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Returns from peer-to-peer lending look attractive, but is it a sensible sector to invest for retirement?

Peer-to-peer lending (P2P) has long been deemed by many professionals in the conventional investment industry as too risky for retail investors.

And yet, this technology driven form of lending has surged in popularity over the past decade, which is largely a result of the sector offering a decent return where other asset classes have struggled.

According to research from AltFi published last month, the UK P2P lending market has outperformed more than 90 per cent of UK funds investing in bond and direct property over the past three years.

But while potential returns from P2P lending look attractive, is it a good place to invest for your pension?

Game-changer

Before the pension freedoms were introduced in 2015, savers had to buy an annuity, which pays a fixed sum of money throughout retirement.

“Historically, planning for retirement was relatively simple,” says Michael Lynn, chief executive at P2P lender Relendex. Now people have more choice, they are turning away from the traditional annuity, which Lynn says is because savers have been bitten by traditional pension schemes, and are being badly let down by off-the-shelf products.

Throw into the mix the concerns about an end to the equity bull market, and it’s not really surprising that people are looking to alternative sectors like P2P and crowdfunding to provide extra income in retirement and see their savings grow above inflation. In fact, Crowd for Angels says more than 20 per cent of its investors use the platform to save for pension growth.

And indeed, Relendex’s Lynn says that looking outside the box has become a “necessity” for retirement savings to flourish. He even argues that P2P investments need not be risky, provided the loans are secured against assets and the lender platform is regulated by the Financial Conduct Authority.

Structurally sound

The government’s launch of the Innovative Finance Isa in 2016 has also given people more faith in the sector, offering savers a tax-free wrapper for alternative investments.

Of course, if you’re investing through the Innovative Finance Isa, this should act as a supplement to your retirement income, rather than a replacement for a pension.

Whether you’re saving for retirement or not, it’s never a good idea to invest in one asset class. But there’s certainly something to be said for allocating a small portion of your pension savings to authorised P2P lending firms.

As Folk2Folk chief executive Giles Cross puts it: “Returns from the right P2P platform can be a great way of bolstering retirement income, and should be considered as part of a balanced portfolio of investments.”

As well as the Isa, you can also invest in P2P loans through a DIY-style pension wrapper, such as a self-invested personal pension scheme (Sipp).

One of the benefits of the pension wrapper over the Isa is that you can invest through several different P2P lending sites, rather than just one, which in turn spreads some of the risk.

However, also bear in mind that most Sipp operators will only have a limited number of P2P providers to choose from – if any at all.

The chief executive of Goji, Jake Wombwell-Povey, warns that investing in debt products through Sipps is difficult. One problem is that some platforms don’t have the processes in place to make sure that money invested through a Sipp is not lent to a connected party.

“HMRC levies a tax charge against the Sipp trustee for breaking the rules; this means that Sipp administrators are understandably risk-averse to ensure that they don’t incur those charges – and this manifests in restricted investment lists.”

Wombwell-Povey also points out that Sipp managers need more regulatory capital if they allow investors to hold P2P loans and crowd bonds, which ultimately means higher costs for investors.

“All of these well-intentioned challenges have essentially relegated these investments into the ‘too difficult’ bucket for many of the less innovative Sipp managers, or into the ‘too expensive’ bucket for other investors, despite soaring popularity among retail investors.”

So if you’re looking to tap this market through a Sipp, look at the range of P2P providers available, and weigh up whether you think the extra costs are worth it.

Risk and reward

The proposition of each P2P lender varies so drastically and there are huge differences in the level of risk. This means there is no simple answer to whether the sector is suitable for your pension.

Just like any investment, it’s important to do your research when choosing where to allocate your money: make sure you understand the proposition, and are comfortable with the risks. Also find out the default rate, and whether the firm has a provision fund to compensate investors for poorly performing loans.

Richard Gill from Crowd for Angels says it’s important to know when you’ll receive income. “Some products, such as those offered by P2P providers, make consistent payments into your account as the loans are paid back. Others, like crowd bonds, may make monthly, quarterly, or semi-annual interest payments.”

