The peer-to-peer property lending sector has experienced year-on-year growth for the past few years, with many peer-to-peer property lending platforms now operating in the UK market.
Individual P2P property platforms tend to focus on either buy-to-let mortgages for the residential market or bridging and property development finance loans, with the majority focusing on the latter.
- Key risk drivers impacting peer-to-peer property lending investment
- UK based peer-to-peer property lending platforms
Key risk drivers impacting peer-to-peer property lending investments
With so much choice in the market and varying levels of expected interest rates on offer, it can be difficult to understand the key differences between platforms and the level of associated risk involved.
Before I dive into the detail of platform by platform comparison, it’s important to understand the key risk factors when lending against UK property:
Level of intrinsic risk
There is lower intrinsic risk associated with a secured buy-to-let residential mortgage than there is in a bridging or development loan where development is required to enable repayment of the loan.
Investments in loans with higher intrinsic risk typically advertise higher expected interest rates than those with lower risk. Generally, investors must remember that platforms will typically price the risk of loans before they are listed on the platform. Therefore, if a loan is offered at a high interest rate, there will be a valid reason.
For example, if a debt investment is offered at 15.0% interest rate:
- There is likely a reason that the loan is available at such a high interest rate (i.e. the loan is complex or inherently risky in some way).
- The borrower will be repaying at an even higher rate due to the platforms profit margin. Borrowers are generally not stupid and will shop around for the best interest rates possible which means that other lenders were likely unable to offer a lower interest rate. If a loan is offered at a very high rate but marketed as ‘low risk’, you should listen to the little voice in your head saying “too good to be true”.
Loan to value (‘LTV’) vs. loan to gross development value (‘LTGDV’)
Understanding the difference between LTV and LTVGV is key. Platforms sometimes refer to LTGDV as LTV, so you need to ensure that you read the information provided carefully.
Loan to value (‘LTV’) is the value of the loan proportionate to the assessed total value of the property. For instance, an LTV of 70% on a residential property valued at £100,000 would mean a loan of £70,000. In a residential property loan, the £100,000 should be based on a recent valuation based on the current state of the property. Where the value is based on current rather than potential value, the intrinsic risk associated with the loan is reduced.
When looking at property development loans, loan to gross development value (‘LTGDV’) is likely to be used. Platforms will lend based on the potential value of the properties post-development. Where the value is based on this potential value, the intrinsic risk is increased because there is more that could go wrong both during and post-development. For example, the developer could become insolvent, the expected value may have been overambitious or the sale process may be delayed.
Seniority of security (i.e. first charge vs. second charge, senior vs. junior/mezzanine loans)
With a first charge security, where the borrower is unable to make repayments, the debt-holder is first in line to receive proceeds on sale of the underlying secured asset. A second charge security results in increased risk as this means that another lender will be first in line in the event of borrower default.
Other terminology is often used for property development loans. Here, the first charge security is typically referred to as ‘senior debt’ whilst the second charge is often referred to as ‘mezzanine finance’ or ‘junior debt’.
A typical funding structure (or ‘capital stack’) for a property development project is illustrated below:
In the example above:
- The senior debt holder provided two thirds of the investment capital required for the project. This debt-holder will benefit from first charge over the underlying property meaning that the expected gross development value would need to drop by 45.4% before any capital loss is suffered (100.0% minus 54.5%). The lower risk means that senior lenders almost always receive the lowest level of interest.
- The junior debt holder (or ‘mezzanine debt’ holder) provided one sixth of the investment capital and will benefit from second charge over the property. This makes junior debt more risky than senior debt, but less risky than the equity investment made by the developer. This is because the expected gross development value would need to drop by 31.8% before any capital loss is suffered (100.0% minus 68.2%), whilst the value would only need to fall by 18.2% before the developer equity would suffer capital loss. The higher risk means that junior lenders almost always receive the highest level of interest.
- The equity held by the property developer features the highest level of risk (as debt-holders must be repaid first) but also the highest level of potential upside. This is because equity holder’s benefit from all profit generated after the repayment of associated debt.
Timing of repayments
Another consideration is the timing of repayments. Where loans repay all interest at the end of the loan term, risk is increased. Consider a development loan where a developer goes bankrupt after 5 months. If the interest was being repaid monthly, you would have received 5 months’ worth of interest from the loan. If the interest was all to be paid at completion, no funds would have been received up to that point.
Regardless of the interest repayment profile, the same methods of retrieving funds in the event of borrower default will apply (i.e. sale of the secured asset), but all things being equal, monthly repayments are preferable to investors.
