We are a peer-to-peer marketplace helping individuals, high net worth lenders, private banks, family offices and institutions achieve attractive risk-adjusted returns by lending to fund carefully chosen residential development projects.
Invest and Fund, and other peer-to-peer property lending platforms, are growing rapidly as the disruption of the traditional property development finance market gathers pace. But why is this? A multitude of factors are acting as tailwinds despite a more unpredictable housing market.
The UK property market, which has been marked by low volatility compared to equities for the past 30 years, is now looking more complex. Thanks to Brexit-induced uncertainty prices in London for example are falling for the first time since 2009, according to recent data from Halifax. However alternative finance lenders continue to see strong growth as both lenders/investors and borrowers look for solutions to the gap in the market left by the mainstream banks*. *Source: P2P Finance Association.
Those dipping their toes into the P2P (peer-to-peer) property lending market over the past few years have been attracted to the potentially strong yields on offer, and with demand for new housing across the UK still strong, and reduced lending appetite from the traditional banking sector remaining the case, the market offers a compelling investment case.
In London and the South East of England while prices have declined in recent months the picture across the UK is more buoyant, and platforms providing financing to property development have grown quickly as investors have become more comfortable and experienced with property-backed loans*. *Source: AltFi
Before we examine in greater detail as to how and why this new asset class is gaining traction, here’s a quick recap on what lending in the alternative finance property development space is and how it works.
Property focused peer-to-peer lending platforms connect lenders, both retail and institutional, with developers in the property development world. The focus is on development loans and bridge funding, as well as some commercial real estate lending.
Lender’s cash is put to work to fund projects in a market that has seen a huge retreat from large banks who traditionally provided funding. For straightforward buy-to-let investors recent Governmental regulation has also curtailed rental yields and made it harder to access. For investors in P2P property market, however, returns still cluster between 4 to 8 per cent level which, given the low level of interest rates, offer the potential for decent returns. However, it should always be remembered that Lenders’ capital is at risk, and that payments are not guaranteed if the Borrower defaults. If anyone is unsure they should seek professional advice before lending or borrowing.
The alternative finance sector has also been able to grow, because it has been able to attract significant talent and expertise that used to reside in the large banks*. *Source: Financial Times
Many of those individuals have watched the growing maturity of the sector and realised it has an important role to play post the 2008 financial crash and the regulatory crackdown that followed.
Regulatory capital controls for these large banks, also encumbered by their outdated legacy tech, remain challenging in but are not the only reason disruptors are gaining ground. This ongoing dearth of capital as well as favourable demographics has created a sweet spot for lending investors with few favourable options in fixed income or cash savings account.
A vacuum of available funding does not tally with the UK property market’s age old truth that we simply don’t build enough houses in the UK to keep up with demand. Couple this with attractive returns and a growing specialist edge for niche providers of capital and it is clear why alternative finance platforms in the property development world are achieving success.
Lenders’ capital is at risk. Remember, payments are not guaranteed if the borrower defaults. Invest and Fund Limited is authorised and regulated by the Financial Conduct Authority (FRN: 711378). For further information please visit www.fca.org.uk. Invest and Fund Ltd is not covered by the Financial Services Compensation Scheme. Invest and Fund Ltd (No. 8277803) is registered in England and Wales. The registered address is the HCP Building, Chichester Road, Ponswood, St Leonards-On-Sea, East Sussex, TN38 9BG.
For important disclosures please click here.investandfund.com/pages/terms-of-service.aspx#tab-2
Online lending platforms such as Invest & Fund are part of the broad adoption of non-bank financing among a growing number of both institutional and retail lenders and those seeking capital.
Looking back a decade to the state of financial markets in the nadir of the Global Financial Crisis an optimist might have hoped for a quick recession at best while a cynic might have expected an end of the whole market based financial system.
Such views, whilst understandable missed what was right around the corner: the rise of financial technology - or fintech - and alternative finance.