Ultimately there’s a strong argument for allocating some of your pension savings into the P2P market, but make sure you understand what you’re signing up for.

Source: City A.M.

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P2P Lending Investment Returns Outstrip Many Market Competitors

Peer to Peer (P2P) lending may be one of the newest kids on the investment block but according to new research from AltFi, it is paying out handsome returns.

P2P lending arrived in the UK back in 2010 with the launch of Funding Circle. The idea was simple. In the wake of the financial crisis, banks were – and still are – paying abysmally low rates of interest to savers. P2P platforms allowed savers to collectively lend money to businesses and individuals, usually over relatively short periods of time. By cutting out the middleman (or to be more precise, banks and other traditional lenders), P2P lenders were able to offer competitive rates to borrowers and superior returns to investors.

The market has evolved over the years. AltFi – which provides specialist news for the alternative investment industry along with a range of analytics services – says the market is growing rapidly. For instance, in 2015, P2P lending platforms brokered around £1.1bn in loans. In the first half of 2018 alone, the figure was £3bn. Separate figures from the Peer to Peer Finance Association reveal that its members have, to date, originated loans to a value of £9bn.

As P2P lending platforms have proliferated, there has been a considerable amount of specialisation. Many are open to a broad spectrum of investors, ranging from private individuals on relatively modest incomes,  seeking a way to make their money work a bit harder to institutions, such as pension funds. Some platforms focus on wealthier investors or specialise in certain sectors, such as the property market.

Beating the Market

According to AltFi  Data’s  Lending Returns Index,  P2P platforms delivered a return of 18.92% to investors between June 2015 and June 2018. Based on an analysis of data from Funding Circle, Market Invoice, Rate Setter and Zopa, that figure has been calculated after factoring in losses and fees. The average return not only compares more than favourably to the average returns from bank savings accounts that typically offer 1.5% per annum or less (even after the Bank of England’s hike in rates) but also with the more rarified forms of investment favoured by professional investors.

AltFi cites the example of the M&G Optimal Income fund, which returned a premium of 12.6% to investors over the same period. Overall, the report says that P2P returns outperform many large investment funds and bond investment opportunities.

The target interest rates advertised by some of the leading  P2P platforms confirm that the returns from P2P offer attractive returns. For interest Funding Circle currently targets a return of 7-8% per year for its investors. Zopa targets 4.5% per annum for low-risk loans and 5.2% for those who are happy to live with a slightly riskier proposition.

A Lot of Variation

However, the returns enjoyed by investors do depend on the performance of the loans and as Uma Rajah, CEO of prime property focused platform lender CapitalRise observes,  returns vary from 2% to 12% per year, depending on the platform.

“The rate of return depends on a lot of factors – the level of risk, the creditworthiness of the borrower and the purpose of the loan. That’s why annual returns can vary so much from platform to platform.”  

A Safe Investment

But given that high returns are available, should the ordinary saver (aka ‘retail investor’  in the parlance of the financial services industry) be rushing to take money out of his or her easy-access savings account and put it instead into a P2P platform?

Investing via a P2P platform is a relatively simple process. The platforms in question are essentially online marketplaces that bring together prospective borrowers with investors who have cash they are prepared to lend in concert with others. For its part, the platform vets those who are applying for finance – assessing their creditworthiness –  and then presents a range of loan propositions to prospective lenders. Every platform works a little differently but in most cases, the loan opportunities will be rated in terms of the associated risks and an interest rate is set accordingly. Generally,  investors, have the ability to choose a particular loan opportunity but some platforms ask for funds to be pre-committed and the platform itself makes investment choices and funnels that cash to borrowers. In an ideal world, investors lending through a platform can choose a rate of return that aligns with their own appetite for risk.

