Carl Davies, chief operating officer at The House Crowd, explains why investors should trust peer-to-peer property loans in the current climate…
Many people look to the spectacular past failures in the peer-to-peer lending industry as a way of dissuading others from investing in it. But it is specifically because of these failures that the industry should now be looked at by serious investors. But be careful: it is important to look at the underlying assets in which your funds are invested. Not every P2P loan is the same. P2P is a methodology that can be applied to many different situations.
The current lockdown is unsettling. Many investors wisely feel they need to hold cash in such uncertain times. However, once their rainy-day buffer of three to six months has been accumulated, many investors would still like to invest in property. The question is how this can be done relatively safely in the current climate. How can risk be mitigated whilst returns are maximised? Investing in P2P property loans, previously the sole domain of high-net-worth investors, could be the answer.
Seven to 10 per cent per annum target rates are possible by investing in bridging and development loans to experienced developers. These loans offer investors a first charge on the asset being financed, so the investor can (via the services of the platform) sell the property and recover capital and interest in the unlikely event the borrower fails to repay the loan.
The beauty of such loans is that, unlike a bank which only protects up to £85,000 of your funds, the only limiting factor on the protection of your funds is the value of the projects you are invested in. Previously, the entry ticket for such investments was several hundred thousand pounds from one high-net-worth individual, who had to have in-depth knowledge of the property development market and the ability to do their own due diligence on the projects.
Now with the power of the crowd and the expertise in underwriting, securitising, monitoring and repossession held within a few P2P platforms such as The House Crowd, investors can enjoy inflation-busting returns of up to 10 per cent from as little as £1,000 invested from six to 24 months.
“So, what’s the catch?” I hear you say. Like anything in life that has any value, you need to put a bit of effort into finding those platforms that you feel comfortable with and understand both their model and the risks.
However, new investors to the sector can benefit from those early pioneers who have helped to shape a very different industry today compared to the Wild West days of 2012-2013. Some pioneers won, some lost and some are still waiting.
The Financial Conduct Authority has introduced tougher rules for the sector and those platforms that still exist offer a sophisticated approach – institutional grade in the case of The House Crowd – and a risk-mitigated investment opportunity.
Of course, there still are risks; not every project hits its profit target and some are delayed beyond their intended term. Accurate valuations, realistic loan-to-value ratios and a robust exit plan are key. But a diversified portfolio should deliver impressive results.