UK based peer-to-peer property lending platforms
We have categorised UK-based peer to peer lending platforms into five categories:
- Buy-to-let residential loans
- Bridging/development loans – “skin in the game”
- Bridging/development loans – exclusively senior debt
- Bridging/development loans – mixture of senior and junior debt
- Bridging/development loans – exclusively junior/mezzanine debt
Buy-to-let residential loans
There are two UK-based platforms focused on providing buy-to-let residential loans:
Octopus Choice (launched 2016)
Octopus Choice offers secured buy-to-let and bridge-to-let mortgages only and co-invests 5.0% of each loan on a first-loss basis. The platform is privately owned by The Octopus Group, an investment firm with £8.6 billion assets under management. The maximum LTV is 76%, though as Octopus Choice co-invests 5% on a first loss basis, the maximum LTV is lowered to 72.2%. The average initial loan to value ratio is listed as 49.9% at the time of writing.
- Target interest rates – 4.0%
- Self-select vs. auto-investment – Exclusively auto-investment with funds automatically spread across a minimum of 10 loans.
- Secondary market – Yes, with no associated fees for selling your investment.
- IFISA – Yes.
- Minimum investment – You can invest with Octopus Choice from just £10.
- Cashback offer – There are no current cashback offers available for Octopus Choice.
British Pearl (launched 2018)
British Pearl enables investors to choose between acquiring equity in a particular property through a special purpose vehicle or becoming a debt investor in that same property. The properties are rented out, resulting in fixed interest rate payments for debt investors and rental income for equity shareholders. The maximum LTV for loans offered on the platform is 75%, with a minimum of 50%.
- Target interest rates – 3.75% – 4.40%.
- Self-select vs. auto-investment – Manual investment only, with detailed information provided on specific opportunities.
- Secondary market – Yes, a secondary market exists with loans subject to a 0.5% selling fee.
- IFISA – Yes, debt investments can be made via an IFISA.
- Minimum investment – You can invest with British Pearl from just £100.
- Cashback offer – £100 cashback (5.0%) if you invest £2,000 via this referral link. Higher cashback awards are available for larger investments (£250 for a £5,000 investment, £500 for a £10,000 investment, £1,000 for a £20,000 investment and £2,500 for a £50,000 investment).
Bridging/development loans – ‘skin in the game’
There are two UK-based platforms offering bridging/development loans which co-invest in every loan on a first-loss basis to reduce investor risk:
Kuflink (launched 2016)
Kuflink exclusively offers bridging loan investment opportunities and co-invests 5.0% in all loans offered via the platform. In addition to having ‘skin in the game’, risk is reduced due to Kuflink’s parent company agreeing to cover the first 5%/20% of any loss incurred through auto-invest/self-select investments respectively. For self-select investing, full detail regarding the level of security is provided on each individual investment case page. Whilst the majority of loans benefit from first charge security, auto-invest investments will be exposed to loans with both first and second charge security.
- Target interest rates – Between 5.0 to 7.0% for auto-investment plans. Manual investment interest rates are typically between 6.0 and 7.0%.
- Self-select vs. auto-investment – You can invest manually in individual investments or automatically with three different fixed term options (1 year, 3 year or 5 year).
- Secondary market – Yes, subject to 0.25% resale fee.
- IFISA – Yes, though self-select investments cannot be held in an IFISA (i.e. auto-investment plans only).
- Minimum investment – You can invest with Kuflink from £100.
- Cashback offer – £25 (2.5%) if you invest £1,000 via this referral link. The 2.5% cashback applies for investments of up to £5,000 (i.e. a £4,000 investment would result in £100 cashback). Cashback increases to 3.0%, 3.5%, 3.75% and 4.0% for investments of over £5,000, £25,000, £50,000 and £100,000 respectively. Cashback is capped at £4,000 for investments of over £100,000.
Loanpad (launched 2018)
Loanpad offers short-term (3 to 18 months) bridging/development loans alongside business funding. Each underlying loan features a lending partner who co-invests a minimum of 25.0% of the loan, accepting a higher risk loan tranche (the ‘junior tranche’). In addition, the platform offers an interest cover fund which aims to safeguard daily interest payments if any borrowers fall behind on payments. This fund is designed to cover interest payments only (not invested capital) and is subject to sufficient availability of funds.
- Target interest rates – 4.0% (easy access to funds in normal market conditions) or 5.0% (60 day access to funds in normal market conditions).
- Self-select vs. auto-investment – Automatic investment only. When investing in Loanpad, you have no choice over the underlying investments.