More Regulation

Despite the success of P2P, there are still some question marks over its suitability for ordinary investors, as highlighted in July by the industry regulator, the Financial Conduct Authority (FCA). While the regulator has been broadly supportive of  ‘alternative finance’  it has expressed concerns that some platforms are not providing sufficiently accurate or transparent information about investment opportunities on offer. So under proposed new rules, all P2P platforms will have to be much more open when it comes to disclosing information on interest rates (real and expected),  default rates and the risks associated with each loan.

The FCA is also calling on platforms to tighten up their approach to marketing, saying that some lenders were being exposed to opportunities that fell outside their stated risk comfort zone. More controversially – at least within the industry – the regulator is also proposing that the marketing of some P2P products be restricted to ‘sophisticated investors’  – or to put it another way, individuals who tend to be wealthy and can demonstrate that they are financially literate.

It would be wrong to suggest that P2P investing is unacceptably risky – as the AltFi research indicates, the returns after losses remain high. But the reforms should provide an added safety net and have been broadly welcomed by the industry as a positive step. As David Bradley Ward, CEO of the P2P platform, Abirate put it:

“For the P2P lending industry to grow further, it needs to be effectively regulated. In short, this means there’s a fair playing field for lenders, borrowers and platforms. FCA regulation has cemented peer-to-peer lending as a mainstream financial service but to reach its full potential the industry must ensure best practice at a time when the FCA is seeking the adoption of good practice.”

Uma Rajah points out that there three different categories of lending – consumer, business and property – and each have their own risks associated.

“Loans to SMEs and consumers are usually unsecured,” she says. “What this means, in a nutshell, is that should the borrower be unable to repay the loan, investor capital is lost. Property loans, on the other hand, are secured against the properties themselves with a legal charge. The easiest way to understand this is to imagine that should the borrower be unable to repay, the lender (or lenders) could seize the property and force its sale in order to recoup their capital.”

P2P Lending is now part of the mainstream. The Altfi report suggests that it is delivering consistently high returns. But the opportunities and risks vary according to the platform and the nature of the loan.

Source: CashLady

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FCA threatens clampdown on P2P lending

Regulators are considering making peer-to-peer lending and crowdfunding less accessible to investors who aren’t professional or very rich, says David Stevenson.

Can you be trusted to be a sensible investor? The Financial Conduct Authority (FCA) has been pondering whether investors looking to put some money to work in alternative finance are capable of making sensible and informed decisions about the range of products on offer. If they can’t, should their cash be channelled into more open, transparent, mass-market products, such as unit or investment trusts or exchange-traded funds?

I realise this all sounds a bit policy-wonkish, but when it comes to the world of alternative finance, especially peer-to-peer (P2P) lending, this regulatory attitude may be about to have a direct impact on your investments. A few weeks ago, the FCA produced a consultation paper entitled “Loan-based (‘peer-to-peer’) and investment-based crowdfunding platforms: feedback on our post-implementation review and proposed changes to the regulatory framework”.

These fussy new rules…

Most of the suggestions in the paper are good old-fashioned common sense, designed to make P2P lending more mainstream and less risky. But one key proposal stands out like a sore thumb. The regulators suggest that future P2P investment “promotions” should only be able to target the following groups: those certified or self-certified as sophisticated investors, those certified as high net worth investors, those under advisement from an authorised person, and those who certify they will not invest more than 10% of their net investable portfolio in P2P agreements.

So, to be clear, in the future, if you are a new customer at, say, Zopa, Ratesetter or Funding Circle looking to bolster your income, you’ll have to prove you are independently wealthy or a finance professional, or certify that you only have 10% of your portfolio in online lending.

The reaction of many experienced private investors has been negative, to put it mildly. The industry website www.altfi.com, of which I am an executive director, asked for views. M. Thomas said the FCA “has once again demonstrated its antipathy towards individual… investors and the original spirit of P2P (to cut out the middleman)… these FCA proposals demonstrate a nanny-state mentality – people must be protected against themselves”.

