THREE out of four investors on peer-to-peer property lending platforms are confused about the risks involved with the loans they invest in, according to a study from Fitzrovia Finance.
The study found that 75 per cent of investors who use these platforms wrongly believe that first charge secured debt or loans are riskier than second charge mezzanine debt or loans.
A further seven per cent said they didn’t know which was riskier and 18 per cent said the property investment platforms didn’t clearly explain the level of risks involved in their investments.
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“The industry must strive to ensure that each opportunity promoted to private investors is clearly explained, the risks are transparent and the returns appropriate. This will help ensure that investors have the necessary information they need before deciding to invest,” Brad Bauman, chief executive of Fitzrovia Finance said.
“There are some ‘property’ investment opportunities being offered to private investors where for example, the returns are eight per cent or 14 per cent or even higher.
“These will include a lot of features that represent higher levels of risk such as second charge loans or unsecured debt, and this must be clearly explained to investors.”
The research from Fitzrovia, conducted by Consumer Intelligence, reveals investor confusion over the risks involved in P2P property investment.
Fitzrovia’s study was conducted with 311 retail investors who have used property investment platforms.
The findings come as the Financial Conduct Authority (FCA) announced in June that P2P lending platforms will need to introduce an appropriateness test and marketing restrictions for investors.
Fitzrovia also found that returns offered through 20 of the most prominent online property investment platforms in the UK ranged from 2.8 per cent to 15 per cent, reflecting a significant variance in risks and returns.
Fitzrovia Finance launched in 2017 as a secured property debt investment platform for institutional investors.
The platform opened its doors to private investors in April, who from an investment of £1,000 can garner a return of up to 5.5 per cent.
Fitzrovia said that it focuses on providing investors with the “enhanced reassurance of a business built and run by a highly experienced, expert team operating a ‘seven step risk control’ process developed over many years of experience and success in property lending,” it said.
As a result, Fitzrovia said that it rejects around 80 per cent to 90 per cent of loan requests and has not experienced any defaults to date.