P2P lending is the practice of lending money to unrelated individuals, "peers", without going through a traditional financial intermediary such as a bank or other traditional financial institutions.
Significant cost savings can be achieved by virtue of removing the middlemen associated with a typical loan transaction. This benefits both lenders, which are able to receive a higher rate on their money than keeping it in a bank account, and borrowers, that are able to raise financing quicker and cheaper than using traditional lenders.
The lending platform charges borrowers to cover the platform's cost
Unsecured P2P lending is when a loan is issued and supported only by the borrower's creditworthiness, rather than by a type of collateral such as property. If a borrower defaults, the lender has no collateral to fall back on to get his money back. Hence the word “unsecured”.
Secured P2P lending is when a loan is issued and is backed by collateral such as property. This means that if a borrower defaults, the lender will be able to claim the collateral that the borrower has provided.
Unsecured P2P lending has dominated P2P lending in the UK, as the first P2P lending platforms were mainly providing unsecured personal loans. However, this has recently been changing due to the inherited risks with unsecured P2P lending.
We at LandlordInvest believe that it is of utmost importance that we offer both borrowers and lenders the best protection possible if something goes wrong, including factors such as the shape of the economy. After all, our business depends on borrowers ability to pay their debts and that lenders are able to get their interest and principal regardless of what might happen. As such, we have chosen to only include secured loans on our lending platform.
The main risks with secured P2P lending are:
Borrower default is the biggest risk and happens when a borrower does not repay his/her loan. This means that your capital is at risk.
Unlike most other P2P lending platforms, we only participate in secured lending which means that the total value of the loan is always secured against property. If the borrower does not repay their loan then we can sell the property to cover any shortfall. We only lend to borrowers who have good quality properties that we believe could be sold easily. However, please keep in mind that whilst the investment is backed by property, the value of the security depends on the value of the underlying property.
If a loan goes into default we will contact you to make you aware that your borrower is in default and explain the next steps of the enforcement process that we will manage on your behalf.
Mortgage fraud is when mortgages are obtained fraudulently.
Mortgage fraud usually involves individual(s) or organised criminal gangs and at least one corrupt associate, such as an accountant, solicitor or surveyor.
Mortgage fraud can include:
We mitigate these risk in various ways, including:
Platform insolvency is the risk that the company operating the lending platform goes out of business.
We have taken a number of steps to ensure that in the unlikely event of our insolvency, you would have full protection and all your loans would be serviced until maturity. These include;
Property market risk means that the borrowers' ability to pay interest and repay their loans could be affected if there was a downturn in the UK property market. We have established procedures to protect our lenders against this risk. These include a minimum rental income coverage, maximum LTV cap and other measures.
Interest rate risk means that general interest rates might rise above the interest rates that you are earning from your loans. We are mitigating this risk by only including loans with a short-term duration on our platform.
Our credit rating methodology has been developed according to the principle of three Cs: Capacity, Character and Collateral. This approach is commonly used in mortgage underwriting to assess risk. The following table displays the three Cs and the variables we consider when assessing a borrower.
| Definition | Key variable | Weight | |
|---|---|---|---|
| Capacity (affordability test) |
(affordability test) The amount that a borrower can carry, i.e. total monthly expenses (payment on current debt/s, housing payments, credit cards payments, car payments etc.) divided by total monthly income (salary, self- employment, net rental income) minus The aim is to estimate the total debt service ratio (TDSR) prior and after debt (for which the loan is sought). | TDSR | 25% |
| Character | Based on credit report variables: past credit history, time at present address etc. and time at employment. | Credit report | 60% |
| Collateral | Loan to value ratio of the property to which financing is sought. Value is estimated by an independent valuer. | LTV | 15% |
Character is the most important variable when we assess a borrower, based on a borrower’s credit report which we obtain from a credit referencing agency. It is followed by Capacity, which is an assessment of a borrower’s ability to afford a loan. We also assess the security provided by a borrower, Collateral.
