by Mark Johnston
Affordable finance from alternative sources.
With significant constrains on lending activities alternative non-bank lenders are coming in to the marketplace and this should be encouraged. Various alternative lenders are actively lending at the moment and therefore it should be acknowledged that they are now an important ingredient to any recovery.
Tim Breedon, chief executive officer of Legal & General stated that “the arguments for alternative sources of finances are strong. More diverse financing promotes competition among fiancé providers which in turn potentially reduces cost and leads to greater resilience in the financial system”.
ZOPA are a prime example of alternative lending. ZOPA stands for Zone Possible agreement, which is peer to peer lending, basically when applying for a loan it is not ZOPA that you borrow from instead the money for borrowing comes from savers who register on the website.
The website therefore acts not as a lender but as a third party in a contract between savers and borrowers. As borrowers are borrowing directly from savers interest rates are not really set in stone but are negotiated between the two rather than set by a bank who wants to make big profits.
However, this type of lending is not regulated by the Financial Service Authority (FSA), but sensibly they do adhere to a set of standards for self regulation and also as loans are unsecured ZOPA is only interested in those with excellent credit ratings.
It is not just hi-tech new providers that are offering an alternative in the loan market, more traditional credit unions have also been given a new lease of life thanks to a recent £38 million investment from the government, allowing them to expand and modernise.
Current figures released by the Financial Service Authority (FSA) have revealed that the credit union sector now serves more than a million people.
They provide financial services on an ethical not for profit basis to those who are underserved or poorly served by the mainstream. They offer loan products suited to individual need and rates that are easily affordable.
Another alternative to high street banks now comes from one ofBritain’s biggest supermarket chain, Tesco.
Tesco is launching 4 mortgage products, 3 fixed rate deals and a 2 year tracker. Rates will vary according to how much is loaned in relation to the property and deposits must be at least 20%.
Chief executive of Tesco bank, Benny Higgins says “the mortgage packages reflect the banks philosophy of providing simple and transparent products that reward loyalty”.
It therefore seems that Tesco banks independence allows it to put customers at the heart of its operation.
Many independent mortgage brokers have welcomed this particular launch as they believe it will bring a much needed boost to competition.
All in all any increase in lending should be encouraged, however some financial experts feel that they have yet to see any real evidence that these companies are helping the economy significantly.
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