Invest and Fund, and other peer-to-peer property lending platforms, are growing rapidly as the disruption of the traditional property development finance market gathers pace. But why is this? A multitude of factors are acting as tailwinds despite a more unpredictable housing market.
The UK property market, which has been marked by low volatility compared to equities for the past 30 years, is now looking more complex. Thanks to Brexit-induced uncertainty prices in London for example are falling for the first time since 2009, according to recent data from Halifax. However alternative finance lenders continue to see strong growth as both lenders/investors and borrowers look for solutions to the gap in the market left by the mainstream banks*. *Source: P2P Finance Association.
Those dipping their toes into the P2P (peer-to-peer) property lending market over the past few years have been attracted to the potentially strong yields on offer, and with demand for new housing across the UK still strong, and reduced lending appetite from the traditional banking sector remaining the case, the market offers a compelling investment case.
In London and the South East of England while prices have declined in recent months the picture across the UK is more buoyant, and platforms providing financing to property development have grown quickly as investors have become more comfortable and experienced with property-backed loans*. *Source: AltFi
Before we examine in greater detail as to how and why this new asset class is gaining traction, here’s a quick recap on what lending in the alternative finance property development space is and how it works.
Property focused peer-to-peer lending platforms connect lenders, both retail and institutional, with developers in the property development world. The focus is on development loans and bridge funding, as well as some commercial real estate lending.
Lender’s cash is put to work to fund projects in a market that has seen a huge retreat from large banks who traditionally provided funding. For straightforward buy-to-let investors recent Governmental regulation has also curtailed rental yields and made it harder to access. For investors in P2P property market, however, returns still cluster between 4 to 8 per cent level which, given the low level of interest rates, offer the potential for decent returns. However, it should always be remembered that Lenders’ capital is at risk, and that payments are not guaranteed if the Borrower defaults. If anyone is unsure they should seek professional advice before lending or borrowing.
The alternative finance sector has also been able to grow, because it has been able to attract significant talent and expertise that used to reside in the large banks*. *Source: Financial Times
Many of those individuals have watched the growing maturity of the sector and realised it has an important role to play post the 2008 financial crash and the regulatory crackdown that followed.
Regulatory capital controls for these large banks, also encumbered by their outdated legacy tech, remain challenging in but are not the only reason disruptors are gaining ground. This ongoing dearth of capital as well as favourable demographics has created a sweet spot for lending investors with few favourable options in fixed income or cash savings account.
A vacuum of available funding does not tally with the UK property market’s age old truth that we simply don’t build enough houses in the UK to keep up with demand. Couple this with attractive returns and a growing specialist edge for niche providers of capital and it is clear why alternative finance platforms in the property development world are achieving success.
Lenders’ capital is at risk. Remember, payments are not guaranteed if the borrower defaults. Invest and Fund Limited is authorised and regulated by the Financial Conduct Authority (FRN: 711378). For further information please visit www.fca.org.uk. Invest and Fund Ltd is not covered by the Financial Services Compensation Scheme. Invest and Fund Ltd (No. 8277803) is registered in England and Wales. The registered address is the HCP Building, Chichester Road, Ponswood, St Leonards-On-Sea, East Sussex, TN38 9BG.
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