- Secondary market – Yes, subject to a resell fee of 0.5% for early access (free to withdraw if you give 60 days’ notice).
- IFISA – Yes, investments can be held in an IFISA.
- Minimum investment – You can invest with Loanpad from just £10.
- Cashback offer – Get £50 cashback (5.0%) when you invest £1,000 via this referral link. Cashback increases to £150 if you invest £10,000 or more.
Bridging/development loans – exclusively senior debt
There are five UK-based platforms offering senior bridging/development loans (i.e. first charge over the underlying property):
Crowd Property (launched 2014)
Crowd Property is the only platform offering development/bridging loans that is a member of the peer-to-peer finance association, a self-regulatory body for peer-to-peer lending which aims to provide increased transparency around loan book performance. The vast majority of loans on the platform offer an interest rate of 8.0% whilst all loans feature first charge security over the underlying property. The maximum LTV for new loans on the platform is 70.0%. To date, investors have lent over £40 million via the platform.
- Target interest rates – All projects offer 8.0% interest.
- Self-select vs. auto-investment – The platform offers both manual self-select investments and an automatic investment feature.
- Secondary market – No, once you have made an investment, your funds are committed through to maturity.
- IFISA – Yes, investments can be made via an IFISA.
- Minimum investment – There is a £500 minimum investment in each project loan. However, if you invest a minimum of £500 via the Auto-Invest feature, you can spread this cash across multiple loans (min. £50 per loan).
- Cashback offer – There are currently no cashback deals available.
Fitzrovia Finance (launched 2018)
Fitzrovia offers short-term bridging and development loans with first charge security. Interest rates for all loans are set at 5.5% currently, and the platform operates with a maximum LTV of 65.0% for bridging/investment loans or 65.0% LTGDV for development loans. To date, investors have lent over £100 million via the platform.
- Target interest rates – 5.5%
- Self-select vs. auto-investment – Both self-select and automatic lending options are available. Automatic lending is referred to as a ‘Fitzrovia Smart’ investment. Using this feature will split your investment between 5 to 10 loans.
- Secondary market – No secondary market is currently available.
- IFISA – No IFISA is currently available.
- Minimum investment – You can invest with Fitzrovia Finance from just £100.
- Cashback offer – There are currently no cashback deals available.
Blend Network (launched 2017)
Blend Network is a relatively small peer-to-peer lending platform primarily focused on development loans of varying risk levels. To date, the platform has loaned £7.7 million to 27 borrowers. The low volume of new loans coming onto the platform combined with a minimum investment of £1,000 per loan makes the platform unsuitable for smaller investors due to an inability to easily diversify funds.
- Target interest rates – 8.0% to 15.0%
- Self-select vs. auto-investment – Both manual and automatic lending options exist, though the minimum £1,000 investment per loan still applies when using ‘AutoLend’.
- Secondary market – Yes, a secondary market exists (0.6% selling fee on any capital outstanding). As always, your ability to sell via the secondary market will be subject to investor demand. As the Blend Network is a relatively small platform, there is increased risk of illiquidity via the secondary market.
- IFISA – No IFISA is offered at the moment.
- Minimum investment – The minimum investment is currently £1,000.
- Cashback offer – There are no current Blend Network cashback offers.
Easy Money (launched 2018)
EasyMoney is a fairly new platform, part of the easyGroup group of companies. The platform is catered for those investing over £10,000, as the returns offered under that level are comparatively low with the same risk exposure. It’s difficult to know how popular this platform has been to date, as the ‘statistics’ pages shows little other than the interest rates achieved to date via the three investment tiers. The platform lends with a maximum loan to value of 75.0%.
- Target interest rates – Between 4.05% and 8.0% (depending on the value of your investment)
- Self-select vs. auto-investment – Easy Money is exclusively an auto-investment platform. There is no ability to view the underlying loans.
- Secondary market – Yes, a secondary market exists with no selling fees applied.
- IFISA – Yes, an IFISA is available.
- Minimum investment – The minimum investment is £100, but the platform really caters for those investing £10,000 or more as the target interest rates are much lower under that level (for exactly the same investment/risk).
- Cashback offer – Yes, £50 (5.0%) when investing £1,000 via this referral link.
Invest and Fund (launched 2012)
The Invest and Fund platform lists residential development loans with first charge security, ranging between 7.0% and 10.0%. Interest is typically rolled-up and repaid at the end of the loan term. To date, the platform has issued over £65 million of loans with no bad debts written off, but the volume/frequency of new loans launched on the platform is currently relatively low.
