Alternative finance, including crowdfunding, mezzanine finance or unregulated loans, was used by 19 per cent of home buyers in the past decade, research has found.
Research commissioned by bridging lender Market Financial Solutions, found 52 per cent of borrowers used a mortgage or remortgage to finance a property purchase in the past decade and 42 per cent had purchased using cash.
Alternatives were the least popular options, with bridging considered by a mere 13 per cent of homebuyers. However, alternative finance was used by a respectable 19 per cent of borrowers.
The lender had surveyed 2000 residential homebuyers who had a bought a property in the last ten years, with a quarter of the sample owning two or more residential properties in the UK. About 37 per cent of homebuyers had sought advice from a broker when considering their funding options.
It found 46 per cent of homebuyers felt they did not have the knowledge or confidence in alternatives beyond mortgages to choose them.
The lender claimed homebuyers were restricting their ability to find funding because they lacked the confidence to consider alternative finance options.
Paresh Raja, chief executive at Market Financial Solutions, said: “To remain reliant on the mortgage market could restrict an individual’s ability to get the funds they need.
“Indeed, in the UK’s competitive property market, it is essential that buyers are aware of the financial products they can choose from, in turn putting themselves in the best position to progress with a purchase quickly and efficiently.”
Mr Raja added: “Over the past decade, a range of new alternative finance products has arisen to give buyers different options that might be better suited to their needs – however, today’s research demonstrates that there remains a lack of understanding about what these options are and how to use them.”
But Ruth Whitehead, financial adviser and director at Ruth Whitehead Associates, said she was pleased that bridging loans remained a minority pursuit, considering them an expensive option that should be used as a last resort.
She said: “Traditionally their function has been to ‘bridge’ the gap between sale and ongoing purchase, if the sale process is too slow. However, in the current market in London, which is significantly affected by the uncertainty around Brexit, this situation rarely obtains.
“Property values are going down, and it’s better for a purchaser to complete on their sale, bank the proceeds and then couch-surf while looking for a property to buy without a chain behind them – bridging loans are only ever intended to be short term, and are extremely expensive.
“They have some applicability to a shrewd property investor who can afford to take the risk of not being able to raise the finance to pay off the bridging loan, but for our clients buying and selling their main residence, the word ‘bargepole’ springs to mind.”
Source: FT Adviser