A lot has happened in peer-to-peer (P2P) property lending’s relatively short history. Some platforms have ceased trading, others have retargeted their offerings, and there are many new entrants to the market. This post aims to provide an in-depth guide on how to analyse the platforms on offer and hopefully inspire you to take your personal due diligence to the next level.

Let’s get the obvious things out of the way first:

• In the UK, the platform must be regulated by the FCA or be an appointed representative (AR) of an FCA authorised firm.
• Do extra due diligence if you are considering lending through a recently launched platform, as most platforms that failed had a good run for the first couple of years until they ultimately collapsed (LandlordInvest was incorporated in 2014 and began trading in 2017)

Founders & shareholders

It’s important that the team running a platform has suitable experience. Founders with a background in property finance - and in particular the specific type of property finance that the platform engages in - are essential, the quality of the underwriting and the lending strategy underpin all aspects of the business.

Likewise, quality technology is essential to the success of a platform and there should be a founder as the in-house tech expert. Outsourcing development work could potentially play a role but there is no substitute for a founder who is responsible for, and takes pride in, every aspect of the platform.

Our founders include a CEO & CFO that have both spent the majority of their pre-LandlordInvest careers working on large & complex property security deals, and a CTO who has managed teams delivering a wide variety of projects across multiple industries. Our non-executive shareholders also all have property finance experience.

LandlordInvest’s shareholders make substantial investments in all platform loans, ensuring that interests are aligned.

Marketing

When researching platforms, consider the type of investors you wish to lend alongside and beware the flashy marketing, sales-y communication, and bold claims of websites that are aimed at getting sign ups from the mass-market.

It is perhaps understandable that many less scrupulous platforms cannot resist the desire to try and ‘close a sale’. However, platforms should focus on clearly laying out what they do and why you might be interested and leave it for the discerning investor to choose whether to proceed.

Just as you probably wouldn't want to buy a car from a pushy salesman, the same should apply when choosing which platforms to entrust with your hard earned money.

Transparency & communication

The platform should be clear about any fees earned from lenders such as a servicing fee or secondary market fee. At LandlordInvest the servicing fee is always explained clearly in the listing for each loan and the secondary market fee is clearly signposted when listing a loan part for sale.

LandlordInvest began voluntarily publishing our full loan book in 2017. The latest version of the loan book is available at all times on our public statistics page.

When considering a platform's statistics, look beyond the headline totals (which will always be the largest numbers) and look for trends over the years. Perhaps a disproportionate amount of their total lending was completed several years ago. How much capital has been repaid or interest paid to investors this or last year as opposed to over the platform’s lifetime? This can help you identify any potential negative trends that could indicate possible issues with the business.

Updates about the ongoing management of loans should be regular and clear. At LandlordInvest we communicate updates relating to loans - such as relevant communications with borrowers and solicitors - as well as responses to lender questions in the loan marketplace. After signing up for LandlordInvest you also have access to historic loan updates and responses.

Frequent, quality communications from the platform is a prerequisite, and evidence that the platform respects its lenders, and doesn’t just see them as a temporary source of funds.

Customer service

The process for getting in touch with a platform should be simple, and both potential new lenders and existing lenders should receive the same high quality, prompt responses.

You can reach LandlordInvest at any time by calling, using our live chat, or emailing investor@landlordinvest.com. Please see our contact page for ways to reach us.

At LandlordInvest we don’t outsource our customer service or send you to a web portal, and you’ll always receive a prompt and professional reply from a member of our in-house team, usually within 24 hours.

Be careful when dealing with platforms that are very proactive in communicating with customers whilst building up their lender base, and then reduce their customer service engagement and communications when they grow bigger, as it is a sign that they are not treating their lenders with the appropriate respect.

Reviews, complaints, and rating sites

Posts on review websites, such as Trustpilot, should be taken with a pinch of salt - and certainly not used as a primary indicator - as it’s very easy to gather “5 star” reviews by offering incentives to customers or using fake accounts. Likewise, sometimes customers might make unfair criticisms. Review websites can sometimes help you identify recent downward trends as more loans reach maturity and lenders realise losses or other cracks emerge in the running of a platform, but sadly it’s often too late before this information surfaces.

Products

One of the main selling points of P2P lending should be the direct, transparent, and efficient nature of the practice. You should be able to identify and select the appropriate risk adjusted returns. Beware platforms offering fixed or target rate products that may yield little more than a cash savings account and don’t let you know exactly how your money is being used.

In good times these platforms will pocket unfairly large spreads and in bad times you may lose out, without the comfort of at least having benefited from the good times.

These so called “black box” or “access” accounts have been prone to liquidity crises - similar to bank runs - which occurred when many lenders tried to withdraw their funds and the platform had difficulties meeting all withdrawal requests as their cash buffers were too small and most of the lenders’ funds were tied up in illiquid or difficult to liquidate assets.

Banks, for example, are required to maintain strict minimum liquidity buffers, accounting for the risk of large sudden withdrawals, but there are no such requirements for P2P platforms so it might be too late for the lenders to do anything once a liquidity crisis strikes.

At LandlordInvest we keep things simple. You review the loan listings on our platform for their risk profile, interest rate, and supporting documentation, then choose the specific loans you want to invest in, and the amount you want to invest in each loan. Any unlent funds are held in a ring fenced account and can be withdrawn with no fees at any time. Due to this model, any liquidity runs are highly unlikely to occur.

