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Peer-to-peer lending sites are fast becoming amongst the UK’s most popular platforms for lending and borrowing funds. However, for some, the term is still relatively new and perhaps confusing. So, what is peer-to-peer (P2P) lending? This presentation looks at the features of the different types of P2P lending, identifying pros and cons and with a focus on the P2P property sector. See www.landbay.co.uk for more information
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THE NEW ALTERNATIVE TO BANK SAVINGS
WHAT OPTIONS DO I HAVE WITHIN THE PEER-TO-PEER
MARKET?
THE 3 TOP TYPES OF P2P
There are three principal types of P2P lending:Consumer, Business and Property
Landbay operates in the Property space, specialising further by lending solely on Buy-to-Let mortgages secured against British residential property
CONSUMER
Used for: paying off expensive credit card debts, debt consolidation or funding purchases such as home improvements, televisions and cars
P2P lending started here and has the longest track record in both the UK & USA
When lending in the consumer finance area an individual’s credit ratings are very important, however some borrowers actually use short-term P2P consumer financing to improve poor credit ratings
BUSINESS
Used for: funding working capital, business expansion & asset finance
Can be unsecured or secured against assets such as property or by personal guarantees
Risks lie in the fact that companies may fall into bankruptcy (therefore unable to repay their loans)
Business loan platforms tend not to have provision funds
Like consumer loans, businesses’ credit ratings are of high importance in assessing loan applications
PROPERTY
P2P lending on property has a clear advantage over traditional P2P lending: bricks and mortar security
Platforms secure loans against property. If a borrower cannot repay their loan, the platform can repossess & sell the property to fund any shortfall
Experts assess property valuations so lenders can calculate risk based on LTV
P2P platforms provide lenders & borrowers with access to commercial, bridging & residential property loans
BRIDGING PROPERTY LENDING
Used for (re)development or refurbishment projects with a limited duration
Loans tend to come at a higher rate as they rely on refinancing
Risks lie in market conditions, property characteristics and customer background, rather than long term credit repayment ability
Potential lenders must consider whether the borrower will be able to refinance in the future; “market risk” is generally more important than “credit risk”
Usually for non-income-producing assets because of required building works
Often for customers buying properties at auction, where short timescales to complete transactions and valuations are important, leading to higher loan rates
COMMERCIAL PROPERTY LENDING
The strength of commercial property (offices, shops) relies on business occupation, rather than households
Loans are more directly affected by factors such as general economic conditions, individual business performance and Government policies
These factors can increase the probability of default and average loan values tend to be higher
Less incentive for management to continue running businesses that are underperforming, or indeed loss making, compared to a basic need to have a roof over your head, as in the case of residential property
RESIDENTIAL PROPERTY LENDING
Mainly occupied and driven by more demographic factors and economic conditions such as employment prospects
Borrowers much more likely to be seeking longer term loans than something shorter term and less thought-out
Within the residential market, BTL borrowers rely on their properties for income sources
BTL landlords are often experienced and less likely to default
During the last recession, average house prices fell by 17.4% (Source: CML), at the peak of the Crisis, in 2008, the BTL repossession rate was low at 0.50%
MILESTONES TO DATE THANK YOU FOR WATCHING
OUR PRESENTATION
For more information about Landbay’s lending process,
see our P2P Mortgages Explanation
@LandbayUK
DISCLAIMERLandbay operates a dynamic peer-to-peer (P2P) lending platform specialising in property loans secured by first ranking mortgages. While loan investments are secured against property, capital is still at risk and therefore Landbay lenders face the possibility of losing money. Investments in mortgages are long-term in nature and may not be readily realisable.
Landbay is regulated by the FCA, however, lenders on Landbay and other P2P platforms are not covered by Financial Services Compensation scheme.
We recommend that you seek independent financial advice if you are in any doubt as to whether lending on Landbay is suitable for you.