assets, with a fixed rate of return.
I believe that the COVID-19 recovery is likely to drive higher demand for finance across all areas of the lending market. The new generation of technology-driven lenders should be able to process applications faster and deliver funding quicker than traditional lenders. Now is the time for alternative property lending to shine.
Uma Rajah is the co-founder and CEO of CapitalRise. The views and opinions expressed are not necessarily those of AltFi.