The rise of this disruption to traditional finance has brought new options for investors and those seeking capital amid the ‘platformification’ of markets and the rise of new business models. It has also challenged banks to their core and increasingly presents a larger threat. It was in fact several years old in 2008 but nobody predicted that it would go on to revolutionise and transform the banking landscape so rapidly.
For those unfamiliar with ‘alternative finance’ it is simply the provision of traditional funding (normally from banks) such as lending and equity raising but from non-traditional players. In the jargon banks are ‘disintermediated’ and the pace at which it has happened since 2008 has been significant, driving down the cost of capital.
So how does it work? A great example is how Invest & Fund connects two groups of people together by facilitating property development finance and bridging loans while providing returns for lenders.
On one side of the coin are experienced property developers looking to borrow capital to fund their projects. While on the other side are lenders seeking to lend money at a rate of interest that cash cannot currently deliver but offering a lower level of volatility than equities have experienced since the 2008 financial crisis.
But there are potential downsides which must be considered very carefully. The most important point to understand is that a lender’s capital is at risk, and you could potentially lose all of your original investment. Alternative finance providers try to mitigate this risk by providing security against the property or land, but that should not be mistaken as a guarantee that your money will be returned in the event of a default.
Banks have quickly retreated from lending markets especially for smaller loans mainly owing to new regulatory requirements. Advances in technology and data also allowed these markets, previously monopolised by big banks to open up to platform-based players such as Invest & Fund.
Today, ten years on from the fall of Lehman Brothers investment bank, alternative finance platforms are booming. Low rates and the technology enabled lending ecosystem is facilitating the growth in non-bank lending and investing.
While much of the growth was enabled by the economic conditions of the post-financial crisis era, it is important to remember this period also coincided with the growth in the smartphone and a general rise internet connectivity. An important but overlooked link in the growth of disruptive finance.
So how big is ‘alternative finance’ and is it still alternative? In the UK lending volumes for peer-to-peer platforms hit well over £5bn in 2017 with 2018 expected to represent significant increases on this. During the depths of the financial crisis in 2008, volumes stood at just £300m. The broader alternative finance market is far larger still.
The financing of specialist and niches areas of lending such as the property market, for example, are quickly becoming open to all. The UK has the most sophisticated and well-developed alternative finance sector in the world and the growth of peer-to-peer lending is having an undisputedly positive effect on the UK economy. That won’t go away in a hurry.
Lenders’ capital is at risk. Remember, payments are not guaranteed if the Borrower defaults. Invest & Fund is not covered by the Financial Services Compensation Scheme (FSCS).
For important disclosures please visit www.investandfund.com/disclaimer.aspx
Brexit has clouded the trends for the housing market making predictions 2019 problematic.
So what are the market analysts and experts saying?
Property prices likely to remain fairly static in 2019
Property investment specialists JLL are expecting UK house prices to inch up by 0.5 per cent in 2019 subject to a Brexit deal being agreed. Others are similarly cautious although some are anticipating a ‘Brexit bounce’ if negotiations go better than expected. “The Brexit noise can threaten to drown out everything else,” says Grainne Gilmore, Head of Residential Research at Knight Frank. “But outside London, where affordability has been stretched, price growth continues apace.”
Others share this optimism. “If the uncertainty lifts in the months ahead and employment continues to rise, there is scope for activity to pick-up through next year,” explains Robert Gardner, Chief Economist at Nationwide. “The squeeze on household incomes is already moderating and policy-makers have signalled that, if the economy performs as they expect, interest rates are only expected to rise at a modest pace.”
No widespread sense of panic
In November, when a Bank of England report suggested that property prices might plummet by as much as 35 per cent in the event of a no-deal Brexit and spiralling interest rates, the response from industry professionals was pretty robust. “We believe this is highly unlikely,” said Lucian Cook, Director of Residential Research at Savills. “A correction of this nature is without precedent and the economic conditions required are at the margin of a wide range of potential outcomes.”
