Peer-peer finance firms are set to expand their funding to house building projects in a move that will see them roll back the years and emulate the methodology of financial backing once used by building societies across the UK.
Wellesley & Co, a relatively new peer-peer firm, has disclosed their intention to match a number of retail investors with some of the countryís small house building firms in order to improve the financial landscape across the country.
The move is the first of a number of initiatives that are intended to bolster the number of small and medium sized house builds in the UK this year, and is a clear sign that people are prepared to gamble on the property market again after a period of caution and stagnation.
ìProperty development is always the area the banks take a bath on when the market goes wrong,î says Anthony Fane, co-founder of Wellesley.
ìItís quite a ready market to approach...there is a lot of these people and theyíre not being covered by the banks.î
It is thought that Wellesley & Co will make loans between £200,000 and £500,000 available on their forum, and will allow people to secure the loan against the property being built at an attractive interest rate of just 13%.
The company identified that they will look to recruit a number of ëone maní developers who will be tasked with building a multitude of new property in the suburbs over the course of this year.
Peer-Peer lending consists of two parties; someone who wishes to borrow money, and someone who wishes to lend it out as a form of savings, being matched by the peer-peer site, who then takes a fee for processing the loan.
The borrower benefits from being given a better interest rate than would otherwise be available to them, the lender gets a better interest rate on their money than they would at a savings account at a bank, and both parties benefit from not having to pay extra premium charges as they would for receiving service from a bank.
The sites have rapidly increased in popularity in recent times, and are now seen as a viable alternative to banks to boost small business lending in the UK. Investors will enjoy a superior return on their investment than they would at banks, and can acquire loans in tandem with other parties to lessen the risk.
Investors at Wellesley who have lent money out have enjoyed being paid between 5.5% and 7.5% on their investment, which is unbelievably good considering how low the rates are being offered by banks at the moment.
ìThereís been a huge shift,î says Andrew Dixon, policy executive at the Federation of Master Builders, which represents SME house builders. ìThe finance on both the consumer side and the business side has been the most important reason for that over the past five years.î
ìIn terms of increasing capacity in the private housebuilding sector, unless you see a reinvigorated, resurgent SME sector, itís difficult to see where you get that growth from,î Mr Dixon added.