Peer-to-peer (P2P) property lending emerged in the aftermath of the global financial crisis with a pledge to democratise investing and enable retail investors to get access to, and invest in, a wide range of alternative financial product such as loans to SME property developers.
Yann Murciano, CEO at P2P property lending platform Blend Network, reviews the success of P2P property lending over the past decade and explores the reasons the profile of investors using it is changing and becoming more diverse.
P2P, highly regulated by the Financial Conduct Authority, is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. Having emerged only a decade ago, it has now become an asset class in its own right, with a devoted investor base that over the past few years has been wooed not only by its attractive returns but also by its ability to let investors take control of their own investment portfolio.
The idea of P2P lending in itself is not new, yet its potential and scope has soared dramatically in the past few years thanks to a digital disruption that enables lenders to browse and invest in pre-vetted loans with a click and manage their portfolio through a simple online dashboard.
The uniqueness of P2P lending rests in the way it blends personal finance and technology and takes the concept of ‘democratisation’ of personal finance to levels hitherto unconceivable by allowing a wide range of different types of investors co-invest together on a property loan. This unique mix of finance and technology, blended in a user-friendly dashboard, is perhaps the reason why P2P lending is increasingly attracting a younger generation of investors. Today’s P2P property investors are young, time-poor and tech-savvy investors who, despite having a smaller pot of money to invest, want to take control of their investment portfolio.
At its inception, P2P property lending targeted a relatively narrow profile: professional investors, typically male, in their 50s and 60s. Yet over the past couple of years, we have witnessed a dramatic transformation in the profile of investors using P2P property lending to invest. These are increasingly young professionals in their 30s and 40s, increasingly female and increasingly diverse. Yet they all share a common goal: to take control of their finances at a time when historically low interest rates, economic uncertainty, job insecurity and a global pandemic is threatening to damage their savings and their future pension.
According to the Moneyfacts UK Personal Pension Trends Treasury Report, the average annuity income fell by 6% in the first three months of 2020, its lowest level on record. The data shows that in Q1 2020, the average annual standard annuity income for a 65-year-old person was 1.7% lower than the previous lowest level recorded in October 2019. Moreover, those saving for retirement will also have seen their pension funds severely hit during the first three months of 2020. The impact of Covid-19 on the global stocks markets has caused the average pension fund value to drop by 15% in this period, its worst quarterly performance on record. Many popular ABI pension fund sectors posted even heavier losses, with UK Smaller Companies (-31%), UK All Companies (-30%) and UK Equity Income (-28%) pension funds hit the hardest. In fact, only 11% of pension funds avoided losses in the first quarter of 2020.
Amid the recent episode of market volatility and the broader cycle of low interest rates witnessed over the past decade, it comes as no surprise that a younger generation of investors have flocked to P2P property lending in order to protect their savings and earn a good return. P2P lending has become increasingly popular as a financial instrument used by investors who in addition to earning a decent return, are looking to do well by doing good. P2P property lending allows investors to pick and choose pre-vetted and pre-screened loans and lend directly to borrowers who need funding to undertake a wide range of activities such as, in the case of Blend Network, building more affordable homes, which is what the UK needs.
Yann Murciano is CEO of Blend Network