Increasingly, high net worth individuals (HNWIs) are turning to peer-to-peer lending as a way to diversify and grow their investment portfolios, and it is seen as particularly attractive during the current economic instability.
With fluctuating stock market returns and savings rates again struggling to get near the rate of inflation, P2P loans can offer competitive returns at a fixed rate each month, secured against property and – in some cases – with a degree of liquidity if the platform has an active secondary market. Investors can even choose to invest via P2P lending platforms which are committed to making a positive impact.
Folk2Folk is one of these platforms. Its investors can help small businesses across regional UK start, grow and diversify while continuing to earn returns from 8.75 per cent per annum.
Folk2Folk’s managing director Roy Warren believes it is this combination which attracts HNWIs to P2P.
“P2P lending platforms offer relatively attractive interest rates compared to traditional fixed-income instruments, providing a potential for higher yield,” says Warren.
“Undeniably, our fixed and inflation-beating interest rates provide an attractive monthly income, particularly as economic uncertainty continues.
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“However, I think the attraction of P2P also lies in its simplicity and direct impact. There is a clear line of sight from the investor to the borrower and this inherent transparency demystifies the investment process, giving investors a sense of fulfilment to see the impact of their capital.“
Folk2Folk investors choose what to invest in and all loans are backed by security in the form of UK land or property. This reduces the risk of a loss of capital, as it means that in a worst-case scenario there is an asset which can be sold to recoup investor funds. To date, no investor has lost capital via a Folk2Folk loan.
“All our loan investments are secured with a first charge over UK property, and we maintain a conservative lending approach, typically capping loans at 60 per cent of the property’s value,” Warren explains.
“Additionally, we have a history of being able to provide a level of liquidity for our investors through our secondary market, although it’s important to note that P2P investments are inherently illiquid products, and so liquidity cannot be guaranteed.”
Folk2Folk has a £20,000 minimum investment threshold, which clearly indicates the platform is targeting HNWI retail investors. Investors also have the option to invest via Folk2Folk’s Innovative Finance ISA, enabling them to earn their interest tax free.
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To date, the platform has funded more than £646m in loans, while investors can earn returns starting from 8.75 per cent per annum with some investments attracting an interest rate of double figures.
“P2P lending offers sophisticated investors the opportunity to expand their horizons beyond traditional asset classes,” says Warren.
“It can also act as a useful stabilising factor within an investment portfolio, particularly in the current economic climate where traditional bonds and equities might be experiencing heightened volatility.
“By allocating a portion of their portfolio to P2P, high net worth investors can benefit from a degree of insulation against market shocks, as returns are generated from individual loan repayments rather than broader market movements.”
With economic instability set to continue, savvy HNWIs are searching for a new home for their money and P2P may be one of the most desirable considerations for HNWIs seeking to diversify their investments in 2023.