THE BLOG

Buying a House Without the Bank? Really?

27/06/2013 23:48 BST | Updated 25/08/2013 10:12 BST

As revolutions go, it's hardly been a box office smash.

No barricades were manned, no parliaments stormed, no toppled despots bundled off to exile.

But five years on from the Credit Crunch, this is what is happening to the way we borrow money in Britain.

From controversial (and fiendishly expensive) payday loans to the mushrooming peer-to-peer lending sector, the banks have lost their monopoly on lending.

An understated and very British revolution perhaps, but centuries of tradition have been swept away in just a few years.

No tie required

There was a time, not that long ago, when people would put on their best clothes to meet their bank manager.

The banks and building societies were the only places able to lend, and would-be borrowers were cast in the role of supplicants, meekly accepting whatever terms they were offered.

That all changed in the boom years of credit, when the banks seemed happy to hand out loans and credit cards like sweets.

For a few heady years, 110% mortgages seemed quite normal as the housing bubble inflated, and many of us convinced ourselves that house prices would rise forever.

The 2008 Credit Crunch ended all that. A series of bad home loans made in America came home to roost - and broadsided the British lenders too.

With the rug pulled from beneath them, the banks suddenly pulled down the shutters and all but stopped lending.

Now the dust has settled

Half a decade on, little has changed. Despite a string of government schemes designed to nudge the banks back into lending, many are keeping their battered vaults firmly shut to new borrowers.

True, in the depths of the recession not many of us wanted to borrow. Belt-tightening became a national sport and most people concentrated on paying off their existing loans rather than taking on new debt.

Now the tumbleweed years are ending and people are starting to borrow again. But the banks' reluctance to come out of their shells means that growing numbers of us are doing it in radically different ways.

The most high profile are the short-term, or payday, lenders like Wonga, which have attracted, and apparently relished, a lot of negative publicity. Their credit-scoring algorithms are sophisticated, but the principle of what they do - lending for short periods at high rates of interest - is nothing new.

It takes two to tango

What is radically new though is the explosion in peer-to-peer lending. This is where people who have some spare cash to invest lend it to those who want to borrow. A vast array of websites and platforms has emerged to play matchmaker by putting the two sides together.

The borrowers pay interest to the lenders, and the website that introduces them takes a cut.

For those lending the money it's attractive as they can earn much more interest than they would by sticking the money in the bank.

But for the borrower, it works much like borrowing from a bank - you apply for a loan and are credit-checked. The key difference is that you are applying to lots of individual lenders who are very keen to lend.

So not only are you much more likely to be offered a loan, but the interest rates are often lower than those charged by banks.

Once seen as exotic, peer-to-peer lending has become mainstream. You can now get personal loans and business loans this way. My speciality is peer-to-peer loans for property, and in our first three months we've advanced £3.2 million. At present we offer short-term - or bridging - loans, but soon we intend to offer full-term mortgages this way too.

Fad or fundamental change?

Peer-to-peer lenders still lend a fraction of what banks do, and with no high street branches and tiny marketing budgets, they are lower-profile than the big names.

But the fact is the banks have become their own worst enemy. Their continued reluctance to lend - and the paltry rates of interest they pay to savers - is what spawned the birth of peer-to-peer lending in the first place.

And as long as peer-to-peer lenders are willing to lend to people who the banks aren't interested in - and at lower rates - their popularity will grow.

The banker-basing of the Credit Crunch may have subsided, but we Brits have clearly fallen out of love with our banks.

The days when we treated our bank managers - remember them? - with deference and loyalty now seem as remote as the sight of penny-farthings and chimney sweeps.

There may be a whiff of the retro about peer-to-peer lending - the idea of borrowing from our fellow man rather than from multinational banking corporations - but in future more and more of us will borrow this way.