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Alternative Finance blog

A guide to peer-to-peer property lending

A guide to peer-to-peer property lending

1 month ago


Author: Roxana Mohammadian-Molina, Chief Strategy Officer at Blend Network

Many of you may have heard about peer-to-peer (P2P) property lending; some of you may have already dipped your toes in it; and some of you may be considering it. So, for all of you who are interested in learning more about how you could achieve great returns while doing good with P2P lending, here I aim to de-mystify the concept and bust some of the jargon to help ensure you’re up to speed and ready to go for it when a deal next catches your eye. 

When and why did P2P property lending emerge?

Let’s set up the scene. Over the past ten years, traditional lenders have tightened up lending across many sectors, property development finance being one of them. According to a recent report by the Home Builders Federation[1], ‘availability and terms of financing for residential development has become extremely difficult for small housebuilding companies over the past decade or so. Lenders have drastically changed their attitudes to the sector since the Global Financial Crisis’. At the same time, the UK suffers from the most serious housing crisis in decades due to a shortage of supply. The UK’s housing shortage has been described by successive governments as the nation’s most urgent and complex challenge and solving it as “the biggest domestic policy challenge of our generation”[2].

Meanwhile, over the past decade interest rates on bank deposits have been very low. So, essentially savers have been getting penalised for holding cash at the bank in a near-zero interest rate environment. Peer to peer, while not protected by the FSCS and involving risk to invested capital, is a possible way for investors to earn a good return on their money. Investors have been hunting for yield, somewhere to put their hard-earned money so that they can earn a decent return.

In a nutshell, P2P property lending brings together lenders who want to invest their money with borrowers who need money to build homes.

Building the homes the country needs: Blend Network’s County Down project

What is P2P property lending?

In the context described above, P2P property lending has emerged as a way of connecting private investors with experienced property developers. This is exactly what platforms such as Blend Network do.

Blend Network is a property lending club where private individuals can connect with, and lend money to, experienced property developers who are looking to build more affordable homes across the UK regions. Different platforms will focus on funding different types of projects, but Blend Network focuses exclusively in supporting Small and Medium (SME) property developers who are building more affordable homes because we strongly believe this is what the UK needs and the market for it is very strong.

What is very important to note though is that platforms such as Blend Network are not simply connecting lenders and borrowers. What they are essentially doing is managing your investment from start to finish by underwriting and credit-checking borrowers, transferring funds on your behalf to the borrower and then collecting any repayments when they are due to you.

Blend Network carries out an exhaustive due diligence process on which loans to fund and which loans not to fund. All the loans that you will see listed on the Blend Network platform at www.blendnetwork.com will have gone through a very detailed screening process done in-house by our underwriting team and been selected as a loan that we truly

believe in. In fact, we believe in the loans we list on our platform so much that we put our money where our mouth is and so far, our CEO has lent his own personal money on every single loan listed on the platform. So, let me talk you through the due diligence process a little more…

How does the platform do its due diligence on which loans to list?

Generally, there are 5 key steps to the due diligence done at Blend Network:

  1. Meeting the borrower and visiting the site: We like to say that eyes tell more than balance sheets. By meeting the borrower and discussing the project, we are able to get a good understanding of whether the borrower can deliver the project he/she is promising. It is important to look at the borrower’s experience and track record, his/her team’s experience as well as similar projects he/she has done in the past.
  2. Analysing the project: Part of the due diligence process is to understand whether the project makes sense. This should include things such as analysing the local property market, supply and demand, rental market, local schools, hospital and amenities, the borrower’s financials including his/her assets, liabilities and credit history. This will enable us to get a detailed picture and assess the project viability.
  3. Analysing the exit strategy: Lenders obviously want to get repaid when the loan expires. So, it is vital that a key part of the due diligence is to understand how the borrower plans to repay lenders, or in other words what is his/her exit strategy from the project in order to repay the loan. This could be selling the property/properties or re-financing with another lender. If the exit is to sell, research on the local property market needs to be carried out so that we are comfortable with the borrower’s ability to sell within the timeframe and the price he/she is planning. If the exit is to refinance and hold the properties as Buy-To-Let, research on the local rental market needs to be carried out to ensure we are lending less than what the borrower can refinance at. A clear exit strategy always needs to be in place.
  4. Ongoing monitoring: It is paramount that ongoing monitoring of the loan is carried out. This is in order to ensure that the project is progressing as expected, and if there are any issues, these issues are spotted in time to try address them as fast as possible.
  5. Releasing funds in tranches: If all funds are released upfront and the borrower told ‘good luck, see you in 15 months’, there are a number of risks: risk that the borrower will use the funds to finance another project he/she is in trouble with or risk he/she wastes the money and doesn’t build as promised. Overall, there is less control over the use of the lent funds. That’s why it is key that funds are released in tranches and a survey is done after each phase before releasing the next tranche. 

Those are the steps that Blend Network go through in order to ensure that we only list loans that we truly believe in. So far, as of 21 November 2019, we have zero defaults on our loans and whilst past performance is not an indicator of future returns, we do take our due diligence extremely seriously and aim to maintain our zero defaults record[3].