After each of the Cs has been assessed, we assign a rating based on a 5 point rating scale, where 5 is the best and 1 worst.
| TDSR | Rating |
|---|---|
| Up to 39% | 5 |
| 40-49% | 4 |
| 50-59% | 3 |
| 60-69% | 2 |
| 70% and higher | 1 |
| Credit report score | Rating |
|---|---|
| 5 | 5 |
| 4 | 4 |
| 3 | 3 |
| 2 | 2 |
| 1 | 1 |
| Collateral - LTV | Rating |
|---|---|
| Up to 55% | 5 |
| 56-60% | 4 |
| 61-65% | 3 |
| 66-70% | 2 |
| 71% and higher | 1 |
| Credit score | Definition | Segment | Credit rating |
|---|---|---|---|
| 5 | Very good | Super prime | A |
| 4.1-4.9 | Good | Prime | B |
| 3.1-3.9 | Fairly good | Near Prime | C |
| 2.1-2.9 | Poor | Sub Prime | D |
| Up to 2.0 | Very Bad | Sub Prime | E |
Your investment through us is not protected by the Financial Services Compensation Scheme and therefore your capital is at risk. Any uninvested funds in your LandlordInvest account are however protected as the funds are held in a segregated client account with a FSCS eligible bank.
What Is a bridging loan?
A bridging loan is a short-term loan which individuals or companies can use until they secure longer term financing or settle an existing obligation. It allows the borrower to meet current cash flow needs by providing immediate cash flow. Bridging loans are short-term (normally up to one year), have relatively high interest rates, and are usually backed by some form of collateral, such as real estate.
Bridging loans vs. traditional loans
Bridging loans normally have a faster application, approval, and funding process than traditional loans. It is due to this convenience that bridging loans have relatively short terms, high interest rates, and higher origination fees. Mostly, borrowers accept these terms because they require fast, convenient access to funds. They are willing to pay high interest rates because they know the loan is short-term and plan to pay it off with lower interest, long-term refinancing or via the sale of the underlying asset that is being used as collateral. Additionally, some bridging loans do not have repayment penalties which traditional loans may have.
Difference between commercial and residential bridging Loans
A commercial bridge is secured against commercial properties, which are typically considered for purposes such as retail, office, and industrial use (among other things). A residential bridge is secured against residential properties.
Regulated and unregulated bridging loans
A regulated bridging loan when the borrower is buying a property to live in (or for a family member to live in).
An unregulated bridging loan is when the borrower is purchasing or refinancing a property as an investment, not as their home.
Bridging loans are available on a first or second charge basis. However, regulated bridging loans are always a first charge loan.
Loans provided to borrowers through LandlordInvest are provided solely for business purposes. Loans are therefore not regulated by the Financial Services and Markets Act 2000 or the Consumer Credit Act 1974. You should seek independent legal advice if you are in any doubt as to the consequences of the loan not being a regulated agreement under those Acts.
When could a residential bridging loan be used?
A bridging loan can be used for a wide variety of purposes, including:
The bridging loan market
Almost every branch of the financial services sector in the UK was adversely affected by COVID-19 in 2020. The bridging finance sector was no exception, which fell by around £277.7 million compared to 2019. In total, the value of bridging loans provided stood at £455 million in 2020, down from the £732.7 million in 2019, a 38% decrease YoY. The bridging loan market held steady in Q2 2021 at £146.52 million, a nominal percentage rise on the previous quarter (£144.51m).
According to Ernst & Young's bridging market study for 2021, 34% of respondents believe the average loan size in the market is £500k or more. This is a decrease from 39% of respondents who shared this view in 2020, and 61% in 2019.
The majority of respondents (54%) view the 'average loan term' to be between 9-12 months which is broadly in line with both the 2020 survey (59%) and the 2019 survey (60%). Additionally, the majority (63%) of respondents believed that the average monthly interest rate for bridging loans is between 0.75% - 1.00%, largely unchanged since 2019 and 2020.
LandlordInvest does not provide advice and nothing on this page should be construed as investment or tax advice. The information which appears in this page is for general information purposes only and does not constitute specific advice. The information set out on this page is correct at time of posting.
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LandlordInvest Limited is authorised and regulated by the Financial Conduct Authority (FCA) (FRN 660926). LandlordInvest Limited is not covered by the Financial Services Compensation Scheme (FSCS).
Loans provided to borrowers through LandlordInvest are provided solely for business purposes. Loans are therefore not regulated by the Financial Services and Markets Act 2000 or the Consumer Credit Act 1974. You should seek independent legal advice if you are in any doubt as to the consequences of the loan not being a regulated agreement under those Acts.
LandlordInvest Limited (Company No. 09245725), registered office 330 High Holborn, London, WC2A 1HL
