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UK landlords increasingly leaning on alternative lenders

May 10, 2013 Simon Williams

The Great Recession's effects are still being felt in the United Kingdom, and they appear to have touched members of every sector.

Consumers have been forced to cut necessary expenditures and look for deals more. Small and medium-sized enterprises have struggled mightily to secure loans from financial institutions, while landlords are also having a tough time receiving funding, despite there still being a significant need for living arrangements.

"A generation of renters are demanding somewhere to live, and a growing army of landlords need loans to make the required investments," West One Loans director Duncan Kreeger recently told Property Wire. "The latest sky-high rental figures demonstrate that hunger for more investment. But cash strapped banks are still hesitant to make a serious commitment."

Kreeger added that he doesn't see this changing anytime soon, a sentiment supported by many recent studies. To make matters worse, the Funding for Lending Scheme - a Bank of England initiative that aimed to spur bank lending for consumers, SMEs and mortgage - has been labeled predominantly a failure.

But landlords have already found another solution to the problem: alternative short term lenders. According to the news source, brokers reported a nearly 50 percent annual growth in alternative finances, a number that should only continue rising as these schemes become more familiar to the general public.

One reason alternative lending has become popular, Kreeger said, is because it's so efficient, "particularly since deals can be done in days rather than months."

Another advantage is that many alternative lenders use Payment Reporting Builds Credit (PRBC) scoring methods to determine who and which companies to provide funding to. Traditional lending firms, such as banks and financial institutions, typically use only credit scores, so anyone at or near the subprime credit level has likely been refused funding in recent years.

PRBC, on the other hand, takes other factors like utilities payments records into consideration, opening up loans to many more people.