Different platforms will differ in their approach to due diligence. So, it is very important that as an investor you do your own due diligence on which platform to use as well as assess each loan before deciding to lend.

How do I do my due diligence on which platform to use?

Track record, transparency and reputation are key points to look at. Most P2P lending platforms will provide their track record. If they don’t, you should be able to ask for that information. At Blend Network, our track record can be found at www.blendnetwork.com/pages/statistics. Here you will see that as of 21 November 2019 we have returned an average of 11.12% per annum to investors. Transparency is another key point to look for. Different platforms will disclose different amounts of information on each loan. At Blend Network, we like to provide full transparency and every loan will come with a full Information Pack (IP) prepared by our underwriters after they have done their due diligence. This IP will include information such as the team behind the project, their experience and previous projects they have done, what they are intending to do with this development, local area including school and hospitals, exit strategy, a RICS valuation report, planning and build appraisals. This information is provided so that prospective lenders have the information they need to make an informed decision on whether to invest. Reputation is another key aspect when considering which platform to use. Having good reviews, having repeats lenders and borrowers and having won industry awards and recognition are all indicators of a good reputation. At Blend Network we are lucky to have won the support of our lenders and borrowers and have been nominated, shortlisted and won some of the most prestigious industry awards. Only last week, we were shortlisted for the Tech for Good Award 2019 at the UK PropTech Association. Last month we were selected for the AltFi People's Choice Award 2019 and earlier this year we were shortlisted for P2P Provider of the Year at the Moneyfacts Consumer Awards 2020, finalist for Best P2P Business Lender and Specialist Lender of the Year at the Growth Finance Awards 2019 and finalist for Best Investment in Fintech at the UKBAA Angel Investment Awards.

Doing well while doing good…

At Blend Network, we strongly believe it’s all about doing well while doing good. That’s why we focus on funding affordable housing. And you may like to know that a number of the awesome property developers behind our loans are fabulous female property developers doing good for the local communities. One lady we are particularly proud of is converting old and dilapidated houses across the Midlands into lovely homes for professionals.

Building and converting old house into new modern homes: Hipswell project in Coventry

What is the security behind my money?

Different platforms will have different security held against the loans on offer. At Blend Network, we always take a first charge on the property when we lend. That means that in the event the borrower can’t repay the loan, Blend Network will step in and exercise its first charge over the asset to try and recover investors’ money. So far, this has never been the case at Blend Network and the number of defaults remains at zero.

I'm always cautious about reviewing P2P…

I'm always cautious about reviewing P2P lending platforms too early. The true test is over the long term. However, I have invested in one loan. Interests payments were on time and the loan has now essentially be paid back. Communication has been good throughout the loan period.

I've met Yann, the CEO on one occasion and had a good chat about Blends model and long-term outlook. I walked away feeling confident that my next loan would be in safe hands. I also like that he personally has some skin in the game in that he invests in each loan. How long that can go on for will depend on how fast the platform scales up and his level of funds of course.

Overall, I'm a happy lender. Fingers crossed they continue to grow carefully and ensure investor money is kept safe and secure!

Blend Network review on Trustpilot – 5-star Excellent based on 51 reviews

Is P2P property lending regulated?

Yes, absolutely. The P2P property lending sector is regulated by the Financial Conduct Authority (FCA) to help ensure that both lenders’ and borrowers’ interests are protected. That said, when lending on P2P property loans, like with any other investment, your capital is at risk.

If you like what you have read and would like to dip your toes with Blend Network, register now as a lender at www.blendnetwork.com. We have some exciting loans you won’t want to miss!

About Blend Network:

Blend Network is a London-based property lending club where investors can lend from a minimum of £1,000 and earn between 8-12% p.a. on property-secured loans. All Blend Network loans are secured against a first charge on the underlying property asset and the company only lends to experienced property developers who are looking to develop projects in the UK. As of December 2019, the average return for Blend Network lenders is 11.00% p.a. and there are 0 defaults. 

Blend Loan Network Limited is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (FRN. 574048).

Your capital is at risk if you lend to businesses. P2P lending is not covered by the Financial Services Compensation Scheme. Investments are illiquid (the inability to sell assets quickly or without substantial loss in value). Past performance is not a reliable indicator of future results.

[1]Reversing the decline of small housebuilders: Reinvigorating entrepreneurialism and building more homes’ by the Home Builders Federation.

[2] Source: https://www.theparliamentaryreview.co.uk/news/may-solving-housing-crisis-is-the-biggest-domestic-policy-challenge

[3] Source: https://blendnetwork.com/pages/statistics

BLEND Loan Network Limited is an Appointed Representative of Resolution Compliance Ltd which is authorised and regulated by the Financial Conduct Authority (FRN. 574048) and this financial promotion has been signed off by them. Although Business Agent Ltd t/a NextFin has performed due diligence checks on Blend Loan Network Limited regulatory permissions they have not signed this financial promotion off as we are not in a position to confirm the accuracy of the information provided.


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