INVESTORS should ensure they do enough due diligence on peer-to-peer platforms before lending, the chief investment officer of P2P investment manager BondMason has warned.
Graham Martin said that bad practices might not be apparent straight away and that it is essential to assess a platform’s credit checks and underwriting criteria.
“We try to meet people from all the platforms,” he said during a panel discussion at the Great British Private Investor Summit in London on Thursday.
“Anyone with an algorithm and a website can set up a P2P platform.
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“You’ve got to look at their underwriting standards. If lending volumes go up and rates go down it could be a sign that they’re doing well and growing, or they may have dropped their standards to find more borrowers.
“Like anything, you have to put the leg work in to work out what you’re investing in.”
Fellow panellist Ed Bowsher, a presenter on Share Radio, argued that investors should choose one of the best-known P2P platforms with an autobid function to mitigate risk.
“You can get a lot more than five per cent returns in P2P and I’ve heard people argue that the nine or 10 per cent opportunities aren’t as risky as you think, but this is still such a young industry,” he said.
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BondMason’s Martin also urged investors to maintain a diverse portfolio and to assess the valuations of opportunities on offer.
“Property seems relatively fully valued right now,” he said. “Changes to buy to let and inheritance tax could put pressure on the sector.
“It’s about looking at sensible valuations and avoiding the hotspots.”
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