Another unnamed pensioner added that “as a former company director, I’m well able to decide for myself what investments I make, and have no plans to reduce my current level of P2P lending (30% of my total). The FCA may wish to reflect on the fact that had its predecessor been rather better at monitoring the activities of Equitable Life, many of us would now have less need to consider some higher-risk investments in our retirement.”

…wouldn’t work

Many investors I’ve talked to with an interest in alternative finance are deeply troubled. Most simply intend to ignore the changes, even if they come in. And that, of course, is the real problem with any form of regulatory overreach. The intended beneficiaries simply ignore the good intentions and just fib and say whatever the regulator wants to hear. Witness the world of stockbroking, where investors already have to self-certify if they want to deal in securitised options such as covered warrants. Most retail stockbrokers send out pointless forms asking all the right questions about attitudes to risk. Most of them know full well that investors who sign the forms aren’t entirely truthful but connive in the charade.

But even if these changes were easy to apply, I’m not convinced they are fair. Is P2P really that risky? In effect, the regulators are saying online lending is as risky as, say, crowdfunding. With all due respect to successful crowdfunding platforms such as Seedrs and Crowdcube, the risk from investing in start-ups is immeasurably higher than that from lending to consumers or even established small companies with clear credit track records. With the former, most experienced investors are used to the idea that a large proportion of their investee companies won’t make it. With online lending, most credit investors (institutions are active in this space) don’t expect losses to exceed 5%-10%, even in the worst years.

Even if policymakers are worried about risk, there is a better way of managing this downside – sharper, smarter regulation. Or as Rhydian Lewis of P2P lending platform Ratesetter puts it, rather than block access, why not “eliminate the high-risk elements of P2P lending and… keep it accessible”? Wouldn’t it be better to close down rubbish platforms, force through far greater transparency about risks and impose heavy penalties for rule-breakers? Why should the wealthy or financial professionals be the only ones to benefit from an alternative to the lacklustre yields on offer at high-street savings institutions – most of which haven’t even passed on the recent increase in the Bank of England base interest rate?

Source: Money Week

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New rules for peer-to-peer lending announced by FCA

The popularity of peer-to-peer (P2P) lending has increased exponentially in recent years, with nearly £10 billion being transferred through such platforms in the past ten years. In an attempt to fix “increasingly complex business structures”, the FCA has announced new plans for new rules for peer-to-peer (P2P) lending.

The FCA has announced new plans which will see a crackdown on P2P lending and the loan-based crowdfunding industry in general following concerns that consumers are at risk of investing in things they do not understand.

P2P lending was last reviewed by the FCA in December 2016, announcing at the time, its plans to address the gap in protections for customers. Since then it has monitored the situation and noted the variety of loan-based crowdfunding business models, of which some are becoming increasingly complex. Whilst the FCA regulates loan-based crowdfunding (also known as P2P lending) and investment-based crowdfunding (which falls outside of the FCA’s present review), the FCA does not regulate donation-based or reward-based crowdfunding (hence, both of these fall outside of the FCA’s review).

As part of its ongoing monitoring, the FCA has also noted poor practice among some firms in the crowdfunding industry. The proposals detailed below aim to improve standards in the sector whilst still leaving scope for further innovation.

The consultation is aimed at establishing views on the following proposals:

  • Proposals to ensure investors receive clear and accurate information about a potential investment and understand the risks involved
  • Ensure investors are adequately remunerated for the risk they are taking
  • Transparent and robust systems for assessing the risk, value and price of loans, and fair/transparent charges to investors
  • Promote good governance and orderly business practices
  • Proposals to extend existing marketing restrictions for investment-based crowdfunding platforms to loan-based platforms

Executive director of strategy and competition for the FCA, Christopher Woolard has stated that: “The changes we’re proposing are about ensuring sustainable development of the market and appropriate consumer protections. We believe that loan-based crowdfunding can play a valuable role in providing finance to small businesses and individuals but it’s essential that regulation stays up to date as markets develop.”

