The Growing Appeal Of Peer To Peer Mortgage Lending
Property is an attractive investment: it has been proven (in a favorable market, of course) an increase in value and a tangible and useful asset. But the buy-to-buy market is unbreakable for some, and it’s going to get worse.
Apart from high investment thresholds, as of next year, buyers will not be able to offset any interest in the mortgage against their earnings.
This is where real estate peer-to-peer (P2P) investment comes in itself, as a viable alternative to purchase. You can start investing in P2P mortgages (in the form of a short term loan for a homeowner or a real estate development project, for example) for £ 1000 or less, depending on your choice of platform.
Interest rates are also good – you can earn up to 10% per annum, although this depends on the level of risk estimated. What’s more, you do not have to experience the trouble of finding tenants, managing property or paying agent fees.
Of course, as with any investment, P2P lending comes with a risk warning – but as long as you do your research and carefully evaluate the options available, it can form a healthy part of a diversified portfolio investments. There are major types of P2P loan lending to see if you are considering starting – so let’s take a look at the different options.
Bridging loans are usually short-term loans for people looking to finance a real estate transaction (such as homeowners and property developers). They like borrowers because they are allowed to avoid jumping through the hoops required by traditional financial institutions such as banks.
Because loan terms can be as short as three months in some cases, they may be useful for investors who want to earn some money a little faster. However, this is not guaranteed because it depends on the borrower repaying the loan on time.
Moreover, due to the continuing shortage of housing in the UK, demand for new projects is high. Allows investment in bridging P2P loans to help fund development projects for investors contributing to solving the problem (and earning a return in this process). Just make sure that any investment platform that deals with property development financing can demonstrate that it has full planning permission applied, used reputable contractors, and works with the Royal Institute of Chartered Surveyors (RICS) before secession with your money.
ISA Innovative Finance (IFISA)
ISA Innovative Financial Services (IFISA) provides a tax-free way to invest in P2P lending. It was introduced only in 2016, but quickly grew in popularity, with £ 270 million invested in its second full tax year only (2017/18).
However, there is still a lack of awareness of IFISA, at least when compared to international standards of cash and equity auditing and participation in international auditing standards. Investors are missing, since IFISAs usually offer much higher returns than your standard ISA for cash, and less volatile returns from equities and ISA shares.
For example, IFISA at The House Crowd achieved a target return of 7% per annum, while most of the current international cash audit standard is barely over 2% annually. However, with increased returns comes an increased risk, unlike ISA Cash, your capital is at risk when investing in IFISA (and indeed P2P generally): not covered by the Financial Services Compensation System (FSCS).
IFISA can be based on P2P consumer, business, and, of course, mortgages. Please note that not all IFISA will be fully secured against the underlying value of the asset, so you will need to assess the level of risk you wish to incur before investing.
Another effective way in terms of taxes to invest in P2P mortgage lending is through a pension system, with two common options being the Small Self-Management Scheme (SSAS) and the Self Employed Self-Employed Pension (SIPP).
SSAS is one of the most flexible retirement plans in the UK. Usually limited companies are established exclusively for managers, senior employees and family members, as they allow you to use your pension scheme to invest in business.
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By comparison, SIPP lets you invest in a wide range of ways, including through P2P mortgage lending, and enjoy the benefits of associated taxes that come with a pension. However, each SIPP will have its own rules that determine the type of investments that can be retained.
P2P lending can provide valuable access to impressive returns in the context of a well diversified retirement pot, but you should assess all the risks associated with and consider how any potential delayed payments affect your retirement planning. For example, what happens if there is a delay when you want to access your tax-free cash at the age of 55?
Galambos, Andrew (1999). Growing Appeal Of Peer To Peer Mortgage Lending, Inc. p. 23. ISBN 0-88078-004-5.
Property”. Graham Oppy. Growing Appeal Of Peer To Peer Mortgage Lending, 2005, p. 858
Schillinger v. United States, 155 U.S. 163 (1894) Growing Appeal Of Peer To Peer Mortgage Lending, 442 F.3d 1345 (Fed. Cir. 2006).
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