Peer to Peer Lending: Asset-backed Loans for High Net Worth Investors
Guest post by Ben Shaw, Director of HNW Lending Ltd
Over to Ben:
Bridging loans and development can be expensive, but they are an integral part of making money on property. A developer or investor often will happily pay a premium for a quick solution from a provider they trust, as its often worth paying a bit over the odds to know you have the cash when you need it.
As we all know, banks have become a little frustrating to deal with - Basel rules and big, unwieldy organisations do not make for quick (and rational) decision-making. Therefore if you have to pay a few quid extra, it can be worth it.
However, its worth knowing that some of the new peer to peer websites are now getting in on the act and undercutting the more traditional bridging and development providers. They do this because they can match your borrowing requirement directly to a wealthy individual who is looking to lend. And that individual generally doesn't demand the rates of interest that a bridging lender would require.
The Property Voice talked to us here at HNW Lending a few days ago and we went through some examples. The first peer to peer lending example was a borrower who already had c.200 properties. The borrower was fed up of dealing with the banks and so was happy to pay a bit over the odds compared to a bank - he paid 7% over base for an 8-year interest only loan at c.70% loan to value. Arrangement fees were just 1% plus c.£1k of legals. No exit fees or other fees.
Another peer to peer lending example was an investor looking for a more traditional bridge for 3-6 months - this was arranged at just over 1% per month again with a 1% arrangement fee and no exit fee. This beat his existing bridging offer by c.5% p.a. and with less than half the fees!
However, I am keen to point out that our business arranges all types of loans - not just based on property - some of the more unusual peer to peer lending includes loans based on art, classic, vintage and super-cars, fine wine and even on boats.
What investors and developers often don't realise is that they usually have cash tied up in assets other than the property they are developing or investing in. This means that if a developer or investor needs to go to 90% or even 100% loan to value, this can be achieved by taking second charges on another property or using some of the developer or investor's other assets. This includes first or second charges on holiday homes abroad, with HNW Lending doing loans based on holiday homes in France and Spain for example.
I am open-minded to any kind of loan, so long as I can get someone to value the security being offered, and I am also keen to point out that if someone has a bad credit rating this will not affect the loan offer at all. We don't do credit checks because at the end of the day, the loan is based on the collateral (such as the property) and so it doesn't matter if the borrower has a bad credit rating or indeed what the borrower wants to use the money for. Similarly, our lenders are generally happy to roll-up interest if required and roll fees into the loan.
All in all, this peer to peer lending, or alternative financing approach will be a breath of fresh air and will give property investors quite a bit more flexibility when they need to borrow money.
The Property Voice insight:
If we were to undertake a survey of the common methods of financing a property investment / development project, we would likely have a lot of responses listing cash, a mortgage of some description and possibly short-term lending such as bridging / auction finance as the highest ranking alternatives.
As with other industries, the lending market is experiencing some 'disruptive technologies' from completely new providers. Peer to peer lending is one such disruptive technology, where a single beneficiary of finance (borrower) is supported by many individual contributors (lenders). The 'crowdsourcing' concept if you like. We have started to see new entrants coming into this segment as it gathers pace and popularity.
The lending model presented by Ben Shaw from HNW Lending takes this peer to peer lending concept to another level. Backed by high net worth investors, with lending secured against high value assets like property, art, cars, fine wine and even boats, allows an investor to access funds in a totally new way.
As the lending is secured against the asset, no credit checks are required and this is also appealing to many I am sure. With interest able to be 'rolled up' (i.e. paid on settlement at the end of the loan term) and lending for any purpose, it definitely has some appeal under the creative or alternative financing headings to consider.
It is a niche area for sure - for example, I tend to drink all of the wine that I buy! However, it opens up a range of possibilities to consider when looking at our financing options. Lending secured against property and other assets in the shape of peer to peer lending could well shake the tree of the traditional financial lending community I am sure.
What are your thoughts here...have you looked at peer to peer lending in general and how about these alternative asset-backed loan options in particular?
Please let us know in the comments box below, share or start a conversation via social media and we will see if we can get Ben to join in…