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.

The risk / opportunity equation through the market correction

Market Reports 24 Nov 2022
  • Facebook logo
  • LinkedIn logo
  • Twitter logo
  • Email icon

Development finance strategies through the correction in the housing market

The UK housing market is widely anticipated to slow down over the next 12 to 18 months. This is due to the combined impact of inflation, rising interest rates and tax hikes on consumer spending power.

Over the last few weeks we have spoken to a number of valuers for their insight into the market. Hard data are still emerging, for example, according to intelligence provider Glenigan, construction starts in the three months to the end of September 2022 were down 23% on a year previously. Meanwhile, estate agency Knight Frank has forecast that UK house prices will fall by 5% in 2023 and in 2024. The valuers we spoke to forecasted for 2023 declines ranging from 2.5% all the way up to 10%.

At this stage it is difficult to accurately predict the extent of the slowdown since much will depend on how the economic and political landscape plays out. Also, while consumers are undoubtedly feeling the pinch, the UK suffers from a chronic shortage of housing stock – meaning that demand continues to outpace supply.

Implications of a slowdown

We believe the volume of transactions in the UK property market will fall over the coming months as consumers adjust to an environment where higher interest rates are the new norm. Historically, interest rates of around 6% are not high. In fact, the UK’s interest rate averaged 7.15% from 1971 until 2022, according to information provider Trading Economics.

The uncertainty around real estate and construction is likely to mean that large banks and financial institutions become more cautious about providing development finance. As a result, we believe that some very attractive opportunities should arise for investors.

Most real estate owners will choose to sit out what is likely to be a period of short-term market turbulence. Nevertheless, those who do need to sell during the downturn should expect to sell at a lower price than they might have previously commanded. That, in turn, creates opportunities for developers, as well as the investors who fund them.

Many market participants will want to seize the opportunities presented by a changing real estate market. The challenge for them, however, is knowing when to invest. Invest too early and they may end up backing a loss-making project; invest too late and they completely miss out.

The upside of uncertainty

Currently there’s a considerable amount of economic uncertainty – and no one really knows what’s going to happen next. It is likely, however, that the property market will experience a slowdown while consumer expectations adjust to higher interest rates.

This will put experienced property developers in a strong position to negotiate good prices on land in desirable areas and build houses that appeal to customers with sound financial status. With banks likely to hold back from development finance in the short term, the right investors can step up, at the right time, and seize what could be a highly attractive, risk-adjusted opportunity.

Blend is a specialist development finance lender providing investors with a full stack service from loan origination and underwriting to transaction execution and portfolio management.

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.

Register for industry insights

Sorry. There was an issue.