Whether you’re building, renewing or buying homes, these undertakings require a huge budget. Traditional sources of funding are simply not enough to help meet our growing housing needs. Inspired by FinTech, innovative financing models and tools have been increasingly applied in the housing sector for exploring and securing new funding sources in support of traditional housing activities.
- To meet the UK’s 2020 housebuilding objectives or retrofit existing housing stocks to meet the 2050 carbon targets, the public funds available fall far short of what’s required;
- Smaller house builders were usually disadvantaged in accessing private finance;
- For home buyers and buy-to-let investors, finding the best mortgage deals has never been easy.
Innovative financing in practice
Compared to traditional approaches, innovative financing refers to those new mechanisms or tools applied in the housing market to help different stakeholders secure new sources of funding for their housing projects.
Online crowdfunding, or peer-to-peer (P2P) lending platforms are one of the most popular new financing models in the housing sector. By creating an online marketplace, they enable developers, especially smaller ones, to post their projects online and raise small amounts of money from a large number of people. They also allow individual investors to choose from different property development opportunities and share returns from pooling smaller amounts of money with other investors. Alternatively, backers can benefit from pooling their funds and spreading them across multiple P2P loans and development schemes. This new type of financing model lowers the threshold for both lenders and investors. By connecting smaller developers with individual investors, they help activate the spare capital to support small development or home improvement schemes.
Online mortgage matching platforms are another popular type of innovative financing model in the housing market. By collecting a range of mortgage offers from the market and matching them to mortgage seekers with different needs, these platforms allow home buyers and investors to compare offers and secure a loan at the best rate. Enabled by digital technology, this matchmaking can be done automatically with some simple data entry. This saves mortgage seekers lots of time compared to conducting research themselves. Some platforms even create a P2P marketplace for buy-to-let mortgage lending and borrowing, which allows buy-to-let mortgage seekers to secure funding from and share returns with individual backers.
With the support of new technologies like blockchain and AI, financing in housing is also getting more secure and efficient.
Benefits and impact
Innovative financing models are bringing huge benefits to the housing market. By lowering the barrier to entry for fundraising and investment opportunities, crowdfunding platforms are creating an approach to leverage capital from investors to help build more homes and improve housing stocks. In parallel, mortgage matching platforms are helping home buyers secure the best mortgage deals more efficiently. By making funds, deals and investment opportunities more accessible, innovative financing solutions are helping tackle the under-supply of housing and create a more vibrant housing market.
Have you got any thoughts on innovative financing?
Are you interested in sharing your insights in this area? If you’d like to let us know about some of the projects you’re working on in this space, please email firstname.lastname@example.org.