Property P2P platforms are protected if house prices drop

Property peer-to-peer platforms are comfortably protected even if property prices drop by a huge amount, industry sources have claimed.

Yesterday, Knight Frank predicted a three per cent fall in house prices and 38 per cent drop in sales over the course of the year.

However, Neil Faulkner, managing director of 4thWay, said even with forecasts of falling houses prices, most property P2P lenders are comfortably protected if the unfortunate happens and the landlords need to sell to pay off their debts.

For example, CapitalStackers typically lends up to a maximum of 75 per cent loan-to-value, meaning that the sale price will have to fall by more than 25 per cent from the appraised valuation before investors’ capital is affected. This is also after the platform has allowed for potential construction delays, cost overruns and deferred sales.

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“Developments that are a long way from completion also have more time, because developers don’t usually pay any interest or repay the loan until the end of the project,” Faulkner said.

“It might take a much longer crisis before fully-funded development lending is significantly impacted by Covid-19.”

Andrew Holgate, chief executive of fintech consultancy Equitivo, said that property is more secure in these uncertain times.

“Property is more solid, as lenders have an asset that they can hold for extended periods if needed to recover money,” he said.

“Whilst they may be ‘underwater’ in the short-term, holding the asset until prices recover should help minimise the impact of any losses.”

Meanwhile Lisa Best, research manager at Intelligent Partnership, said that although property has security, the main concern is the value of that security in the current climate.

Faulkner expects both business and consumer lending to suffer weaker results before the crisis moves onto landlords of commercial property.

CrowdProperty is one P2P property development lender still open for business, funding projects with its construction sites located outside of London and adhering to social distancing guidelines.

Mike Bristow, its chief executive, said that the platform is in regular contact with its borrowers and investors are still currently receiving returns even if work is paused.

“At the moment we haven’t changed anything with regards to returns,” he said.

“We have to see how the uncertainty plays out but we have no intention to change anything.”