Peer-to-peer lending as part of a diversified portfolio

Diversification is important for any investor. By spreading investments across different types of financial instruments, industries and businesses investors can build a portfolio of assets that react differently to changes in market conditions. This reduces risk while maintaining opportunities for high returns over the medium and long term.

Peer-to-peer investing

Peer to peer (P2P) investing is a significant part of any diversification strategy. Also known as “social lending” or “crowd lending”, it involves individuals lending directly to other individuals or businesses, using websites to find opportunities rather than having to go through a middleman in the form of a financial institution.

With P2P lending, the investors benefit in several ways. Crucially, they tend to get higher returns. Because they are using innovative digital platforms, costs are lower, and the websites frequently take lower fees than traditional financial institutions. In addition, investors benefit from added flexibility, as using an online platform makes it simple to decide what to lend on and how far to spread your risk.

There is also a human element. Many individuals like knowing who they’re lending money to and why they need the money. Sometimes there can be a social element to participating in P2P investments with lenders discussing their experiences and sharing their opinions about what might make good investments.

Because of these benefits, P2P investment is expanding rapidly. The global P2P lending market was valued at $68 billion in 2019, and is projected to reach over $550 billion by 2027, an annual growth rate of 30 per cent.

Property as a peer-to-peer investment opportunity

One type of P2P investment is particularly attractive: property. This is because loans can be secured against tangible assets – the property against which the loan is being made. Much P2P lending is largely unsecured, but when the lender has the security of a physical asset the risk is greatly reduced.

One company that is having a major influence on the property P2P market is Kuflink. Founded in 2011 and led by Narinder Khattoare, Kuflink has offered an online P2P platform since 2016 and the team of 32 currently manages a loan portfolio of over $200 million.

Kuflink, which is regulated by the FCA, provide loans to commercial and residential property developers for three to 18 months. While offering lenders attractive returns of up to 7.2 per cent (at the time of writing), Kuflink’s focus is on reducing risk for its investors in a number of ways.*

Firstly, loans are secured against property assets with first or second legal charges, with a maximum of around 70 per cent of loan to developed asset value. Secondly, loans include interest and management charges, which effectively means interest is collected up front. Thirdly, Kuflink operates a rigorous due diligence process, where the creditworthiness of loan applicants is assessed in a number of ways.

Credit checks are of course conducted. But the property is also valued professionally, the lending risk assessed, and the loan priced accordingly. A separate credit committee makes the final decision whether to offer the lending opportunity to Kuflink’s investors. Once made, the loan is monitored daily.

And if things do appear to be going wrong, Kuflink uses a 30-day default rule, compared with the far longer, riskier, 180-day default rule demanded by the FCA. However, because of these rigorous processes, things rarely do go wrong, and Kuflink demonstrates its confidence in the loans it offers by co-investing up to 5 per cent alongside its lenders.

The digital difference

Innovative P2P companies such as Kuflink are different. Because they are so efficient, they can offer better returns than traditional banks. And they provide the flexibility to spread investments across different types of property simply and quickly, with investment amounts starting from only £100.

These benefits are powered largely by digital technology. But digital on its own is not sufficient. The team that set up Kuflink was highly experienced with property investments before founding their P2P venture. It is this deep knowledge of the market coupled with their understanding of what drives investors that has resulted in success – they have never lost money on an investment.

Of course, there is no such thing as a totally risk-free investment. But P2P property lending is a major opportunity for people who are happy with managed risk levels and want an enhanced investment return. And Kuflink, where you can invest in exciting individual projects, secured on UK property, from just £100, is an excellent place to start.

To explore more about P2P property lending, visit www.kuflink.com