- Target interest rates – 7.0 – 10.0%
- Self-select vs. auto-investment – Manual self-select investments only.
- Secondary market – Yes, subject to 0.25% fee.
- IFISA – There is no IFISA currently available.
- Minimum investment – You can invest with Invest and Fund from £500.
- Cashback offer – There is no Invest and Fund cashback offer currently available.
Bridging/development loans – mixture of senior and junior/mezzanine debt
There are eleven UK-based platforms offering a mixture of senior/junior bridging/development loans:
- LendInvest (alternative investment fund, regulated by FCA but not for P2P)
- Propio (temporarily closed, not currently authorised by FCA)
- Capital Rise (offer bond investments, regulated by FCA but not for P2P)
- The House Crowd
- The Bridge Crowd (unregulated bridging loans and regulated consumer buy-to-let loans, does not hold P2P permissions)
- Landlord Invest
- Just Us
Lend Invest (launched 2013)
LendInvest is a large alternative investment fund, which has raised over £800 million in funding at the time of writing. Investors can choose between investing in individual bridging/development loans via the ‘co-investment platform’ or investing in secured bonds listed on the London Stock Exchange. To date, investors in the platform have invested over £1.5 billion in loans to borrowers who have bought, built or renovated over 5,000 UK properties.
- Target interest rates – Between 4% and 7%.
- Self-select vs. auto-investment – The platform enables both manual and automatic lending.
- Secondary market – No option to exit loans early.
- IFISA – No LendInvest IFISA is currently available.
- Minimum investment – You can open a Lend Invest account with a minimum of £1,000.
- Cashback offer – There are no Lend Invest cashback offers at the moment.
Propio (launched 2018)
Propio is a relatively new platform with just over £9 million in loans issued to date. It focuses on automatic lending only, with three different investment plans available (cautious, balanced or adventurous). The ‘cautious’ plan targets 3.0% returns and is largely exposed to residential loans with maximum LTV of 50.0%. The ‘balanced’ plan targets 5.0% returns and is mainly exposed to residential/commercial loans with maximum LTV of 70.0%, but also features a small proportion of development loans. Finally, the ‘adventurous’ plan targets a 7.0% return and is exposed to a mixture of residential, commercial and development loans with a maximum LTV of 75.0%. Propio states that the majority of underlying loans across all three plans benefit from first charge security.
- Target interest rates – Between 3.0 and 7.0% (depending on risk appetite).
- Self-select vs. auto-investment – The platform operates on an automatic investment basis only.
- Secondary market – There is currently no secondary market in operation.
- IFISA – Yes, investments can be held in an IFISA.
- Minimum investment – You can invest in Propio from just £100.
- Cashback offer – There are currently no Propio cashback offers available at the moment.
Capital Rise (launched 2016)
Capital Rise is primarily focused on the London market, offering a mixture of senior and mezzanine loans. Senior loans feature a max LTGDV of 60.0% whilst mezzanine loans feature max LTGDV of between 60.0% and 75.0%. At the time of writing, the platform has loaned £41.0 million across 13 development projects, with no defaults reported. Given the minimum investment per loan of £1,000, Capital Rise is likely to be unsuitable for smaller investors.
- Target interest rates – 8.0 – 12.0%.
- Self-select vs. auto-investment – Manual lending only.
- Secondary market – Yes, but subject to 1.5%.
- IFISA – Yes, you can invest via an IFISA.
- Minimum investment – Each loan features a minimum investment of £1,000.
- Cashback offer – 1.0% cashback regardless of investment size via this referral link.
PropLend (launched 2013)
All loans on the PropLend platform are secured against first charge, but the platform offers the ability to invest in three different risk tranches. Tranche A is the lowest risk, whilst Tranche B and C are the higher risk mezzanine tranches. In the event of an issue with the loan, Tranche A would be first in line to be repaid. At the time of writing, the average return rates for Tranche A, B and C were 7.40%, 9.94% and 12.35% respectively. Given the minimum investment per loan of £1,000, PropLend is likely to be unsuitable for smaller investors.
- Target interest rates – 5.0% – 12.0%
- Self-select vs. auto-investment – Both. You can utilise the ‘Auto-Lend’ facility to lend only in the Tranche A loans (i.e. lowest risk portion).
- Secondary market – Yes, loans are tradeable via the ‘Loan Exchange’.
- IFISA – Yes, an IFISA is available.
- Minimum investment – The minimum investment per loan part is £1,000.
- Cashback offer – There are currently no live cashback offers for PropLend.
