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Peer2Peer Finance News | December 14, 2018

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Navigating through the P2P property maze

Navigating through the P2P property maze
Tim Evershed

PROPERTY is one of the most popular ways for peer-to-peer investors to put their money to work.

The attractions are obvious: the reassurance of bricks and mortar as security and inflation-busting returns, often with the added allure of tax-free earnings thanks to the Innovative Finance ISA (IFISA).

Of course, property is a broad church. Commercial and buy-to-let (BTL) mortgages, development finance and bridging loans are all available through P2P finance platforms.

With the exception of owner-occupied residential mortgages, where the lengthy loan terms do not fit very well with the P2P lending model, it is possible to lend to almost any segment of the property market.

However, the variety of platforms and loan types available can be disorientating for investors that are new to the sector. Here we aim to navigate you through the diverse world of P2P property investing.

Buy-to-let mortgages

The UK’s BTL market has boomed over the past couple of decades as many people saw it as a viable alternative to pension saving.

However, tax changes and tighter regulation have made it a less attractive option.

P2P lenders such as LandlordInvest and Landbay allow investors to take advantage of the returns available in the BTL market without the burden of actually being a landlord.

Landbay investors can expect returns of around 3.54 per cent on its fixed-rate product, or 3.18 per cent with its tracker-rate option, by investing in loans secured by UK property.

The Peer-to-Peer Finance Association member launched its IFISA in February last year, meaning that Landbay customers can also benefit from tax-free earnings on their investments.

LandlordInvest’s investors have earned average annual returns of 11.3 per cent to date, secured by residential or commercial property, with the option of an IFISA wrapper.

Commercial property

For investors that feel more confident sticking to the commercial property market, Proplend solely focuses on this segment.

The platform lets lenders invest in three risk tranches based on different loans-to-value (LTV) with the security of the first legal charge on the commercial property.

The firm’s tax-free wrapper, the Proplend IFISA, accepts transfers and is also flexible, enabling investors to withdraw funds and return some or all the amount taken during the same tax year.

Property development

A number of P2P platforms focus on funding property developments, which can offer higher returns for investors but are sometimes higher risk.

Lendy offers investors 7 to 12 per cent returns on secured loans that do not exceed 70 per cent of the property’s Open Market Value.

And ‘big three’ platform RateSetter facilitates property development loans ranging between £500,000 to £7.5m, with a maximum loan-to-value of 65 per cent, with investor returns depending on supply and demand.

Read more: RateSetter changes approach to property loan defaults

Meanwhile, Wellesley has shifted its strategy away from smaller, bridging type deals, towards larger development loans.

It currently offers a property mini-bond that returns six per cent and a property bond that can be held in an ISA wrapper and offers fixed returns of 5.5 per cent per annum over three years.

And Shojin Property Partners connects developers in need of funding with sophisticated investors, who receive returns of up to 27 per cent per year. However it recently revealed its plans to expand into BTL, mezzanine and bridge finance.

Variety is the spice of life

Some platforms offer more than one type of property loan. LandlordInvest offers bridging loans as well as BTL, while Kuflink offers bridging loans, BTL and development loans.

Octopus Choice also originates a diverse range of property loans, with target returns of four per cent. Around 70 per cent of its loans go towards buy-to-let properties, 16 per cent bridge-to-let, eight per cent commercial and six per cent bridging loans.

Assetz Capital invests in commercial mortgages, BTL, development finance, residential refurbishments and bridging loans, enabling investors to earn from 4.1 per cent.

And CrowdProperty facilitates development finance, conversions, refurbishments, bridging and auction finance.

Life outside London

Within P2P property space, some lenders are aiming to rebalance the typical focus on London and the South East by looking further afield.

Blend Network offer property development loans to retail and high-net-worth individuals, as well as hedge funds and other institutional investors.

There is a minimum investment of £1,000, and investors can earn up to 15 per cent returns.

The platform’s investment opportunities are already available through a self-invested personal pension (SIPP) plan.

The House Crowd focuses on property projects mainly around northern areas such as Manchester and Liverpool and has recently launched in Scotland. Investors can expect average returns of 9.2 per cent.