Property lending now makes up almost half of all peer-to-peer lending activity in the UK. Kathryn Gaw asks why…
In the beginning, there was consumer lending. Zopa arrived with a splash in 2005, ready to reform the consumer credit sector even before the global financial crisis added an urgency to this cause.
Then business lending rose to prominence, with peer-to-peer lending platforms such as Funding Circle processing billions of pounds in small business loans.
But as the UK’s P2P sector has evolved, lending trends have also shifted.
A new data analysis by Peer2Peer Finance News has found that P2P property lending platforms now represent almost half of the P2P sector.
Among the 47 regulated P2P and marketplace lending platforms currently open to retail investors, 23 have a focus on property. By contrast, there are 14 business-focused lenders, eight consumer lenders and two lenders focused on delivering green energy projects.
Between them, those 23 platforms have delivered £4.865bn in funding to date, through loans to small- and medium-sized enterprise (SME) housebuilders, buy-to-let landlords, commercial property developers and refinancing homeowners.
That £4.865bn likely translates into many billions of pounds worth of housebuilding activity across the UK over the past decade. Assetz Capital – the largest P2P property lender with a loanbook of more than £1.5bn – has estimated that it has funded more than 3,000 homes to date. Meanwhile, CrowdProperty – the fourth largest lender – reports that its £241.7m of lending has funded £557m worth of properties, and led to the creation of more than 2,500 homes.
The impact of P2P property lending is obvious. P2P lending platforms are able to make faster decisions and to deliver funds much more quickly than banks. This is largely due to their use of dedicated software which can automate once-lengthy loan approval processes.
P2P property lenders also have much more flexibility around the types of finance they offer. The current cohort of property lenders include bridging lenders, SME housebuilder loans, mezzanine loans, second charge loans, loans for landlords, and specialist lending in sectors such as prime central London property.
During the Covid-19 pandemic, P2P property lenders adapted impressively to the new market conditions, arranging virtual site visits, renegotiating borrower terms, and even offering repayment holidays. They have been rewarded with longevity. While several P2P brands were unable to survive the uncertainty of the pandemic, property platforms were largely immune.
Industry stakeholders believe this is due to the fact that property loans usually come with security, and alternative lenders tend to work with lower loan-to-value ratios of 50-70 per cent, which means that the property can afford to lose a significant amount of value before the lender’s collateral is eroded.
“Property has been the bedrock of the UK economy for 100 years and will continue to be so,” says Lee Birkett, chief executive and co-founder of JustUs.
“It’s a simple supply and demand matrix. Property is the biggest lever the government has to control UK Plc’s balance sheet and citizens’ net worth so will support the market at nearly all costs.
“In contrast, unsecured personal and business lending would always have found it challenging through difficult economic cycles, never mind a pandemic and wars. The bad debts and losses of unsecured P2P has led to the closure of these P2P platforms against property-focused P2P platforms who, in the main, have delivered continual profitable returns in the past and expect to do so in the future.”
Further analysis of property lending data also shows that investors have benefitted from consistently good returns, even during the most recent economic downturn.
Over the past few years, P2P property loans have returned average annualised returns of between four and 19 per cent, depending on the platform chosen and the amount of risk assumed. This translates to more than £400m in interest earned. When tax wrappers such as the Innovative Finance ISA are factored in, this represents a significant amount of wealth generated through property lending platforms alone.
As property lenders take on a larger share of the alternative lending space, the benefits are myriad. The UK is in the midst of a well-documented housing crisis, with at least 300,000 new homes required each year to keep up with demand. Meanwhile, the rising base rate and soaring cost of living have sent investors searching for yield in the alternative space.
P2P property lending can help to solve both of those problems, by making much-needed funding available to housebuilders, while offering returns that in some cases can even outpace the 10.1 per cent rate of inflation.
“Property platforms offer asset-backed security and often tend to lend to experienced individuals who have been through cycles,” says Filip Karadaghi, managing director of LandlordInvest.
“The future for property platform lending is very bright, provided that operators do it right and well.”