Peer to peer lending (P2P) is a way for people to borrow and invest without having to use a bank. The peer to peer lender/broker matches investors with borrowers, bringing savings to both as high bank fees are done away with. Although often seen as a niche, P2P lending in the UK has recently passed the £1 billion mark and more and more people are seeing it as a rewarding and viable alternative to the banks. The launch of Landbay, the first P2P lender specifically focused on buy to let, underlines the success of the sector and could well pave the way for improved deals for buy to let borrowers.
The natural worry for investors and borrowers alike is whether such P2P institutions are as good, and financially sound, as they seem. Fortunately, all P2P lenders are now regulated by the Financial Conduct Authority (FCA), bringing a significant level of security to a previously unregulated sector (this only came in on 1 April 2014).
So, what are the benefits for buy to let borrowers? Rates will at least be competitive with those from traditional banks and lenders. There is an automated ‘auction’ process amongst investors ensuring that borrowers automatically get the very best deal that’s available and making each mortgage bespoke. Investors should be attracted by strong returns in the low-risk buy to let market and, consequently, the borrowers should benefit from this strong investor interest. Furthermore, although borrowers are of course subject to thorough background and credit checks, approval should come much more quickly than it would from a bank: applications are processed within 48 hours. With impending interest rate rises, it is certainly worth investigating every option and P2P buy to let lending is a new and intriguing part of the market.
But of course there are risks to consider. This is still a developing sector and although there have been no great catastrophes yet, there is no guarantee beyond the FCA’s regulation. And you may simply find a better deal elsewhere! Please remember to talk everything through with a specialist independent broker before making any decisions.