The regions are expected to out-perform London
Prime central London (PCL) continues to be out-performed by the regions with high stamp duty rates on multi-million pound properties still on the radar. Many investors are awaiting the outcome of the Brexit process before making their move. “Substantial economic and political uncertainty remains and we expect to see stagnant prices or further negative growth in PCL in the final weeks of 2018,” says Stephanie McMahon, Head of Research at Strutt & Parker. For 2019, Strutt & Parker predicts UK-wide growth of 2.5 per cent and two per cent growth in London as a best-case scenario, with a five per cent drop as the downside risk.
Industry analysts and economists surveyed by Reuters have predicted that house prices in the capital will fall by 0.3 per cent in 2019 after a fall of 1.7 per cent in 2018. Things are looking rosier in the North West, where Savills expects price growth of 21.6 per cent over the next five years. Knight Frank’s forecasts for 2019 anticipate that the strongest growth will come in the North East and Yorkshire.
Cautious optimism about UK house prices in the medium term
If the short-term outlook has become murky with Brexit, experts are confident of modest but sustained growth in the medium term. “Our assumption is that gradually rising interest rates will support property price growth of 14.8 per cent at national level over the next five years,” adds Lucian Cook of Savills. Strutt & Parker expects house prices to rise by 18 per cent between 2018 and 2022. “The fundamentals of the UK economy remain broadly positive with sentiment remaining cautious,” explains McMahon.
The autumn budget threw up some positive signals for property developers, particularly smaller developers. Specifically, the government’s decision to extend the Help to Buy Scheme until 2023, which may ensure that the handbrake is not applied to house sales during the uncertainty of a post Brexit era.
Since it was launched in 2015, Help to Buy has funded more than 160,000 purchases in the UK. In 2017/2018, it supported 44% of new build transactions. Moving forward the support that the scheme provides may prove indispensable in preventing a sharp decline in property transactions.
Beyond The Help to Buy Scheme, smaller developers will still need as much support as possible if they are to challenge the dominance of the large housebuilders, who are now responsible for 77% of all new homes in England registered with NHBC.
One potential opportunity is the build-to-rent sector. It is attractive to smaller developers because multiple units are more likely to be purchased by investors rather than individuals. Knight Frank predicts that £50bn will be invested into the build-to-rent sector by 2020, with an estimated 6.75 million households living in rented accommodation by the end of the decade, as attitudes amongst Millennials and younger generations become increasingly relaxed about renting rather than buying.
Another very positive development was the creation of Homes England, which came into being at the start of January 2018. Its core objective is to accelerate the rate of house building in the UK, in order to try and meet the government’s published target of 300,000 new homes a year. They intend to do this by releasing more land to developers, and within the next few years, will have invested over £27 billion across a host of regional programmes. Homes England manage the Home Building Fund, which was increased in 2017 to £4.5bn and exists to specifically support the SME developer market.
The British Business Bank has also refined its ENABLE Guarantee programme to include property development. The Guarantee programme encourages banks to increase their lending to SMEs by reducing the amount of capital required to be held against such lending. Under an ENABLE Guarantee, the UK Government takes on a portion of the counterparty’s risk on a portfolio of loans to smaller businesses in return for a fee. Alternative Finance providers such as Invest & Fund will also continue to scale as they provide a pragmatic solution, particularly for SME developers, to the issue of accessing capital to fund projects.
So whilst Brexit may present a dark cloud over the entire UK economy in the early part of the New Year, there are reasons to be cautiously optimistic for the property developer community.
One of the most appealing things about property development is that anyone can do it. Technically you do not need any qualifications or training to get started. Anyone can become a property developer simply by buying a house then selling it on for a profit.
If you think you could be the next Sarah Beeny, or you simply enjoy DIY, property development might be a good choice.
Plus of course, if you get it right the financial rewards can be substantial, particularly when you start to build a portfolio of renovated property that has been sold on or rented out.
What are the risks?
