When it comes to peer to peer lending mortgage platforms, the big attraction for investors is the potential for lucrative rewards.
Firstly, peer-to-peer lending – also known as P2P – has grown in popularity in recent years as investors look for better rates of interest on their money rather than, for example, leaving funds in a savings account.
It’s this low interest rate environment that has helped to fuel the take-up in peer-to-peer lending and borrowing.
For those who may not appreciate it, peer-to-peer lending is a type of direct lending to businesses or individuals and it is usually done through an online platform that will match a potential borrower with a potential lender.
Peer-to-peer lending is a type of alternative finance and it’s a straightforward process with each transaction being processed by a platform, for example, The Bridge Crowd.
A peer-to-peer loan UK
But what are the disadvantages and advantages for anyone interested in a peer-to-peer loan UK?
There’s no doubt that there are advantages for both lenders and borrowers under the peer-to-peer lending banner and the most attractive is that the investor will earn higher rates of interest.
Also, borrowers will find that peer to peer lending tends to be more accessible for funding than when applying to a financial institution.
The borrower will enjoy lower rates of interest because there is greater competition between P2P lenders.
The growth of peer-to-peer lending means that these types of loans are an alternative option to traditional high street lenders, but not every borrower will be familiar with the concept.
The peer to peer application process
Borrowers will find that the peer to peer application process is much quicker than with a traditional lender and the money can be used for a wider range of purposes.
P2P loans tend to have more flexible terms with a convenient and quick application process offering a great opportunity for those who want to access funds quickly.
Most platforms offering P2P lending have investors waiting to provide loans to applicants so it is possible to access large sums of money in just a few hours.
One of the advantages with peer-to-peer lending is that the lender will not have the typical overheads that most financial firms will have and it’s these low running costs that help deliver favourable interest rates.
Bridging loans rates will vary
For those who are interested in peer-to-peer lending mortgages then The Bridge Crowd platform, for example, makes clear that the loans are secured by a mortgage over the property which must be in the UK and the bridging loans rates will vary according to the borrower’s circumstances.
This will then deliver an average 12% return per annum to the investor who will choose the deals that interest them.
As with all financial investments, it may be a good idea to take independent financial advice but investors can receive better returns and the P2P loan is for a maximum of 12 months, with the average loan term being six months.
It also needs to be appreciated that the property that will attract the mortgage will be independently valued by a RIC’s surveyor and the maximum loan to value (LTV) ratio is 70%.
With more than 20 years of experience in dealing with bridging finance, The Bridge Crowd has underwritten and redeemed £68.5 million in loans.
Disadvantages with peer-to-peer mortgages
The disadvantages with peer-to-peer mortgages for borrowers include the need to pass a credit check and other verification measures that the lender may put in place.
There may also be a need to pay a P2P application fee which the applicant will not need to do when applying for a loan with a building society or bank.
Also, some P2P firms will charge an arrangement fee on each loan that they match between borrowers and lenders.
As mentioned earlier, peer-to-peer lending has grown in popularity with lenders and borrowers alike since this is a property-backed investment which is essentially protected by the underlying value of the property being invested in.
So, should a borrower default on their P2P mortgage, then the holder of the first legal charge can take possession of the property and begin the process for recovering the investor’s money.
Typical peer-to-peer mortgage borrowers
Usually, typical peer-to-peer mortgage borrowers tend to be property developers looking to refurbish and then quickly sell on an investment opportunity and need access to the cash quickly and they also have the ability to repay within the time limit.
If you would like more help and information about the pros and cons for a peer-to-peer lending mortgage, then it’s time to speak with the experts at The Bridge Crowd.