Relendex (launched 2013)
Relendex stands for Real Estate Lending Exchange. The platform offers short/medium term senior and mezzanine finance ranging between £250,000 and £5.0 million. To date, the platform has issued £40 million of loans. The platform is quite open with regards to the performance of the loan book, publishing monthly statistics.
- Target interest rates – 6.0 – 11.0%
- Self-select vs. auto-investment – Both self-select and auto-investment options exist. Automatic lending can be setup based on predefined risk criteria.
- Secondary market – Yes, a resale marketplace exists. Loans can be sold at par without charge.
- IFISA – Yes, IFISA investment option available.
- Minimum investment – £500 minimum investment in each loan.
- Cashback offer – There are currently no Relendex cashback offers available.
The House Crowd (launched 2012)
The House Crowd predominantly offers the investors opportunities to invest in junior debt, though some senior debt loans are available through the platform. To date, the platform has issued over £112 million of loans. Given the minimum investment per loan of £1,000, The House Crowd is likely to be unsuitable for smaller investors.
- Target interest rates – Up to 10.0%
- Self-select vs. auto-investment – Both self-select and automatic investment options are available.
- Secondary market – No secondary market is available.
- IFISA – Yes, IFISA available
- Minimum investment – £1,000 minimum in each loan.
- Cashback offer – There are currently no The House Crowd cashback offers available.
The Bridge Crowd (launched 2014)
The Bridge Crowd offers a mixture of senior and junior debt investment opportunities. Subject to personal funds, the directors, partners and founding family members invest some of their money into each deal that goes live on the platform. The platform is very transparent regarding loan book statistics and at the time of writing, no investor has suffered capital loss. To date, the platform has issued over £68 million of loans. The minimum investment per loan is currently £5,000, meaning that the platform is unsuitable for smaller investors.
- Target interest rates – Up to 12.0%
- Self-select vs. auto-investment – Self-select only.
- Secondary market – Yes, resale market exists.
- IFISA – No
- Minimum investment – £5,000 per loan.
- Cashback offer – No cashback offer currently available.
Landlord Invest (launched 2016)
Landlord Invest is smaller than many of its competitors listed here and deal flow is therefore relatively limited. To date, the platform has issued over £7 million of loans (47.0% of which are secured with first charge).
- Target interest rates – 5.0% – 12.0%
- Self-select vs. auto-investment – Self-select loans only.
- Secondary market – Yes, a secondary market exists.
- IFISA – Yes
- Minimum investment – Invest from £100.
- Cashback offer – There are currently no Landlord Invest cashback offers available.
Just Us (launched 2013)
JustUs is a relatively small platform with just over £6 million loaned to date. The platform differs to others in this category as it focuses on providing smaller loans e.g. bridging loans up to £25,000, unsecured loans to homeowners up to £25,000 and buy-to-let loans up to £50,000. Where loans are unsecured, JustUs offers a discretionary provision fund to cover late interest payments (but not capital).
- Target interest rates – 1.2 – 9.61% (four investment tiers available based on desired risk levels)
- Self-select vs. auto-investment – Auto investment only, with no detail of underlying loans provided.
- Secondary market – Yes,
- IFISA – No IFISA Is currently available.
- Minimum investment – You can invest with JustUs from just £10.
- Cashback offer – There are no JustUs cashback offers available at the moment.
Bridging/development loans – junior/mezzanine debt only
Property Partner (launched 2013)
Property Partner is best known for its property crowdfunding platform which offers investors the ability to co-own property through special purpose vehicles. However, it has now started to offer a small number of development loan bonds through its partnership with Proseed Capital (a specialist development finance company). All development loans offered via Property Partner are mezzanine/junior debt, meaning investors would be second in line to the senior debt holder in the event of borrower default. This higher risk brings higher potential returns, with interest rates ranging between 9.0% and 12.0% on the first seven deals available on the platform.
- Target interest rates – 9.0 to 12.0%
- Self-select vs. auto-investment – Property Partner only offers automatic investment plans for its property crowdfunding investments. Development loan bond investments must be manually selected.
- Secondary market – Whilst equity investments via Property Partner can be resold on a secondary market, development loan bonds cannot. Once an investment is made, your funds are locked in until the loan matures.
- IFISA – Yes, development loan bond investments can be made via an IFISA.
- Minimum investment – The platform has set the minimum loan bond investment at £1,000.
Cashback offer – If you invest £2,000, you will receive £30 cashback (1.5%) when signing up via this referral link. Higher cashback awards are available for larger investments (£150 for a £10,000 investment, £300 for a £20,000 investment and £750 for a £50,000 investment).