Risk summary for P2P agreements or P2P portfolios

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose the money you invest

  • Many peer-to-peer (P2P) loans are made to borrowers who can’t borrow money from traditional lenders such as banks. These borrowers have a higher risk of not paying you back.

  • Advertised rates of return aren’t guaranteed. If a borrower doesn’t pay you back as agreed, you could earn less money than expected. A higher advertised rate of return means a higher risk of losing your money.

  • These investments can be held in an Innovative Finance ISA (IFISA). An IFISA does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential gains from your investment will be tax free.

2. You are unlikely to get your money back quickly

  • Some P2P loans last for several years. You should be prepared to wait for your money to be returned even if the borrower repays on time.

  • Some platforms may give you the opportunity to sell your investment early through a ‘secondary market’, but there is no guarantee you will be able to find someone willing to buy.

  • Even if your agreement is advertised as affording early access to your money, you will only get your money early if someone else wants to buy your loan(s). If no one wants to buy, it could take longer to get your money back.

3. Don’t put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.

  • A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

4. The P2P platform could fail

  • If the platform fails, it may be impossible for you to collect money on your loan. It could take years to get your money back, or you may not get it back at all. Even if the platform has plans in place to prevent this, they may not work in a disorderly failure.

5. You are unlikely to be protected if something goes wrong

  • The Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover investments in P2P loans. You may be able to claim if you received regulated advice to invest in P2P, and the adviser has since failed. Try the FSCS investment protection checker here.

  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here. For further information about peer-to-peer lending (loan-based crowdfunding), visit the FCA’s website here.

Meeting Housebuilding Targets

Interview 03 Nov 2022
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How can the government meet its housebuilding targets

Yann Murciano, CEO at development finance lender Blend, writes an open letter to the Secretary of State for Levelling Up, Housing and Communities on how to protect mid-size property developers and ensure the current government (at last) hits its target of building 300,000 houses per year.

The government has long pledged its commitment to tackling the UK’s housing shortage, which began not because of a blip lasting one year, but because not enough homes were built over many decades. This commitment goes back to 2015, when the government promised to deliver a million new homes by 2020, a promise it restated at the general election two years later. In 2019, the then PM Theresa May described solving the housing crisis as ‘the biggest domestic policy challenge of our generation’ and pledged to “continue progress towards our target of 300,000 homes a year by the mid-2020s”. As recently as last week, Michael Gove the Secretary of State for Levelling Up, Housing and Communities recommitted to this pledge despite citing challenges and said the government remains committed to this target. Yet, despite the government’s efforts to boost construction, new-built housing completions in England between 2010 and 2020 was approximately 130,000 per year – well below the 147,000 of the 2000’s or 150,000 of the 1990’s, and half of the level seen in the 1960’s and 1970’s. The current credit tightness will likely hurt new housing developments even further and curb supply.

So, why hasn’t the government been able to deliver on its promise of boosting UK housing supply? I believe the answer to this question can be traced to Albert Einstein's famous line: “Insanity is doing the same thing over and over and expecting different results.” Indeed, the government’s housing policy has revolved around doing the same thing over and over again and expecting different results.

 As Einsten said, "insanity is doing the same thing over and over and expecting different results". The government’s housing policy has revolved around doing the same thing over and over again and expecting different results.

Yann Murciano, Blend CEO

A new government always brings in high hopes and so if this government is serious about achieving its target of 300,000 homes a year, here are three things it needs to do.

First, planning reform is urgently needed. The planning system and the speed at which it operates has historically been one of the biggest hurdles in delivery of UK housing and is why so many mid-size housebuilders have closed or been absorbed by larger players in recent decades. In 1988 small builders were building 40% of new-built homes compared with just 12% today. Planning committees and their structure need overhauling to save developments being caught in months, if not years, of process treacle. In other words, this government needs to make it easier to obtain planning consent. This will, in turn, encourage rapid development of new housing.

Second, specialist financial providers need to be brough into the fold to help tackle the housing crisis. Lack of funding, especially among SME property developers and small construction companies, is a key reason for the disappearance of so many mid-size housebuilders over the past two decades. And one concrete and effective way for the government to support housebuilding is by working with specialist development finance lenders to channel funding to SME developers. These specialist lenders were able to show their key role by keeping credit flowing when the pandemic led to the 'lockdown on lending' at traditional lenders who were busy administering the Coronavirus Business Interruption Loan Scheme (CBILS). Due to their nimble size, flexibility and efficiency, specialist development finance lenders have demonstrated that they can and must be part of the solution to the UK housing crisis.

Third, the private rental market –the “wild west’ of Britain’s housing stock” - needs to be professionalised.

 

Yann Murciano

CEO at Blend

Blend is a specialist development finance lender that works with experienced mid-sized property developers in the UK.

For more information, please visit www.blendnetwork.com or email us at [email protected]

BLEND Loan Network Limited is authorised and regulated by the Financial Conduct Authority (Reg No: 913456).

BLEND Loan Network Limited is registered in England and Wales. Registered office: Evelyn House, 142 New Cavendish Street, London W1W 6YF.

Don’t Invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more.

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