What are the risks with asset backed P2P lending?

LandlordInvest enables you to invest in bridging and development finance loans, backed by British property. Whilst we take precautions to ensure your investment is performing well, as with any type of investment, there are risks involved. Below we set out these risks and our approach to mitigate them. The main risks with secured P2P lending are:

  1. Borrower default
  2. Mortgage fraud
  3. Platform insolvency
  4. Property market risk
  5. Interest rate risk
  6. Illiquid instrument

Also see: Innovative Finance ISA Risk Warnings


Borrower default

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.

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 properties that we believe could be sold reasonably easily.

However, please keep in mind that whilst the investment is backed by property, the realisable 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

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:

  • over-valuing properties
  • overstating a salary or income
  • hijacking genuine conveyancing processes
  • taking out mortgages in the name of unsuspecting individuals or those who are deceased after identity theft
  • taking out a number of mortgages with different lenders on one address by manipulating Land Registry data
  • changing title deeds without an owner's knowledge to allow the sale of a property

We mitigate these risk in various ways, including:

  • We undertake credit checks of the borrower(s) using Experian and/or CallCredit, the UK's leading credit reference agencies
  • Solicitors acting on behalf of investors perform separate identity checks on the borrower(s) and their solicitor
  • We require the borrower(s) to meet personally with their solicitor and to sign the loan documentation in front of them

Platform insolvency

Platform insolvency is the risk that the company operating the lending platform goes out of business.

We have taken a number of steps set out below to ensure that in the unlikely event of our insolvency you would have protection and all your loans would be serviced until maturity. These include:

  1. All customer money that is not lent out are held in a segregated client money trust account with Royal Bank of Scotland PLC; and
  2. The security provided by a borrower in favour of the loan is held by an independent security agent for the benefit of lenders.

Property market risk

Property market risk means that the borrower's 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 including maximum LTV cap and other measures.

Interest rate risk

Interest rate risk means that the 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.

Illiquid instrument

Illiquid instrument means that you might not be able to sell your loan or loan parts before the end of the loan term.


Innovative Finance ISA Risk Warnings

Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. We suggest that you seek independent tax advice if you are unsure about anything.

  1. A loan is not repaid - In the event that a loan is not being repaid and if the security property cannot be sold for an amount that is enough to cover costs, interest owed to investors and their full investment amount, this could result in a capital loss for investors. Your IFISA tax allowance will not be affected but loss of investment may have tax consequences.

  2. The P2P platform fails - In the event that LandlordInvest fails (either voluntarily or involuntarily), lenders will be notified of their right to transfer all IFISA funds to another ISA manager. The cash held in the IFISA will remain within the tax-wrapper and will continue to do so until it is withdrawn or transferred out the IFISA. Please note that the cash will lose its tax-wrapper if funds is withdrawn from an IFISA to a bank account.

  3. Procedure for withdrawing a P2P agreement from the IFISA - You may only withdraw cash from your IFISA account. If you withdraw cash from your IFISA account, they will lose their tax-free wrapper unless you deposit the cash back the same tax-year as the funds were withdrawn.

  4. A request for transfer of all or part of the IFISA - Investors can at any time transfer part or all of their cash in their IFISA, subject to our Terms and Conditions for Innovative Finance ISA and HMRC's ISA regulations. The timing of the transfer is subject to HMRC transfer guidelines and may take up to 30 days to complete (we will notify you shall it be longer). You may only transfer cash to/from the LandlordInvest IFISA in order to maintain their tax-free status. The cash will lose its tax-wrapper if money is withdrawn from an IFISA to a bank account.

  5. A warning, as relevant, that it may, or will, not be possible to sell or trade P2P agreements at market value on a secondary market- You may list and sell loan parts on the secondary market if you wish to exit a loan investment prior to the loan's maturity date, provided that the relevant loan is eligible for the secondary market and that there are buyers for the loan part listed for sale.

    Please keep in mind that lenders can list and sell their loan parts at a discount on the secondary market, you may get less back than you initially invested in a loan (provided that there are buyer(s) for the loan part and that the loan part is eligible to be listed on the secondary market).

Investment through LandlordInvest involves lending to individuals and companies, so your investment can go down as well as up. Borrowing through LandlordInvest involves entering into a mortgage contract secured against a property as the borrower. Your property may be repossessed if you do not keep up repayments on your mortgage.

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 5 Chancery Lane, London, WC2A 1LG

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