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The Independent UK
The Independent UK

Reluctant banks are partly to blame for the UK’s housing crisis – but alternative lenders offer a way forward

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Kuflink is a Business Reporter client.

The UK has a severe housing shortage. According to one estimate, more than 440,000 homes would need to be built over the next 25 years if the deficit in housing is to be overturned. Yet fewer than 250,000 were built in 2022, and even that was a record. The UK lags far behind most other European countries in terms of its housing provision, and there’s little sign that will change.

The housing crisis is among the most daunting facing the country today, and its effects are numerous: it forces individuals and families into shared housing or substandard accommodation, and it limits migration into cities, in turn affecting access to jobs and schools, and driving up insecurity.

It also weakens economic growth. The fewer available houses there are, the higher house prices go, and the more reluctant buyers become. This means that the contribution the housing market makes to the broader economy is limited. Moreover, without adequate schemes in place to build, all stakeholders in the construction industry lose out.

The government understands there is a problem and has set targets: around 340,000 new homes need to be supplied in England each year, of which 145,000 should be affordable. But few are confident that even that figure can be met.

The deep roots of the UK housing deficit

The housing crisis has its roots in the Town and Country Planning Act of 1947, which, in an effort to limit urban sprawl, placed tight restrictions on the building of houses in green belt areas. It took another turn in 1980 with the Right to Buy scheme, which allowed council house tenants to buy their homes at discounted rates, thereby reducing the national provision of affordable homes.

But the 2007-08 financial crisis made things even worse. Traditional banks became more reluctant to fund smaller housing developments. Instead, they reserved their financing for large-scale projects, or projects that didn’t require loan terms over 12 months or that were strictly commercial rather than residential.

The reason for their concentration on one end of the market was simple: thanks to the size of the loans required and the high interest rates pegged to them, this end of the market – unlike small or medium-sized developments – would guarantee return on investment.

At the same time, banks – whose predatory mortgage lending had been partly to blame for the crash – swung from a position of brash risk taking to acute risk aversion. The criteria by which they would lend to homebuyers became far stricter – and because the historic shortage of houses in the UK limited options for low-income buyers, many would-be buyers were ultimately unable to purchase homes, thereby depressing the market even further.

The rise of alternative lenders

It was in the vacuum created by reluctant banks that alternative lenders began to move to centre stage. They took many forms: private mortgage lenders, monoline (provision of finance by lenders specialised in loans for small or medium-sized projects), peer-to-peer lenders and more.

Kuflink is a financial platform that specialises in peer-to-peer lending, offering investment opportunities to both risk-tolerant and risk-averse customers. By connecting borrowers seeking funds for property-related ventures with investors looking to earn attractive returns, Kuflink facilitates a unique investment experience.

For customers willing to accommodate varied risk, Kuflink provides the option to select specific investment opportunities, ranging from individual properties to developments. These customers can carefully evaluate each project and choose the ones that align with their risk appetite and investment goals. By investing directly in these projects, they become part of the property’s financial success. Notably, Kuflink also demonstrates its commitment to the investment by co-investing up to 5 per cent alongside the customer. This alignment of interests encourages trust and confidence in the investment process.

On the other hand, customers who are more risk-averse may prefer to diversify their investment portfolio. Recognising this need, Kuflink offers a solution by spreading the invested funds across multiple projects located in different regions of the country. By diversifying across various properties and locations, the customer reduces their exposure to any single project or geographical area. This approach mitigates the risks associated with investing in a single property or development, providing a level of stability and potentially enhancing the overall return on investment.

Through its platform, Kuflink facilitates the process of peer-to-peer lending, where individuals can directly invest in property-related projects. The company carefully selects and evaluates projects, ensuring they meet certain criteria and are viable for investment. By providing a range of investment options, accommodating different risk appetites, and offering the benefits of diversification, Kuflink aims to create a platform that caters to a wide range of investors and their specific investment preferences.

Turning the economy around

One area in which alternative lenders such as Kuflink differ from traditional lenders – and even some alternative lenders – is in their flexibility. Some 40 to 50 per cent of alternative lenders still rely on banks for much of their funding. Kuflink doesn’t – the entirety of its funding is organic, raised through a combination of its shareholder base and its online marketplace lending platform. This means Kuflink doesn’t have to answer to banks.

The benefits of this became apparent when the Covid-19 pandemic struck, and the UK economy began to nosedive. Once again, banks became far more conservative in their lending, meaning that large-scale housing construction projects weren’t getting off the ground, and the economy further suffered. But alternative lenders were able to bridge the gap.

The housing shortage in the UK has caused huge problems for individuals and families across the country – but there’s now an opportunity for everyday people to help turn it around.

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