New regulations threaten to stifle growth and innovation in the property-backed peer-to-peer sector, says Frazer Fearnhead, chief executive of The House Crowd…
THE INTRODUCTION of the Innovative Finance ISA (IFISA) has helped to make property-backed peer-to-peer loans an attractive investment for investors of all stripes. But according to Frazer Fearnhead, chief executive of The House Crowd, a series of upcoming regulations threaten to undermine the potential of this up-and-coming sector.
On 9 December, the Financial Conduct Authority (FCA) will launch a series of new rules designed to protect investors from the riskier elements of P2P lending. Each platform must add an appropriateness test for new investors, adhere to new marketing restrictions and encourage all investors to place no more than 10 per cent of their net worth into P2P.
“I don’t necessarily think the regulations are a bad thing, but if they are being applied to the IFISA, surely they should be applied to stocks and shares ISAs as well,” says Fearnhead. “It doesn’t make it a level playing field if you’re only applying it to one of the types of ISAs and it stacks the game in favour of the traditional institutions and providers of stocks and shares.”
Fearnhead feels particularly strongly about the introduction of 10 per cent rule, saying: “I understand why the FCA do not want people to put all their money in one investment and we always advocate diversification but, ultimately, if an adult has illustrated they understand the risks, it should be entirely up to them what they do with their own money.”
“They should consider if these new regulations are appropriate for all types of investing and not just P2P lending,” adds Fearnhead. “However, given recent events and the task faced by the FCA, I understand why they have reacted in the way they have. I hope when things settle down they will adopt a more balanced approach.”
Fearnhead is an enthusiastic proponent of the benefits of property-backed P2P investing and The House Crowd has been working hard to educate existing and potential investors about the unique benefits and risks of the sector. Fearnhead believes that every diversified portfolio should include property investments, no matter how much money the investor can commit.
The House Crowd currently offers an IFISA product that targets returns of seven per cent per annum, with each investment diversified across a number of bridging and development property-backed loans.
In the New Year, the platform will introduce three separate pots for IFISA investors which will target up to eight per cent per annum. Each of these pots will include a mix of bridging and property development loans and the interest rate payable will be determined by the loan to value (LTV) of each basket of properties. The higher the LTV, the higher the return. Until then, Fearnhead is focused on educating investors about the benefits of property-backed IFISAs.
“It’s a mammoth task to get the message out there to people,” he says. “Just to get people to pay any attention at all to what you say is very difficult in this day and age when we’re being constantly bombarded by different marketing messages.
“It’s definitely an uphill struggle and there’s a skill involved to engage people’s interest.”
Luckily, this is a skill that The House Crowd understands well – regulations or no regulations.