More than six years of rock-bottom interest rates have left investors desperately seeking an alternative that can offer them rates of return that are worth their bother.
With the average savings account paying just 0.63%, according to MoneyFacts.co.uk, many have given up on cash altogether. Some have taken a reluctant gamble on the stock market, while others have gone to the effort of setting themselves up as an amateur landlord through buy-to-let schemes. Yet too many are ignoring a fresh alternative that can pay a fixed rate of interest of more than 6%.That is a return of more than 12 times the current Bank of England Base Rate.
Peer-to-Peer lending, or P2P for short, is one of the fastest-growing areas of the UK investment market. It is still a new concept to many investors, who are rightly wary of investing their money in things that they don’t understand. But the P2P concept has been established for a decade, and has already attracted hundreds of millions of pounds from ordinary investors.
Is it time for you to take the plunge?
P2P lenders use online platforms to match people who want to borrow money with people who are willing to lend their cash. By cutting out the middleman such as banks and building societies, both sides should gain a better rate. People interested in the concept of P2P lending should understand that investments made through P2P platforms leaves their capital at risk and interest payments are not guaranteed if a borrower fails to repay their loan.
There are many different P2P models, so you have to research your chosen option carefully to ensure that your selected platform suits your investment criteria. It is imperative that you understand the processes and risks involved before committing any funds.
Here at Wellesley & Co we are currently offering attractive rates of between 4% and 6.32% a year on our P2P lending products. These are fixed rates, paid over terms ranging from 18 months to five years. But before you part with any money, you have to understand how the Wellesley model works.
Rather than saving, you are actually lending your money to developers who use it to invest in UK property. Typically but not exclusively, Wellesley borrowers seek development loans to renovate existing buildings to transform them into residential properties to either service the booming UK rental market or to sell them. The model therefore relies on the fluidity of the property market and the liquidity of the asset. It is important to note that if there was a downturn in the property market, the Wellesley model would be effected.
Clearly Peer-to-Peer lending is riskier than leaving money in the bank, as well as potentially more rewarding. At Wellesley, we work hard to reduce the risk to investors by ensuring each credit application is vetted by our strict Credit Committee. Our goal is to focus on high quality lending opportunities which provide asset cover and healthy rates of return.
Wellesley specalise in “asset-backed lending”. This sees the development land and property of each accepted loan application put up as tangible security against the loan. Therefore, if the borrower defaults on interest payments or fails to repay the capital, we can recoup any losses by selling the asset. However, as mentioned this is pending on a fluid property market.
Further to this, we restrict the average maximum loan-to-value (LTV) to 65% of the property’s value, giving it a comfortable margin in case it does need to repossess.
Investors must realise that unlike a standard savings account, their capital isn’t protected by the Government-backed Financial Services Compensation Scheme (FSCS), which protects the first £85,000 of any losses.
At Wellesley we do run our own provision scheme to cover any investor losses. The Provision Fund currently stands at a hefty £1.84 million (and rising).
Wellesley & Co is fully regulated and authorised by the Financial Conduct Authority (FCA).
With Wellesley you can test the water by investing a small sum, starting with as little as £10, and build up your investment portfolio as your confidence and interest builds.
The Risks
P2P lending and Wellesley won’t be for everybody. The risks are crucial to note as investment through Wellesley & Co involves lending to individuals or companies and therefore your capital is at risk and interest payments are not guaranteed if the borrower defaults.
You certainly shouldn’t put all of your savings into P2P, no matter how tempting the rates are. It is key that investors have an investment portfolio that reflects a range of risk levels.
P2P lending could add some diversification to your portfolio, and liberate you from the dismal returns on cash.
To find out more about Wellesley’s products, please email [email protected] or telephone 08008886001.