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Could a buy-to-let sell off lead to a peer-to-peer (P2P) lending boost?

Posted 3 years ago

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The National Association of Landlords believes that 20% of landlords plan to sell one or more of their properties in the next 12 months. Why? Because conditions that favour an attractive regular income from a buy-to-let property investment are getting tougher. New regulations and changes to tax rules are hitting many British buy-to-let landlords.  These tougher conditions may mean that the effort and costs outweigh the gains.

Whilst investors may factor in the appreciation in value of a property over time, if you are buying to let you need an annual yield (income) that makes the investment worthwhile. Rules are now changing and mortgage interest will no longer be tax deductible which will have an impact on the amount of income tax paid. For older buy-to-let investors inheritance tax may also factor in to the changing appeal of this type of investment – their property portfolios are unlikely to be exempt from inheritance tax and of course when you do sell a property it is subject to capital gains tax (any money you have made on the value of the property between buying and selling would be subject to tax).

However, for the buy-to-let investor selling their property portfolio but still interested in an attractive regular income stream will peer-to-peer business lending prove a relevant alternative?

Sacha Bright at businessagent.com thinks so. He feels that the current yields offered to investors by P2P platforms look very attractive (typically between 5% and 12%) and that the liquidity risk is not dissimilar to that of a property investment where it can take time to liquidate the value of your asset (i.e. sell the property).  Of course whilst the value of a property can go down as well as up very few investors have seen the value of their property investments decrease in the last ten years.  In contrast there is a risk of a business not paying their loan (default risk), which means that money invested is at risk and should always be considered before becoming a P2P investor.

Certainly income investors are increasingly paying attention to P2P lending. The money lent to businesses via these platforms is increasing every year and British businesses are becoming more aware of these alternatives to the Banks when they need financing. Yields currently look attractive relative to those seen from traditional income generating investments – like bonds and equity income – and with the introduction of the Innovative Finance ISA (IFISA) which offers tax free interest for investments within the annual IFISA limit (presently £20,000 per annum), investors are taking note.

So will P2P attract investors who were, or would in previous years have considered buy-to-let investment to provide them with an income stream? Time will tell, but it is fair to say that whilst P2P may be the new kid on the block it is growing fast.

You can learn more about P2P investment and compare the latest estimated annual income rates and default rates of P2P platforms here.

Tagged: peer to peer lending p2p lending National Association of Landlords property IFISA investors investments

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