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.

Reaction to Chancellor's Autumn statement

News 03 Nov 2022
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Here's what we wished we had seen in the Autumn Budget

The Prime Minister and the Chancellor have been evidently caught between a rock and a hard place.  The pressure of plugging a £55bn fiscal hole has led to an Autumn Statement that does nothing to address the deepening housing crisis and tackle the shortage of decent affordable housing in Britain. As pointed out by our MD David Alcock a few weeks ago (link), the recent mortgage market madness has a more subtle, perhaps less visible, and long-term impact on prospective home buyers by affecting housing supply in an already undersupplied market. Yesterday’s Budget failed to ease the pressure.

 

No support for buy-to-let landlords would be catastrophic for rents

Yesterday’s Autumn Budget did nothing to address the lack of housing supply and will do little to settle the nerves of the buy-to-let landlords. Amid rising interest rates, buy-to-let landlords are seeing the value of their assets decline, while borrowing costs and property maintenance continues to increase. These issues were overlooked yesterday and are harming the viability of owning a buy-to-let property. And while buy-to-let landlords’ portfolios may not be a priority for the government, the potential impact that selling part of those portfolios would have on the property market is worth thinking about. The increased pressure on many landlords to sell their properties would put further downwards pressure on a market that is already struggling, and this outcome now looks increasingly likely. According to a study by MFS, 40% of buy-to-let landlords are now planning on selling one or more of their properties in the next 12 months, while the fast-changing economic climate is also deterring investors from investing in the sector - more than a third are cutting back on expanding their portfolio. Such an exodus from the market would present an awful challenge to an extremely competitive private rental sector that is already struggling with growing demand and a perpetual supply shortage. The Government’s failure to support buy-to-let landlords would exacerbate this situation and result catastrophic for renters already under pressure from fast rising rents in places like London or Bristol.

 

We need a replacement to the Help To Buy Scheme

With young people grappling with higher energy and food costs, the prospect of owning a home is fast becoming an unattainable dream for many and has turned into one of the biggest socioeconomic challenges of our time. But yesterday’s Budget overlooked the pressing issue of home ownership, thus kicking this problem into the long grass. Therefore, we urge the government to design and put forward a replacement to the Help to Buy scheme to avoid a slowdown in home construction years to come.

 

Planning reform is urgently needed

Yesterday’s Autumn Budget failed to acknowledge and address the challenges of Britain’s antiquated planning system that are holding back the country from building the new homes it desperately needs. As pointed out by our CEO Yann Murciano recently (link), the planning system and the speed at which it operates has been one of the biggest hurdles in the development of UK housing and is why so many mid-size housebuilders have closed or been absorbed by larger market players in the recent decades. In 1988 small builders were producing 40% of new-build homes, compared with just 12% today. Planning committees and their structures need overhauling to save developments being caught in months, if not years, of process treacle. Planning reform is needed, and we urge the government to ease obtaining planning consent. This will, in turn, encourage rapid development of new housing.

 

Our doors remain very much open - whether we’ve lent to you before, whether we’ve never spoken with you but you’re worried your existing lender is going to let you down so are exploring your options, or whether you’re feeling positive that now’s the right time to invest and want to ensure you have the capital to opportunistically do this, please get in touch and we’ll see if we can help.

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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