Independent ratings agency 4thWay is out with an interesting report on the peer to peer property lending market in the UK. This sector of alternative finance has been very popular due to the asset class and the solid returns. Even in light of Brexit turmoil, P2P property lending remains a robust and growing opportunity for investors.
According to the report, today there are 12 P2P lenders that specialise in property. Combined, these platforms have lent £1.6 billion since 2013. Returns have ranged from 2.25% to 12.7% and lender losses have been placed at zero at 11 out of the 12 platforms. 4thWay explains there have been cases of bad debt but lenders have not lost their money largely due to the investment being secured by the property. Overall, lenders have lost just £15,000 out of £1.6 billion lent (0.0009%). Only one platform, Funding Secure, has experienced losses of 0.02% – spread over three years. 4thWay states this is easily offset by interest of 12.7% per year.
The report says that lending decisions are underpinned by underwriting processes with “sensible” maximum loans-to-value of 70% to 80%. Average loans-to-value (LTV) are considerably lower. In some cases, lenders can specifically choose loans with a maximum of 50% LTV. An example of this may be found through Proplend. Interest rates remain high as lenders are cautious and thus demand a premium.
While many providers require lenders to commit at least £25,000, there are opportunities to lend from as little as £1 at two platforms, and £500 or less at seven. This makes it easy for investors to diversify their money across many different properties and reduce their risk.
“There are a lot of P2P lending providers focused on secured property lending. Collectively, they give lenders near-instant diversification, high interest rates, and very attractive property security. It is an excellent time to be a lender and there are options for every budget,” said Neil Faulkner, co-founder and MD of 4thWay. “Most of these P2P lending opportunities are run by people who have a lot of prior experience in assessing these kinds of loans. They are using traditional processes to assess borrowers combined with new technology to lower the costs of lending, and then passing the bulk of the rewards on to individual lenders.”
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