Equally, the FCA was keen to ensure that not all P2P lenders were criticised, noting that some “P2P platforms already have more robust systems and controls in place”.

The new proposals will also see tighter provisions when alternative funding is used for home loans. The FCA will seek to enforce its Mortgage and Home Finance: Conduct of Business rules on P2P platforms if they begin to deal in the residential lending market.

The FCA is asking for responses to the consultation by 27 October 2018 before it publishes rules in a Policy Statement later this year.

Source: Lexology

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Tougher P2P lending rules proposed over poor practice concerns

The city watchdog has proposed a number of measures to tighten up control of the peer-to-peer lending sector following concerns about poor practice and potential risks to investors.

The Financial Conduct Authority (FCA) has opened a consultation on loan-based crowdfunding platforms (peer-to-peer) following its original review of the sector in 2016.

It said since then, it’s observed that the new and growing area has become increasingly complex and has found evidence of “poor business practices” that could cause actual or potential harm to investors.

For example, P2P platforms have a much more active role by taking decisions on behalf of investors, structuring the loans they’re exposed to, and splitting loans across a number of investors (lenders) in order to receive a target rate of return.

Given the focus on headline rates, investors may not be aware of the exact level of risk they’re being exposed to. Further, the FCA said investors may not be receiving full information on charging structures, wind-down arrangements and record keeping.

Customers may also be buying unsuitable products, may be receiving poor treatment, may not be remunerated fairly for the level of risk they’re taking, and could be paying excessive costs for a platform’s services.

As a result, it has today proposed the following measures to ensure investors are given clearer information about investments, charges and risk:

  • When a platform advertises a target rate of return, it should be achievable, and for investors to understand and be fairly remunerated for the risks they’re exposed to
  • Where P2P platforms price loans or choose loans on behalf of investors, they need to clarify what systems and controls are in place to support the outcomes advertised
  • Strengthening rules on plans for the wind-down of P2P platforms, such as for the IT infrastructure to continue for the benefit of investors.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “When we introduced new rules for crowdfunding, we said we’d review the market as it developed. We believe that loan-based crowdfunding can play a valuable role in providing finance to small businesses and individuals but it’s essential that regulation stays up-to-date as markets develop.

“The changes we’re proposing are about ensuring sustainable development of the market and appropriate consumer protections.”

The consultation closes on 27 October and the FCA expects to publish the new rules later this year.

Source: Your Money
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Property P2P lending: a new choice for investors

Whether fed up with the hassle of buy-to-let or nervous of the ups and downs of the stock market, peer-to-peer lending could help.

In today’s turbulent environment, it might seem like the trade-off between risk and return isn’t as favourable as it once was, with political and economic upheaval across the globe seeing volatility jump, according to Reuters.

Even for investors with a medium-term investment horizon of, say, five years, the risk of loss that the equity markets bring might be too much to bear.

It’s why many alternative and potentially more stable asset classes have proved popular with investors over the last few years, such as energy, infrastructure or property. Investors have been hesitant in the past to consider such investments, as returns are traditionally difficult to benchmark, and they can be less liquid than the likes of equities. However, new technology is managing to overcome these barriers to entry.

Take peer-to-peer (P2P) lending, for example. By connecting those with money to invest with those looking to borrow, it allows you to target what could amount to a healthy, inflation-beating return, with less of the ups and downs of the stock market. And transaction costs are often minimal, too, with many platforms totally free to use.

Property-backed P2P lending in particular has proven popular because the loans are secured on bricks and mortar. It means, should the borrower be unable to repay the loan, the property can be sold to help pay the debt, ultimately reducing the risk to the investor.

However, remember that your capital will still be at risk and investments in property can be affected by
market conditions.

The P2P sector came to being in 2005 and has seen dramatic growth since. In 2015, it was also approved to be included within the ISA wrapper, so interest earned through eligible P2P platforms can now be tax free. In 2016 alone, people in the UK invested £3 billion through P2P lending platforms, according to a 2017 report by MoneyWise.

