Over the past ten years, a fifth of home buyers have used alternative finance to purchase their property, according to research commissioned by Market Financial Solutions.

The lender surveyed 2,000 residential homebuyers, who had bought a property in the last ten years, with a quarter of them owning two or more residential properties in the UK. While 46% of homebuyers felt that they did not have the knowledge or confidence to consider alternative finance beyond a mortgage, 19% were found to have used alternatives such as unregulated loans, crowdfunding and mezzanine finance.

According to the lender, failing to consider alternative finance options could restrict an individual’s ability to get the funds they need. Paresh Raja, chief executive at Market Financial Solutions, said: “Over the past decade, a range of new alternative finance products has arisen to give buyers different options that might be better suited to their needs – however, today’s research demonstrates that there remains a lack of understanding about what these options are and how to use them.”

Is alternative finance just for property developers and investors?

Property developers will be more familiar with the alternative types of funding available, from auction finance to bridging or development finance. Depending on the property project there are a multitude of finance options available. A ‘Refurbishment Bridge’ for example will fund 3-24 months of building costs and sometimes comes with the option to convert to a mortgage. Alternative financing is certainly easier to apply to a property investor’s circumstances than a residential home-buyer.

A residential home buyer can buy a property without a mortgage if they opt for a shared ownership scheme with a private sector company. A private sector arrangement means that they could buy a home, and not have to apply for a mortgage. Buyers need their own deposit to buy a portion of the property, and then the private sector partner buys the rest on which they charge rent. Over time the borrower can buy more of the property from their private sector partner to increase their ownership and reduce the rental payments on the percentage of the property they own.

Crowdfunding has been used by some property buyers to raise the deposit for a purchase but is certainly not yet mainstream. Asides from private sector shared ownership schemes and bridging loans (used to secure larger home mortgages where the application process can be arduously slow), the options for the average residential buyers to alternatively finance appear limited.

Despite this, buyers facing financial challenges with traditional lenders might find that exploring alternative finance options creates fresh opportunities for them.