It is not worth even considering property development unless you are in a very stable financial position.
Taking on a property to develop is a serious commitment, and if you get it wrong, you could end up in a lot of debt with a property you cannot shift.
Most lenders like Invest & Fund will require a first charge on the property development project and other security such as a debenture and personal guarantees.
What extra expenses should you expect?
Developing a property will almost always incur unforeseen costs, so you will need to set aside cash to make sure you are able to cope with them.
Here is a list of some of the additional costs you need to budget for.
· Hiring contractors
· Having a structural survey done
· Fees you may have to pay to external agents
· Structural issues like subsidence or even asbestos
· Maintenance and repairs
· Legal fees
What if you have existing debt?
Developing property represents a huge financial commitment because it involves the initial outlay of buying the property, then the significant expense of doing up that property and arranging for it to be sold or rented out.
If you have any debts or your daily finances are being squeezed in any other way, now is not the time to start trying your hand at developing property, as you will only plunge yourself into further debt.
Research properties before you buy
To give yourself the best chance of success, you would have to know the market inside-out:
· Find out how much other properties go for in the area
· Decide on who your target buyer is
· Calculate stamp duty
What else should you consider?
Property development involves a significant amount of research and capital before you can get started and will require a huge investment of both time and money.
If you decide it is for you, start off small with your first property, and only move on to bigger projects as you gain experience and confidence.
Help build your pension by adding property development investments into a SIPP.
What is a SIPP?
A SIPP gives you the control to make your own investment decisions with your retirement pot. Contrastingly traditional pension schemes rely upon a third party to make the investment decisions on your behalf. Each SIPP has its own scheme rules which set out the range of investments that may be held.
Pension contributions confer certain tax benefits, and interest and other income generated inside a pension wrapper are typically not subject to taxation, which means you are able to retain all of the interest you earn.
People with a SIPP have a great deal more flexibility and can hold a wide range of investments within their pension, including property development lending. HMRC has set out guidelines for what can and can’t be included. You should also be aware that each SIPP operator has their own policies and rules on which investments their beneficiaries can hold.
Invest and fund have collaborated with two highly experienced SIPP operators, that can guide you through the process or give you any additional information that you need in order to make an informed decision as to whether you want to include your property development lending inside a SIPP wrapper. They are the only two providers of SIPP’s which admit loans of the sort that Invest & Fund offer. Please note that we do not offer advice or recommendations. When choosing which SIPP operator to use, investors will need to decide which one best meets their own particular requirements, and in some cases may appoint a financial adviser to help them decide. If you would like further information on SIPP providers that can accommodate property development lending as part of a SIPP wrapper, then please contact us at:
firstname.lastname@example.org or call us on 0207 464 4454 for more information.
Invest & Fund operates a lending platform to finance property development projects. Lenders' capital is at risk. Past performance is not an indication of future returns.
Lenders’ capital is at risk. Remember, payments are not guaranteed if the Borrower defaults. This communication is targeted at UK residents only and it does not constitute advice, within the meaning of the Financial Services and Markets Act 2000. Invest and Fund Ltd (“Invest & Fund”) operates a lending platform, bringing together Borrowers and Lenders, to finance property development projects. Invest & Fund makes no representation and accepts no responsibility or liability for the completeness or accuracy of this communication. If you have any questions about the suitability of a particular product to you, please contact an Independent Financial Advisor. Before making a lending decision, you should ensure that you have sufficient information to ascertain the legal, financial, tax and regulatory consequences of making a loan and that you understand the risks associated with this, to enable you to make an informed decision. Where links are made to third party sites, we cannot accept any liability for the accuracy or completeness of the information provided. Invest & Fund is not responsible for information stated to be obtained or derived from third party sources or statistical services. Invest & Fund may monitor and store communications by e-mail, to the extent permitted by law. Invest and Fund Limited is authorised and regulated by the Financial Conduct Authority (FRN: 711378). For further information, please visit www.fca.org.uk. Invest & Fund is not covered by the Financial Services Compensation Scheme. Invest and Fund Ltd (No. 8277803) is registered in England and Wales.
