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PEER-TO-PEER LENDING TO FINANCE COMMERCIAL PROPERTY
4:00pm Tuesday 29th April 2014 in Devon
THE commercial property market in Plymouth and Exeter could soon see major changes in its financing with peer-to-peer lending becoming more popular as an alternative to bank lending, according to property specialists Bruton Knowles.
Peer-to-peer lending first emerged on the funding scene in 2010 as an alternative method of finance for business ventures filling a gap left by banks and institutional investors in the downturn.
The Plymouth office of Bruton Knowles says the lending, which first started in Britain through online platforms and has been widely adopted across the world, is set to take the property market by storm.
Ashleigh Phillips, of Bruton Knowles’ Plymouth office said: “So far, the property market in the UK has been slow to jump on either the peer-to-peer or crowd funding bandwagon, but it’s changing.
“Kevin McCloud, presenter of television’s Grand Designs famously used crowd funding to raise £1.4m for his firm Hab Housing. It is proving increasingly popular in the residential buy-to-let market too, with investors joining up to purchase property assets.
“In the US, crowd funding for real estate has attracted major players and people can invest in companies that buys empty or rented commercial property. It is marketed as a community initiative, with the investor contributing and benefitting from the regeneration of the local neighbourhood. Investors have a say in who rents the property and a share in any return it produces.
“In Columbia, a 66-storey sky scraper was built in the capital, Bogota, using money derived from crowd funding.
“We are not expecting anything on that scale in the South West yet, but there is definitely growing interest in crowd funding and peer-to-peer lending to finance property development and investment. “ Funding Circle, the UK’s leading peer-to-peer business lender, has announced that it has an extremely healthy pipeline of property finance deals that are about to be listed on its marketplace for its thousands of investors to lend on.
Bruton Knowles is advising Funding Circle on the potential property investments, providing audits and valuations to ensure schemes are viable and to minimise the risk for the investors. The first project is being valued in Liverpool.
Luke Jooste, head of Real Estate Finance at Funding Circle, said: “We want to help as many small businesses as possible access the finance they need to grow, and that includes small property developers and investors who are struggling to access funds via traditional sources.
“Our property team has been built from the ground up and if you combine this specialist knowledge with our market leading technology and credit assessment processes, I think we’re going to have a big impact on the property finance market.”
Funding Circle has capped its loan limit at £3m for property projects, which immediately cancels out large developments, which are inherently more risky.
There are, however, risks still associated with peer-to-peer lending, no matter how big or small the project.
The biggest risk for investors and borrowers in the UK has always been lack of regulation but that changed from April 1 as now peer-to-peer lenders will be policed by the Financial Conduct Authority (FCA), which will mean more rights and greater protection for those who use them.
There are minimum capital requirements, rules to protect ‘client money’, and a requirement that steps are taken to make sure repayments on existing loans would continue to be collected if a lender went bust.
With better regulation and security for investors and borrowers, confidence in peer-to-peer lending as an alternative to more traditional forms of finance will continue to grow.
In the last three years, the peer-to-peer lending market in the UK has trebled in size and will be soon bypass the £1bn mark.
According to the Peer-to-Peer Finance Association (P2PFA), peer-to-peer lending increased by 121 per cent during 2013, and by February 2014, £843.4 million had been lent out via the platforms, with £263.6 million loaned to businesses and £579.8 million to consumers.
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