Check whether there are any fees or delays to access your money. There is no reason for a delay or cost to be attached to the withdrawal of any unlent funds. At LandlordInvest deposits and withdrawals are always processed on the same working day - usually within minutes - and without any fees.

Does the platform have a secondary market? A lender may wish to access some or all of their invested capital prior to loan maturity, in this case a secondary market is essential.

LandlordInvest’s secondary market is one of, if not the most liquid of any platform in the UK. Although there is no guarantee there will be a buyer when you list your investment for sale on the secondary market, due to the quality of our loans and the appetite of our sophisticated lender base, investments are regularly bought within moments of being listed.

Consider whether you would benefit from using an Innovative Finance ISA (IFISA). Many lenders are eligible to invest via the IFISA tax-free wrapper, but it is not offered by all platforms. We have written about the benefits of an IFISA in 2023 and how these grow even stronger over time.

LandlordInvest was one of the first companies to offer a residential property IFISA. There is no fee for opening or maintaining a LandlordInvest IFISA. Watch out for hidden fees on other platforms such as a cost for transferring an ISA.

You can read more about the LandlordInvest IFISA here.

Technology

Technology and user experience (UX) appear to have been an afterthought for many platforms, but at LandlordInvest it’s at the core of what we do. We seek lender input, test thoroughly, and iterate constantly.

Funding your account is easy via a free Faster Payment from your bank account and withdrawals are as simple as entering an amount and pressing a button.

Our loan marketplace has detailed listings for each loan including loan updates, lender Q&A, interest schedules, and an overview of secondary market activity. Property valuation reports are offered as downloads along with any other relevant documents (such as development loan initial and progress reports).

The LandlordInvest ‘My Investments’ section is an information-rich control panel to monitor the status of investments you’ve made. We offer both simple and advanced tabular views as well as the option to export to Excel and PDF.

This section also provides access to the secondary market where you can offer all or part of an investment for sale on the secondary market, where some other platforms only allow you to list the whole investment or nothing.

In our ‘Activity’ section you can find all transactions on your account, filter them by month and/or year and easily download them for your records. We also make it simple to view and download a PDF statement of the total activity on your account between any date range, making tax season a breeze.

We have an array of helpful settings to fine tune your experience, like the option to have earnings from interest payments automatically withdrawn and sent to your bank account.

Email settings are granular, allowing you to select only the updates you want (relating to new loans, investments, deposits, withdrawals, and interest). You can also opt-in to email updates about listings on the secondary market, choosing whether they arrive instantly or via an hourly or daily digest.

From a security perspective, you may enable two factor authentication (2FA) and opt to be notified by email when a login is made to your account from a new or unusual location.

Many platforms’ tech performance and functionality suffer as they grow and struggle to deal with larger amounts of data, new feature requirements, and changes. But at LandlordInvest we welcome the chance to take a fresh look at areas of functionality and improve them. We recently completed a set of performance enhancements across the more data/process intensive pages on the platform that resulted in speed increases of between around 50 and 700%. These pages weren’t ‘slow’ to begin with, but we always look to the future and feel it’s better to optimise sooner rather than later.

Second level thinking

It will likely already have occurred to many readers of this post to consider the founding team, technology, headline statistics, and other very easily sourced information about a platform. However, to make the most informed choice it’s important to look deeper.

When you engage in asset backed lending it’s not just the terms of the individual loan that need to be considered. Property securities are only as valuable as the competence and reliability of the platform administering them.

A diligent potential platform lender should scrutinise the company behind the platform as they would a company in which they intended to make an equity investment. How sustainable is the business model?

Many platforms have employed a ‘growth at all costs’ approach, burning equity investment, increasing cost bases, and growing teams too fast. While this may be common (and arguably beneficial) for mass market tech stocks and the latest cool apps, remember that P2P companies - although often mentioned under the FinTech umbrella - are really classic finance businesses that benefit from using technology to deliver their product.

If you’ve followed industry news over the years, you may be aware of platforms whose short term thinking and over-prioritisation of growth are now defunct and responsible for significant lender losses.

Platforms should focus on profitability rather than constant equity raises, the following two quotes from Warren Buffet capture it succinctly:

”Our experience has been that the manager of an already high-cost operation frequently is uncommonly resourceful in finding new ways to add to overhead, while the manager of a tightly-run operation usually continues to find additional methods to curtail costs, even when his costs are already well below those of his Competitors.”

"The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money."

Does the ongoing smooth running of a given platform require an equity raise in the near future to satisfy its fixed costs? What if that cannot be achieved?

Hard times have already brought about the end of some platforms, and current market conditions are forcing others to react by increasing the origination of loans to generate sufficient income. Will underwriting standards suffer with increased pressure on loan origination teams?

At LandlordInvest we pride ourselves on running a tight ship without sacrificing quality. Every penny is important in our eyes and our frugality means our lending strategy is not under pressure from potential short term financial issues with the business itself.

Choosing where best to invest your hard earned money can seem daunting, but it’s important to take the time to understand your options and make an informed choice. We wish you all the best on your research and investment journey!

View more information about investing with LandlordInvest and our IFISA.

Our blogs are for information purposes only. This content is not financial, legal or tax advice. Should you require any advice in relation to the earnings you make from LandlordInvest we recommend seeking independent professional advice. Links to other sites are provided for your convenience but LandlordInvest accepts no responsibility or liability for the content of those sites or of any external site. The information in this blog is correct at the time of posting.