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Summary 

Investing in property-backed peer-to-peer lending can be a brilliant way to access the housing market without actually having to buy your own property.

P2P property lending platforms offer competitive returns to investors who are willing to fund a range of housing projects, from property developments and refurbishments, to buy-to-let portfolios and commercial lettings.

Each year, P2P lending platforms help to fund thousands of building projects which would otherwise not be able to get off the ground. This is particularly vital during the ongoing housing crisis. The government has yet to meet its own target of building 300,000 new homes per year for a variety of reasons. Lack of mainstream funding is a key factor in this housing shortage.

The rising base rate has put pressure on banks to pull back on their lending, and to hike the interest rates that they are offering to approved borrowers. As a result, more and more property developers are turning to alternative lenders such as P2P platforms to meet their funding needs.

Over the past few years, the P2P property lending market has grown substantially, to become the largest segment of the UK P2P sector. Any diversified P2P investment portfolio will likely include some exposure to the property market.mSo it is understandable that some P2P investors could look at the current state of the UK property market and register some concern.

By the end of 2022, data from the Bank of England, HMRC and Halifax House Price Index was showing signs of a weakening property market. The number of home sales has been decreasing; the number of mortgage approvals is down; and house price growth is slowing.

For those investors who remember the impact of the global financial crisis, these are worrying signs. But how does this property downturn impact P2P investors?

While P2P property investments are exposed to the UK property market, there are a number of safety rails in place to protect investors from big losses. For a start, all P2P property platforms will require security from a developer in the form of a first or second charge against the property. This means that if the borrower is unable to repay their loan, the platform has the right to sell the property in order to recoup investor capital.

Secondly, every P2P funding offer comes with conditions attached. The platform will make an offer to the borrower based on the loan-to-value (LTV) of an existing property, or the loan-to-gross development value (LTGDV) of a development or site.

Links: https://p2pfinancenews.co.uk/2023/03/24/how-will-the-property-downturn-impact-p2p-lending/