Is P2P second charge lending on the rise?

A handful of peer-to-peer lending platforms, such as SoMo and LandlordInvest, offer and specialise in second charge lending and now CrowdProperty has joined the list.

The development finance lender will start providing second-charge mezzanine finance for property developers with the launch of its new product line, CP Capital.

Second charges are typically used as mezzanine funding whereby the platform provides the senior facility for a funding deal, for example for development finance.

Read more: CrowdProperty chief heralds opportunities from housing white paper

It looks like more platforms are taking interest in the sector and there is no wonder why.

There is certainly the appetite, with figures from the Finance & Leasing Association showing second charge mortgage lending rose by 57 per cent year-on-year in January, and Loans Warehouse data revealing that second charge lenders reported an 83 per cent increase in lending in February.

And as well as demand, there is the space. The development finance market is very saturated with many P2P and alternative lenders offering these products on top of the high street banks.

Fewer lenders and P2P platforms offer seconds, leaving room for first charge development finance specialists like CrowdProperty, to move into this space.

Second charges also typically generate increased returns for both the platform and thus the investor too. However, this comes at an increased risk, as the platform providing the senior facility for a deal is second to be repaid following the first charge taking priority, so lending the second charge requires specialist expertise.

Filip Karadaghi, co-founder of LandlordInvest, which has recently provided the second charge funding for deals with Octopus Real Estate and fellow P2P platform Blend Network, said he sees good appetite for second charge lending.

“Some specialist development lenders have issues with trying to be able to provide the full amount of funds and usually need someone to come in on a second charge,” he said.

“On a first charge loan investors will get a lower interest payment than on a second charge. And since a second charge is more difficult and complex and requires more refined skills, less people are doing it.”

Do not be put off by the wording, second charge does not mean second best, it is a different type of funding that offers higher returns to reflect its risks and is an area that more platforms may be noticing.