Octopus Choice is one example. It enables everyday investors to invest their money in a diversified portfolio of property loans. To reduce the potential for downside, all loans are made with a maximum loan-to-value ratio of 76 per cent, although the current July 2018 average is closer to around 61 per cent. This means the value of the asset would need to fall quite some way before any capital would be lost.

What’s more, Octopus invests 5 per cent of its own money in every loan and this is put at risk ahead of an investor’s. It’s totally free to use, too, and you’re able to request a withdrawal at any time, but it’s important to note that with any of these sorts of offerings, instant access can’t
be guaranteed.

So far, Octopus Choice has helped more than 5,600 people invest more than £196 million, earning £5.27 million in the process. Although it must be noted that past performance is not a reliable indicator of future results. And P2P lending, like all investments, comes with risks. Octopus Choice is not a cash savings account; your capital is at risk and interest is not guaranteed. You may get back less than you put in.

Property P2P lending: a new choice for investors Commercial Finance Network

Is the property ladder leading you nowhere?

P2P lenders are also expecting an influx of interest from the unsettled buy-to-let sector. A raft of new legislation introduced in 2016 may have dramatically reduced the appeal of being a landlord. Stamp duty was increased by 3 per cent for those buying second homes, while landlords were told they are no longer able to make tax deductions for wear and tear.

Furthermore, higher-rate taxpayers are now unable to offset their mortgage interest against rental income, when calculating the amount of tax to pay. The Financial Times reported in June that already buy-to-let is falling in popularity as a result of these tax changes.

And it’s not hard to see why. Research from Octopus in May shows that if house prices grow at 2 per cent a year and not 3 per cent, and the buy-to-let property in question is yielding 4.5 per cent, the investor could lose money after all costs are incurred. Whereas data from the Bank of England suggests yields are now at their lowest since records began in 2001.

With some buy-to-let investors beginning to see a strain on their returns and all the work that can come with being a landlord starting to feel like too much effort for too little reward, it might leave some asking the question: is there a better place for me to put my money?

New choice

So, whether you’re a buy-to-let landlord who has decided the returns are no longer worth the hassle of renting, or a stock market investor who’s tired of the heartache brought on by the volatile stock market, the growing P2P lending sector might finally have provided the alternative you’ve been looking for.

The growing P2P lending sector might finally have provided the alternative you’ve been looking for

Source: Raconteur

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Peer-to-peer property loans platform Lendy gains authorisation from City watchdog

Property funding platform Lendy has gained authorisation from the Financial Conduct Authority, in a move which will pave the way for regulated products.

The authorisation could open the way for products such as an innovative finance individual savings account (Isa), which allows savers Britons to earn tax-free income from peer-to-peer lending.

Lendy, which launched in 2012, provides bridging and development finance to property firms, with loans sourced from a peer-to-peer platform.

The firm says is has so far facilitated more than £400m in lending, with 21,500 registered investors. The firm will continue its new investments alongside new investment products, its said.

Liam Brooke, Lendy chief executive, said the “long and sometimes challenging journey” to authorisation has “helped us mature into a stronger and more robust business”.

“This is a validation of our efforts to move from a young start-up to an established mainstream lender, with the ability to disrupt the banking model for the benefit of clients, and design new investment products and services.”

Peer-to-peer lending has boomed in recent years as online platforms have reduced the cost of accessing finance from multiple retail investors, while investors have also been attracted by the relatively high yields on offer particularly in the property space.

Brooke added that he believes Lendy has helped fund property developments which “wouldn’t have been delivered otherwise”.

He said: “This kind of finance is critical to tackling the UK’s housing shortfall, with house building now at its lowest rate since the second world war.”

Source: City A.M.

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P2P platform Lendy tops £400m funding

Peer to peer secured property lending platform, Lendy, has broken the £400 million barrier in financing UK property market.

Lendy’s latest milestone comes as some banks pare back their lending and more property developers seek out alternative finance options.

