Propping up pension investing

On a chilly February evening in Manchester, investors, financial advisers and property developers met to discuss a new type of property investing.

Kathryn Gaw reports from The House Crowd’s latest event…

Can peer-to-peer property lending fund your retirement? This was the question at the heart of The House Crowd’s ‘Tax-free Property Investing’ event in partnership with Peer2Peer Finance News and Equitivo Advisory, which was held at the Barclays Eagle Lab in Manchester.

Addressing a room filled with sophisticated and high-net-worth investors, executives and advisers, Frazer Fearnhead, founder and chief executive of The House Crowd, explained the shocking truth about the UK’s private pension provisions, and how P2P property lending can help. Fearnhead noted that the average Briton will need to save at least £600,000 towards their pension fund in order to live comfortably in their 70s and 80s.

However, he pointed out that the average 55-year-old has just £42,621 saved for their retirement. After fees and inflation, this pot would be worth just £50,000 by the time they are 80. This concern over the future of the UK’s future pensioners was echoed by the event’s four panellists: Andrew Holgate, co-founder of Assetz Capital and head of Equitivo Advisory; Elizabeth Bird, a partner at Chronos Wealth Management; John McGuire, a former RBS executive and non-executive director at Cambridge & Counties Bank and Goldcrest Finance; and Justin Molloy, director at House Crowd Developments.

The panellists brought a range of different perspectives to the room, but one thing they could all agree on was that property investing is a viable way to save for retirement – as long as it is done properly. Fearnhead began investing in property in 1994, but the market has changed a lot since then. In order to be a successful property investor in 2020, he said, you need to think outside the box.

“Why would you want to own something?” asked Fearnhead.

“You have the hassle of owning a property when you could be earning better returns from a debt-based investment instead.”

And unlike direct property investing, property loans offer a certain amount of liquidity as well as the flexibility to move into different loans – or indeed, different platforms – if your portfolio is underperforming. But despite these clear benefits, it is essential that P2P property investors understand the risks that they are taking on.

Elizabeth Bird, a financial adviser at Chronos Wealth Management, said that she is aware of P2P property investment but wouldn’t recommend it until it is backed by the Financial Services Compensation Scheme (FSCS) or a similar compensation scheme. Her advice for budding property investors was to “trust the experts”.

For pension savers, she advised people to invest as early as they can so that they have time to recover if things go wrong, and to benefit from compound interest. “Create a diverse portfolio that is encased in a tax-free wrapper,” she added. “And try not to lose any of your capital.”

Former bank manager John McGuire was careful to point out the specific risks of development finance. “Secured property lending is viewed as a panacea because people think there are no losses, but they’re wrong,” he said. “The asset class is sound on day one, and sound on the day that the property has been built, but in the middle, it is a liability.”

He told a story about a development where construction was stopped for over a year due to health and safety concerns. A forklift driver was carrying a palate of bricks from one part of the site to another. He decided to drive a slightly quicker route that took him near a bridge which crossed a nearby railway line. A train happened to be passing at the time, and the train driver reported him for a potential safety breach.

National Rail got involved and the whole case took a year to solve. These sorts of unpredictable risks are the reason why most banks won’t take on property development loans anymore, McGuire said – but this has presented an opportunity for P2P. The average investor can now access the types of opportunities that banks used to snap up.

Holgate – another former banker – pointed out that there is nothing new about P2P, and as long as investors are educated on the risks involved, and take the necessary precautions, they can target higher returns within a tax-free investment wrapper and build up a substantial pension pot over time.

The entire panel agreed that the North West of England was primed for steady property growth over the next few years. Molloy – a House Crowd borrower and director of The House Crowd’s subsidiary House Crowd Developments – reminded the audience that there is still an overall housing shortage, while office rentals indicate a growing working population in the North West.

This suggests that the residential property market should remain buoyant in 2020 and over the longer term. However, he warned the investors present that they have to understand their investment and their market – property development risks can be difficult to spot, and it is essential to rely on the expertise of professionals. Judging by the response from the investors present, The House Crowd’s panel embodied this expertise.

As the evening drew to a close, investors were spotted making a beeline for Fearnhead, armed with questions about The House Crowd’s business model, auto-invest products and future plans. In a call with Peer2Peer Finance News the following day, Fearnhead confirmed that more than £200,000 had been invested in the platform’s IFISA and SIPP products since the event – further proof that P2P property investing is an attractive option for pension investors, just as long as they have access to the right information.