With saving rates so low – where else can you put your savings for a decent return? We have looked at investment trusts with good dividends in excess of 4% in How to Live Well in Retirement but of course the value of trusts can go down as well as up! Well, P2P or Peer to Peer is an alternative with a warning! Your capital is at risk too – no protection from FSCS. The peer to peer model has become very popular in the UK. This article will define peer to peer lending, returns and risks.
What is P2P?
P2P is Peer to Peer Lending. Instead of a Bank or other financial institution lending money to an entrepreneur, business, property developer or even Joe Public – you become the lender at attractive interest rates.
Top Peer to Peer Selections
There are many online peer to peer offerings available. A number of sites keep a full list of the current Peer to Peer lending companies and offer some advice and rank the offerings. Two of the best P2P sites are:
4thWay explain “What P2P is and How it Works“. Perhaps more interesting for those wanting a starting point – 4thWay have a comparison of the many P2P offerings: Compare Peer-to-Peer Lending Companies. They have also produced a useful graphic to illustrate how P2P works for investors: see below. P2PMoney offers similar comparisons, and lists but the data does not seem up to date. The comparison sites are also getting on board and offer some assistance. For example, GoCompare also have a useful page about P2P with some case studies. MoneySupermarket has a more comprehensive page.
During the last few years I have invested small amounts in several P2P offerings for income:
In 2017, Ratesetter had been hit by £80m of struggling loans in the first major setback for the nascent online P2P lending sector. To its credit, Ratesetter provided the option to review any investment and sell out without incurring any fees. I took up their offer as I was concerned. It seems my concern was unjustified.
I still have a small holding in Zopa but moved most of my holding to Assetz when the interest rates dropped significantly on Zopa. Zopa have been operating for many years, and rank well on Trust Pilot.
Like, in the case of Zopa, I have moved most of my capital from Funding Circle to Assetz after losses were getting to high. There are good rates of interest available but the number of defaults is an important consideration. Again I still retain a small holding.
My main P2P investment is currently with Assetz. I was originally attracted by their Quick Access account – nominally you have immediate access to your funds (although Assetz do state instant access is only available under normal market conditions – what are normal market conditions??). The rate of interest was 3.75% but has just been increased to 4.1%. In addition, I have some small funds in their monthly account called the 30-DAY ACCESS ACCOUNT. I have a small investment in their Green Fund too but that option is not presently available. I am also somewhat reassured by Assetz’s Provision Fund. The Discretionary Provision Fund aims to provide protection from capital losses and missed interest on performing loans. Update 2019: currently cashed out of Assetz and sitting on the side-lines. Issues with a company called Collateral and Lendy (see below) have raised concerns about P2P.
Lendy (used to be Saving Stream)
This is probably at the riskier end of the P2P spectrum! On the Lendy platform you can choose what property developments you wish to invest in. There are also some alternative investments. The interest rate is 12% (some less and some offer cashbacks) so you can see the attraction and the interest is paid monthly. Your investments are typically backed by first charges on the property. The downside is that interest payments are frozen when the loan is in “default”. Update: the FCA have Lendy on their watch list, and many of their loans are in default status. One of the borrowers launched a claim against Lendy with the threat to involve lenders (investors)!
P2P Investment Trusts
Perhaps you believe that P2P is the way to go but are not too sure about the choice. Then an Investment Trust maybe the answer. Here you can let a fund manager make the decisions about P2P lending. Peer-to-peer investment trusts gain exposure to the loans made on these platforms, usually for the purpose of dividend income and capital growth.
There are several on the market and ThisIsMoney reviewed several such trusts. As you know I am a big fan of Investment Trusts. I have yet to invest directly in a P2P investment trust although Honeycomb Investment Trust is on my watchlist!
Other P2P type investments
Several years ago I came across a company called Harewood Associates (I think they were promoting themselves at a property shows). At the time you could invest directly in property development and get about a 20% return. Needless to say, I was rather sceptical. One of their offerings was to invest in a monthly interest payment option for a 12% return pa. I invested a small pot, and every month I receive my payment on time. Unfortunately, the interest rate has fallen to 6%. They have several options available.
— Remember on all these P2P investments your capital at risk —
What are others saying about P2P platforms?
This forum: P2PindependentForum is a useful resource. Primarily for investors to network, question and raise opinions about the many and varied P2P investment vehicles. Some users are cynical but much can be gleaned from the posts about P2P. Highly recommended.