Posted on 10/09/2018 12:26:36   by   Shahzad Mahmood

UK Leads the Way in Alternative Finance

The UK is among several economies around the world that are witnessing huge growth in the alternative finance sector. Within Europe, Britain ranks number one. Among the emerging models rapidly becoming favourable alternatives to traditional financial structures for eligible investors is property crowdfunding.  

Trust in UK houses

Property investment in the UK is an established institution. Investors from around the globe have traditionally seen stability and reward in putting money down on Britain’s real estate assets.  

While this is still the case, the landscape has evolved and it’s now harder to get returns of the same value from direct investment in individual property or other traditional models. Among the reasons for this are new regulations set forward by the government to limit buy-to-let investments as well as less than advantageous tax changes that make direct investment in UK property more challenging.     

A European affair

Although the UK leads the way in terms of alternative finance growth in Europe, other nations such as France, Germany, the Netherlands, Italy, Spain and countries in the Nordic region show a strong appetite for this emerging sector.  

The financial crisis, with its far reaching impact on European financial structures, underpins much of this change. With most banks still not as willing to lend money and traditional investment opportunities becoming saturated or over regulated, new models have emerged to fill the gap. There is also a growing need for SME funding and new business ventures that propels the growth of the sector.  

The UK, however, has long been the volume driver for the region in terms of the alternative finance market growth on the whole, making up 73 per cent of all European volume according to the European Alternative Finance Report published by Cambridge University in 2016.

Sophisticated technology

Sophisticated technology and advanced financial instruments play a large part in the UK’s dominance of the European alternative finance sector. With connections and transactions taking place online with property crowdfunding and other models, effective, trustworthy and seamless online processes are essential to a smooth running industry.  

As these systems, databases and networks mature over the coming years, we are likely to see even greater capacity in the property crowdfunding sector. The question is, will new platforms keep emerging to satisfy the growing demand for this investment opportunity, or will already established names dominate the alternative finance landscape?  

According to the 4th UK Alternative Finance Industry Report published by Cambridge University in 2017, new entries to the market hit their peak in 2014 and ‘platforms which remain have maintained, or in many cases accelerated, the growth rate of their business’, suggesting an overall consolidation of the market.

A beneficial dynamic

In the UK, regulations have been designed around alternative finance models to protect consumers and improve competition in the market. This has been achieved through better communication from platforms and strict criteria for investors. While the Financial Conduct Authority (FCA) continues to modify its approach to crowdfunding, it is clear that the current dynamic has been conducive to growth in the sector. As new investors enter the market, the reassurance of the FCA’s continued oversight of the sector will add confidence, while fairness and regulation among existing platforms could spur further growth, as platforms compete to offer investors the best opportunities.  

Property crowdfunding going forward

Underlying all of this is the UK’s desire to pioneer alternative finance models that are beneficial to enterprises and local economies, as well as investors from home and abroad who want to get more from their money. Alternative finance models such as property crowdfunding platforms will continue to offer services to potential investors as long as demand maintains – which it seems likely it will.  

There is also huge potential for combined growth across the region if cross-border interaction increases across Europe. This will result in a larger pool of both willing investors and available platforms and business ventures seeking finance. As it stands, property crowdfunding looks set to grow as we move steadily through 2018.