With the peer-to-peer industry is growing year or year with 2016’s cumulative total pushing past £7bn,[there is still more room for the industry to grow. So if you aren’t yet invested in it, but are interested in learning more; we’ll cover here in this post the basics of peer-to-peer lending specifically secured property lending.
First of all, what do we mean by peer-to-peer lending?
Well, it is a form of direct lending whereby those who are looking to borrow money are connected directly to people who want to invest money.
For example, John would like to borrow £500,000 in order to redevelop a townhouse in North West England. Instead of borrowing the full sum from a bank, John can through a peer-to-peer platform be connected to 100 individual Lenders who are willing to lend £5000 each. In return for the risk they are taking, these 100 Lenders receive can earn up to 10% yield on their funds.
Minimum investment differs from platform to platform but here at Relendex you can invest funds into loans from £500.
But why did John not want to borrow from a bank?
Traditional banks typically have much higher overhead costs (such as the need for physical high street branches) and so would need to charge John a higher rate. Peer-to-peer platforms such as ourselves operate a lean online structure and are able to keep operational costs down.
What happens if John can’t pay back the loan?
Funds lent through peer-to-peer lending platforms are not covered by the Financial Services Compensation Scheme which means that your funds are at risk as they are loans not deposits.
In the case of secured peer-to-peer property loans, platforms can be secure the loan against the property on a first charge basis (for what that means check out Types of Property Financing which provides Lenders added security protection for their funds.
In our case, Relendex acting as Lenders' agent and based on advice, appoint a Law of Property Act (LPA) receiver and where appropriate, sell the asset security property.
Overall, peer-to-peer lending may not up to every person’s risk profile but it is a new form of investment that could yield much higher returns than traditional savings accounts in banks. If you are interested in becoming part of this nascent industry, you can Register as a Lender with us or direct any further questions to our Lender Support team and we’d be happy to help.
Also check out our post on what to consider in order to Diversify Your Portfolio when it comes to peer-to-peer property lending.