The UK planning process is renowned for being awkward and time consuming. Much has been written in the media about improvements that are required.
It is important to understand the vested interests of all stakeholders in the planning process. The Planners themselves work for Councils. Elected Councillors represent the public interests. So for example, if you want to build a house on a “Greenfield” site just outside a village boundary, the Councillor who represents the public, the local Planning Department will probably refuse planning permission. This is in part because of likely local public opposition and in part because the plan is not consistent with the Local Plan and Area Planning Strategy.
Do your homework - see the Local Plan and read the Area Planning/Housing Strategy.
If you are considering doing any new development work, it is best to go to the Council offices or public library and see the Local Plan. This outlines the local areas assigned for potential future development and those where no development is either needed or allowed, and you should be able to buy a copy of this for a few pounds. You should also read the Area Planning and /or Housing Strategy or similar such publicly available planning documentation. This will set out what goals and actions the Planning Department has in mind in the coming years.
The Planning Stages and how these affect property values
There are three types of planning stage. A plot without planning permission, a plot with Outline Planning Permission (OPP), and a plot with Detailed Planning Permission (DPP). A Greenfield site may only be worth a few thousand pounds without planning permission, but worth a six-figure sum with OPP. Clearly for an investor that can transfer a plot without planning permission into one with OPP or DPP, financial gains can be substantial.
What is Outline Planning Permission? What is Detailed Planning Permission?
OPP is a brief description of the type of property that will have permission – for example, one detached two bedroomed dwelling. Before starting building, you will need DPP – this includes detailed plans and drawings, details of what the building will be made of, dimensions, number of bedrooms etc. You might apply for DPP for a 2/3 story house with a bedroom in the roof area, but the planners refuse this idea and want it only to be 1 storey with dormer bedroom. Getting DPP will likely need some negotiation on the details and overall concept. The chance of getting DPP approved after OPP is very high, but the chance of getting exactly the plans you want during DPP is fairly low. Before presenting your architect's detailed plans, make sure you comply with building regulations on things like “right to light” for neighbours, building materials, and access.
Beware of “get-rich-quick” schemes that for instance advertise farm land with potential for planning permission – very few Greenfield sites are given planning permission for construction of dwellings so such a purchase would be very speculative. Theoretically if you believe a plot which costs 10,000 pounds has a 20% chance of getting planning permission, and it could then sell as a plot with DPP for 120,000 pounds, this makes economic sense to purchase. However, you will not be able to borrow money against the plot, and will incur costs to get your OPP, and it will take up a significant chunk of your time. Lastly, If you do not get OPP, be humble and accept the ruling – don’t “burn your bridges” – you never know if you will be applying again to the same Planning Department. If you want control of such decisions, property development may not be for you
We wanted to share a number of exciting new features that have been added to our website, based on recommendations that our lenders have made, and are designed to make things much easier and more convenient for our lending community.
The biggest change that lenders will notice are our newly designed Transaction Statements - we have been working on these for a while and believe that they represent a significant step forward, allowing you to view all purchased and accrued interest, as well as all withdrawals and deposits, via your dashboard.
Another new initiative is the customisation of transaction histories. Previously Lenders were only able to select an individual month in a specific year, but now are able to specify any time period of their choosing, thus saving considerable time and effort. Additionally, you are now able to access primary and secondary marketplace contract notes for all transactions that you have undertaken, as well as view any loan from your dashboard rather than having to come out and enter in via the marketplace. So, all the important information is available in one place rather than located separately, which should be much more convenient.
Lastly, pages should now load faster, and they have also been optimised for mobile devices, ensuring that you can view all information more quickly and easily, wherever you may be.
All these changes represent our ongoing commitment to ensuring that our website user experience is easy and straightforward, and we hope that you will agree.