Read the Financial Times article here
A London based property developer has secured the world’s largest peer-to-peer loan.
Hundreds of private investors hoping to benefit from London’s booming housing market have clubbed together to provide just over £4m through online platform LendInvest.
Investors in the residential housing project in Croydon, south London, have been offered a 12 per cent annualised rate of interest, an appealing return at a time when interest rates in the UK remain at 0.5 per cent.
The loan marks a dramatic shift in the sorts of funding undertaken through peer-to-peer websites.
Before Lendinvest’s £4.1m loan the largest loan provided through a peer-to-peer platform is believed to be £1.75m via Assetz Capital.
“The fact that the largest loan has more than doubled in a year shows how quickly the sector is growing,” said Christine Farnish, head of the UK based peer-to-peer Finance Association. “What we thought was astonishing a year ago is now normal.”
peer-to-peer websites allow investors to lend directly to individuals and small companies, cutting mainstream lenders out of the equation. The sector, which has been described as Ebay for loans, is praised by consumers and industry figures keen to see high street banks cut down to size. Platforms have received endorsements including government funding in the UK and backing by high profile investors such as Google in the US.
However peer-to-peer has yet to be tested by serious default in the west. A recent spate of failures in China’s booming P2P industry is a stark reminder that rising interest rates could pose problems for the sector in the US and Europe, where the industry has expanded rapidly in recent years as banks scaled back their lending.
Most platforms limit the sums that individuals and small companies can borrow. Lending Club, the largest P2P lender in the US, will not provide more than $35,000. Zopa, the UK’s oldest website, sets a £20,000 limit.
Yet as the sector grows these limits could rise. Funding Circle, one of the UK’s largest platforms, said that it expects to loan out larger sums as it moves further into property development services.
Like LendInvest, Funding Circle sees residential property developers as an untapped market for alternative funding. Small to medium-sized housebuilders and property developers have, like many SMEs, struggled to access funding during one of the deepest downturns in the construction industry’s history.
“The London residential market has been booming for quite a few years, but it’s taken a long time for the funding environment to catch up,” said Dominic Grace, head of London residential development at Savills, the estate agent.
LendInvest was spun out of Montello, a London-based bridging finance lender, last year. Martin Skinner, director of Inspired Asset Management, said he had no qualms about using a new funding model.
“What we needed was to move quickly and traditional lenders are too slow,” he said. “There is a lot of money out there for property in London and we have been in bidding situations with 50 other buyers who can offer immediate payment exchanges.”
Ian Gurney, who runs the independent P2PmoneyUK website, said that the peer-to-peer industry was likely to grow at a faster rate if property loans took off. “It doubled in size last year and this sort of funding could take it to another level,” he said.
“Crowdfunders, which facilitate equity investment rather than loans, are already into this in a big way and they show how large it can get.””
Last year, New York based website Prodigy Network crowdfunded $200m from over 3,000 investors to fund the first skyscraper built in Colombia in 40 years.