The firm reached £300 million in lending in April last year and has funded hundreds of bridging and commercial property development loans since its launch in 2012. These include residential developments, commercial property, and conversions.

The £400 million has been invested by over 21,500 investors who have earned more than £40 million in interest so far.

Lendy says one of the keys to its success has been the level of due diligence it carries out, such as its property valuations are always carried out by RICS registered property valuers.

Property developers are turning to alternative forms of finance such as P2P thanks to quick turnarounds and availability. Lendy can move from an initial offer to drawdown of the loan in days, in sharp contrast to the months that can be taken by banks’ credit committees. It is also often able to offer loans secured against properties that the banks would be unable to value confidently.

Lendy’s large and growing user base allows it to fund loans of any size extremely quickly, with loans often oversubscribed by up to five times.

Investors

Lendy also continues to see strong growth in its investor base, which is attracted to the platform for a number of reasons.

It has a four-step due diligence process, undertaken by an in-house team, and panels of major law firms and valuers. All loans are secured against UK property lending at a maximum LTV of 70%. Lendy says that returns to investors are between 7% and 12% a year and the minimum investment is just £1.

Liam Brooke, CEO of Lendy, commented: “For some time, we have been stepping in where big banks have neglected property developers. With banks set to limit their property lending even further – we are ready to help fill the funding gap.”

“To pass the £400 million barrier in a little over a year after reaching £300 million is testament to the relationship we have with developers and the quality of the loans we provide.”

“A combination of quick turnarounds for developers, coupled with good returns and excellent due diligence on properties for our investors, is helping Lendy grow at a healthy rate.”

Source: Mortgage Finance Gazette

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How P2P could be a financial lifeline for UK landowners

Landowners and farmers are set to be among the hardest hit workers as Britain negotiates its way out of the EU. However, access to funding through a peer-to-peer (P2P) platform could provide a valuable form of finance so that farmers can grow, diversify or refinance amid the uncertainty of Brexit.

A recent study of 172 farms by the Prince’s Farm Resilience Programme found that just 16% made a profit from their farming activities over the period assessed. The analysis found that instead many farms are now reliant on alternative income streams to turn a profit, such as tourism, renewable energy and selling their products directly to consumers.

But moving into alternative areas of business requires capital. And – with the average farm in the study making a loss of more than £20,000 from its farming activities – it may be capital that landowners require to invest in their business to prevent a loss.

P2P lending could be a lifeline to the UK farming industry. It allows landowners to raise much-needed funds to help diversify their business. Meanwhile, local lenders can enjoy the produce and services their money has contributed towards creating.

The farming industry has already had to tackle a number of significant challenges in recent years. Supermarket giants have squeezed profit margins and demanded ever-increasing output levels.

It’s estimated that the number of dairy farmers has more than halved over the past decade, unable to keep up with cost cuts. A survey by the National Farmers’ Union last year found confidence among farmers on the outlook over the next three years had plunged. A recent report by the Agriculture and Horticulture Development Board (AHDB) estimated that the average farm could see its income more than halved after Brexit.

EU subsidies have provided a much-needed boon to many farms. Leaving the EU will likely leave a major gap in many farms’ balance sheets and local lending could provide the plug many farmers may require.

Many small businesses are turning away from the high street lenders when they are looking for funding or finding banks unwilling to lend to them. At the same time, many investors are looking for a more social and sustainable way to earn interest on their cash. It is estimated that in 2015 some 12% of lending to small- and medium-sized businesses came through P2P platforms and the proportion is only growing.

The appeal is easy to see: investing money in local businesses means not only do lenders have the chance to earn an inflation-beating rate of interest, but they can also see exactly how their cash is being used within their local communities.

Folk2Folk champions local lending because we believe in creating financially and socially sustainable communities by matching local businesses with local lenders. With headquarters in Cornwall and hubs across the UK in rural communities, we’re well aware of the importance and impact landowners and farmers have on their local communities, and all the challenges and opportunities they face during the Brexit transition.

Source: Bridging and Commercial