Brian Bartaby, founder and chief executive of peer-to-peer property lender Proplend, explains why investors are flocking towards the platform’s Innovative Finance ISA
Brian Bartaby had been raising finance for property investors and developers for more than a decade before he launched Proplend, so he knew better than anyone that there was a gap in the market for commercial real estate investments under £5m.
“I was at the coal face during the financial crisis, when the banks retreated from the sub-£5m commercial property market and left a vacuum,” Bartaby recounts.
“That segment makes up almost a quarter of the commercial real estate debt market in the UK, so
it’s a significant part of lending.”
With this in mind, Bartaby saw an opportunity to provide much-needed funding to commercial property owners, while offering attractive returns to investors desperately looking for yield.
Launched in 2014, Proplend enables lenders to fund commercial property investments, separated into three risk tranches based on different loans-to-value (LTV).
The lowest risk is tranche A at zero to 50 per cent LTV, tranche B is 51 to 65 per cent LTV and tranche C is 66 to 75 per cent LTV.
Investors can enjoy returns ranging between five and 12 per cent, now with the option of tax-free earnings from the Innovative Finance ISA (IFISA). Proplend launched its wrapper to pre-registered investors in May and to new investors in August.
“It’s a flexible ISA, so people can withdraw money and put it in again within the same tax year,” Bartaby says. “This is an important function that our lenders are already making full use of.”
Savvy investors are already wising up to the attractions of the IFISA. 67 per cent of new accounts funded since Proplend’s IFISA launch have been ISA accounts, with 45 per cent of funding coming from ISA transfers.
“The IFISA is a really interesting market for us and for any platform,” remarks Bartaby. “There’s around £260bn of cash sitting in cash ISAs and around £240bn in stocks and shares ISAs, of which 40 per cent may be sitting in cash as investors are unsure what to do.
“Now cash ISAs are paying around one per cent and people are desperate for yield.
“So this is money that people have already allocated within that ISA wrapper. The ability to earn decent, tax-free returns on that money is very compelling.”
The platform’s data shows that its IFISA investors have been attracted to lower-risk investments, with 79 per cent opting for tranche A since launch, 14 per cent choosing tranche B and seven per cent opting for tranche C.
With this in mind, a new product is on the horizon. Proplend purely offers manual lending at the moment but is planning to launch an auto-invest product for its least risky tranche A loans, offering target returns of five to 5.5 per cent.
As well as attracting investors directly with the IFISA, Proplend has been working with wealth managers to facilitate investments from individuals looking to take advice.
Proplend Wealth is an online portal for advisers and wealth managers, enabling them to register, monitor and provide advice to their clients on their Proplend investments.
“We sat down with some local wealth managers to discuss how they could engage with P2P as their clients were asking about it,” says Bartaby.
“We’ve built something that works, as those wealth managers have now put about £3.5m through the platform into loans and continue to invest on behalf of their clients.”
With larger platforms starting to launch IFISAs and a raft of rivals out there, what does the future look like for Proplend and for the wider P2P sector?
“We believe the future is bright – there’s a lot of ISA money out there for healthy competition, particularly considering investors will be looking to diversify across platforms,” affirms Bartaby.
“With the FCA raising concerns over the levels of unsecured consumer debt, we believe platforms like Proplend, offering more stable and reliable returns from asset-backed lending, are well placed.”
For more information on Proplend and its IFISA, go to https://www.proplend.com.