Advisers remain nervous about the risk profile of the peer-to-peer lending industry, as Octopus Investments announces the launch of a new product tailored specifically to the advice sector.
Peer-to-peer lenders connect investors to individuals and businesses seeking loans and Octopus Choice will focus specifically on loans backed with residential property as collateral. It will seek a return of 5 to 6 per cent. A monthly fee of 0.35 per cent charged to the borrower will cover the cost of managing the loan.
Loans will come via the company’s Dragonfly Property Finance business and Octopus Investments will invest 5 per cent in every loan, taking on first losses resulting from defaults. Loans will never be more than 70 per cent of the value of the property they are secured against and will be for bridging and buy-to-let financing.
Combined Financial Strategies chartered financial planner Jonothan McColgan says P2P products are only suitable for clients with high risk tolerance levels. “You’re basically lending where other lenders won’t touch it and there’s got to be a reason. That means more reward, but it also means more risk.” McColgan added that buy-to-let investors are often highly leveraged.
West Riding Personal Financial Solutions managing director Neil Liversidge says P2P lenders loan money “willy nilly”. He adds: “A few years from now the decisions made by peer-to-peer lenders will make the bankers of 2008 look smart.”
Richard Lord, managing director of Bartholomew Hawkins, who engaged with Octopus Investments during the development of the product, says it provides a middle ground that targets higher rates than deposit accounts, but with less risk and volatility than stocks and shares.
Simon Rogerson, Octopus Investments chief executive, said the decision to launch the product now was due to an investment environment whereby investors were nervous about the market and struggling to find income. He added that the P2P market was “absolutely taking off”.
The rationale for allocating to buy-to-let and bridging loans was because of the proprietary dealflow from Dragonfly and because clients feel familiar and comfortable with residential property as an asset class, Rogerson said.
Research published by Intelligent Partnership in December revealed just 9 per cent of advisers expect the P2P sector will form part of their advice process in the next 12 months. One third of respondents had never heard of P2P; however, the online lending industry grew 160 per cent in the UK in 2014, and 84 per cent last year, according to the University of Cambridge.
A previous version of this story implied the 0.35 per cent charge would be paid by the investor. This has now been corrected.