In a recent article titled “Peer to peer: Can you really get returns of 10%?” – Moneywise nominated Proplend as one of their ‘picks’ for experienced P2P investors.
The Richmond-based P2P property lending platform recently passed the £25m lending mark with no loans defaults or investor losses to date. Proplend’s property-backed returns are of 5-12% p.a.* now freely available to ISA and advised investors following the 2017 launches of its (flexible) Innovative Finance ISA and Wealth Manager portals respectively.
Growth of P2P lending and minimising investor risk
The UK peer to peer lending market is enjoying a record year to date [passing £10bn invested in the process] with the Moneywise piece highlighting how the “… reputation of P2P was boosted by the launch of Innovative Finance ISA in April 2016. In truth the opportunity for investors to achieve P2P returns tax free through IFISA is still very much in its infacy – the majority of providers only coming to market in the last 6 months.
With low bank interest rates persisting [and inflation at a 5-year high], more and more savers and investors are looking for better returns. Peer to peer ‘Lenders’, particularly those who are moving funds from savings, should be aware that capital is at risk and not protected by the FSCS. But P2P platforms have different ways of reducing investor risk.
Loans listed on the Proplend platform are typically secured by income producing commercial property in England and Wales. Leases in place at the securing property must cover loan interest payments at least 1.25 times and the loan amount cannot exceed 75% of the property value. Proplend also completes comprehensive due dilligence on the borrower and the property that it shares with registered platform Lenders – withholding a 6-month ‘interest reserve’ for the duration of the term.
Proplend recommended for experienced investors
Moneywise’s Proplend pick is for experienced investors as platform ‘Lenders’ manually select the loans and the LTV-based ‘Tranches’ they want to invest in. Proplend provides comprehensive information to investors to help them make informed investment decisions, whereas Moneywise’s P2P platform recommendations for beginners are all platforms offering an autoinvest option.
Autoinvest, dubbed “Invest and Forget” in the article, whilst certainly low maintenance, hands investment discretion to the platform with funds automatically allocated between unfilled loans – not something all investors will be happy doing. Unfortunately with this option it’s not always clear where your funds are invested and whilst you could get lucky and not suffer any defaults, this ‘passive’ investment approach may also see your funds invested in the less popular loans, some of which might end up defaulting.
Proplend’s range of Individual, Institutional, Self-Invested Pension and IFISA Lenders typically prefer to be more discerning with regard to the borrowers and loans they want to invest their hard-earned money in. For Lenders who aren’t comfortable making the self selection decision themselves, they can always invest through a Wealth Manager who will provide recommendations on which loans and how much of their portfolio to invest.
Diversify your investments across loans, platforms and assets
Moneywise’s ‘verdict’ on P2P includes making sure you “get the basic rates and diversify your portfolio.” Sound advice, but diversification should be interpreted to mean across multiple platforms, even asset types – as well as across muliple loans to mitigate risk. Investing on just one platform, however big or ‘mainstream’ polarises risk.
So called ‘Specialist’ providers [like Proplend] can help spread the risk and increase the returns of your peer to peer portfolio. One P2P investor featured in the Moneywise article saying that they prefer investing through specialist platforms lending to borrowers who are borrowing against a fixed asset such as a house. “I usually get a rate of around 13% a year,” he says. “I don’t see the point in some other providers where you get a return of 3% to 4% a year and there is still a lot of risk.”
You can read the full article here on Moneywise’s website.
*Proplend interest rates of 5-12% p.a. are fixed income returns before fees, bad debts and taxes. IFISA and pension investment returns are tax-free.