Peer-to-peer mortgages
The peer-to-peer lending concept is gradually spreading to the property market. Some of the web platforms available are now brokering commercial mortgages. One new P2P start-up, Relendex, will deal in nothing else. What this means is that for the first time private investors can lend directly to property investors, thereby accessing the potentially high yields of property without any of the risk or hassle involved in buying and ownership.
Houses are the safest place to invest capital because, literally, they cannot run away. If a loan is defaulted on then the value of the property will repay the capital owed on the loan.
The P2P websites list individual borrowers and then lenders can bid, in an auction style online environment, for those interest repayments. And the interest rates vary depending on the kind of loan and the security. Relendex offers between 5 and 10% for loans on tenanted shops or offices. Assetz Capital offers a 6.5% interest rate on a buy-to-let mortgage or what it calls ‘lend to let’.
But there are still many risks in property P2P loans. The risk of loosing your capital investment is low but the risk of the borrower defaulting on interest payments is the same as in other types of loans. Another big problem is when a single borrower is funded by a group of lenders and then defaults on the loan. This presents a big legal headache for the diverse group of investors as they only have a single asset in common – the property.
Finally it is always worth remembering that peer-to-peer lending is not guaranteed by the state, as bank deposits are. Though the sector is now (from April 2013) being regulated by the Financial Conduct Authority.
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