Fund to Peer or Peer to Peer?

Tighter regulation on retail banks and looser regulation on new to market lenders, initially without any regulation, has resulted in a marked increase in the volume of property lending provided by peer to peer lenders.

Business models, mostly the ones seeking growth, are moving away from the retail investor as they are too slow to react and their cost of capital reduces the net return for the platform/peer to peer business.  They have adopted family office or fully institutional funding lines.

Most volume lenders rely in the first instance on a primary underwriter to take on loans quickly, then the constituent slices are sold down to the individual people classified as retail lenders.

The primary underwriter position is a very lucrative one as their pot of liquidity can be utilised many times during a year, so the annualised returns can be multiples of 1000%.

Most of the lenders we speak with rely on a pension fund or private equity investor to write the "larger" loans.  Most are actively seeking new funding lines for growth, before the big sell off comes and the peer to peer platforms are bought directly by private equity funds.

Smaller lenders can operate profitably without the need for deposits or the additional complexity of Financial Conduct Authority “FCA” approval.  That said, we are yet to see a full cycle; lend / repay / default / recover / re-lend, or even multiple full cycles to generate reliable data on risk, returns and defaults.

Counterparty risk is a hot topic and specifically relevant when considering new borrowing. Estimating how aggressive or consultative a lender will be if you default is almost impossible, but you can guarantee insolvency practitioners are currently courting peer to peer lenders for future work.

There are so many providers in the various sub-sector spaces within the market that tracking them, and their daily evolution, is challenging.

Jamie Davidson | Loans over £10m and restructuring |
Andy Lawson | Loans over £1m |
Edward Page | Loans under £1m |
Sean Crombie | Business Development |
Mark Reidy | Business Development |