Richard Luxmore, director at property-backed peer-to-peer lender FundingSecure, explains why the retail investor is at the heart of their offering
THE ENTIRE concept of peer-to-peer lending is about individuals borrowing from their peers, being someone’s equal in terms of rank and age. There is a very real danger that P2P lending is being overtaken by institutions and platforms are starting to resemble banks.
At FundingSecure the retail investor is at the heart of our platform. We currently have over 3,000 investors, more than 95 per cent of whom are individuals – aka retail investors. With an average investment of £31,000 these range from as small a holding as £25 to our largest investors with in excess of £1m each, all of whom are retail investors!
Our minimum investment is £25 to ensure we are truly open to all individuals. A number of platforms have raised their minimum levels and we can understand why; the smaller investor takes broadly the same amount of processing as a large investor, sending deposits, requesting withdrawals and asking questions on our live chat service. Some platforms have argued that the smaller investor does not understand the risks involved and have thus denied them the opportunity.
To us, this goes against the spirit of P2P lending. On our website we say “Our aim is to allow investors the opportunity to participate in the above-average returns associated with alternative finance”.
It would be a shame to deny so many the opportunity, limiting it to so few.
Although our investor base is national, our borrower base tends to overweight to the North of England, particularly Greater Manchester and Merseyside. We suspect this is due to a lack of funding generally in the North – driven by an overriding belief that property prices in the South will forever rise and property prices in the North will forever stagnate.
The widespread geography of our investors helps as a little local knowledge about a property can be very useful. Our investors have, to a degree, become our eyes and ears.
It would be incomplete to write an article on retail investors without mentioning the Innovative Finance ISA (IFISA). We launched the IFISA in April 2017, soon after receiving full regulatory permission.
The response has been overwhelming with around a third of our investors having opened an IFISA account. Most of the transfers in have been from cash ISAs where the opportunity to earn 12 per cent tax free versus one to two per cent on a typical cash ISA provides such a compelling case.
Our predicted rates are currently 13.4 per cent gross and 11.2 per cent net (net of default losses). In fact, we are currently over-delivering on these rates with 13.6 per cent gross and 12.2 per cent net based on cumulative returns. These rates are open to all and there is no differentiation between retail and institutional investors.
We will continue to structure our platform to be attractive to retail investors. This includes offering loans secured against other assets (such as jewellery or artwork) for those people who prefer to limit their exposure to property-based loans, as well as loans that offer an emotional appeal: we recently listed a £1m loan secured on a power boat (Team Britannia) that is looking to challenge the round-the-world record. This is the appeal of crowdfunding – letting the peer decide.
Click here for more information on FundingSecure.