With peer-to-peer lending reaching nearly £11 billion in the UK in 2018, according to the Peer-to-Peer Finance Association, the industry is going from strength to strength. With savvy consumers researching the best place to grow their money and increasingly choosing peer-to-peer lending, we compare this maturing market with mainstream investment options.

Returns

Peer-to-peer lending platforms are taking advantage of high street lenders’ reduction in willingness to lend and filling the gap by matching borrowers with lenders. By cutting out the banks, loans can be sorted out much faster.

Looking at other options, Prudential’s asset manager, M&G, found that the average annual return on UK investments between 1989 and 2018, adjusted for inflation, was 5.2% for equities, 4.6% for bonds and 0.8% per annum for cash (Morningstar, Inc., and M&G as at 30.11.14).

According to MoneyFacts, the average easy-access savings account offers just 0.52% per annum.

Peer-to-peer platforms allow lenders to choose which projects they would like to invest in, allowing them to make informed decisions and select options to suit their requirements and interests. Some lenders enjoy the feeling that they are helping small businesses for example, who may otherwise be unable to access affordable funding.

Alternatively, platforms often offer their own investment package, meaning that the lender does not have to be involved in selecting borrowers. This will usually spread the investment over a wide range of borrowing opportunities, reducing risk*. There can even be a higher return when the investor selects their own range of investments*.

Peer-to-peer lenders are now starting to offer Innovative Finance ISAs, known as IFISAs, as part of their range of investment options. Up £20,000 per annum can be invested, with all interest tax-free for the life of the IFISA*.

Volatility

Peer-to-peer borrowers tend to be small business owners, consumers and those wishing to increase their real estate holding. The lending is not therefore directly tied to the stock market, however still suffers from volatility like any lending method.

Lenders can choose the period time over which they want to lend money, preventing quick overreactions to a fluctuating market and contributing to a more stable investment opportunity*.

Stocks and real estate both fluctuate as the market ebbs and flows. While bonds are less variable, they traditionally offer the lowest return.

Security

Peer-to-peer lending platforms carry out credit and background checks on potential borrowers, ruling out those who do not meet the required standard, and often grading those who are selected according to risk level. Lenders can choose the type of borrower they want. As is usual, returns can be higher with an increased risk.

If a borrower defaults on their loan, the platform will chase them for payment. Some platforms ensure that all loans are secured against property and they may also have a fund in place to cover some or all of the default.

However, it should be noted that peer-to-peer investing is not covered by the Financial Services Compensation Scheme (FSCS). This means that in the event of default, some or all of the amount invested could be lost.

Cash and bonds offer high security, backed by the FSCS to the sum of £85,000. Bonds are an alternative to shares, and are paid out before shares in the event of bankruptcy. Money invested in stocks and shares can fluctuate and lose money. The risk is higher if investments in only one company are held.

It is possible to diversify holdings in peer-to-peer lending, choosing a variety of projects to spread the risk.

The most reputable peer-to-peer lenders will have an orderly wind-down policy in place, to prevent chaos in the event that the platform ceases to trade.

Level of investment and access to money

Many peer-to-peer lenders have a minimum investment level of £100, allowing new investors to try their services without having to put in a large sum to start with.

While stocks and shares may also offer a low minimum investment, dealing costs often make it less profitable to start small. Bonds and cash savings accounts allow low start, but with lower returns.

When investing in peer-to-peer loans, there is usually the option to choose the length of time for which you wish to tie up your money. If a loan is repaid early, then the money will be returned to you at that time. If you wish to withdraw your money early, this may be possible if another investor is available to take over the loan part. Money is likely to be tied up until a new investor is found.

Access to money in bonds and savings accounts may be restricted, with loss of income for early withdrawal, while shares can be sold instantly if there is a buyer, subject to dealing fees. Real estate investment ties money up long-term and can be difficult to exit if the market is depressed.

Regulation

Regulations for mainstream investments are well-established. The newer peer-to-peer lending industry has been regulated by the Financial Conduct Authority (FCA) since April 2014. As growth in the sector continues, new FCA rules are set to come into force in December 2019. The FCA aims to ensure that people understand the difference between peer-to-peer lending and ordinary high street savings accounts.

The FCA’s executive director of strategy and competition, Christopher Woolard, said: “These changes are about enhancing protection for investors while allowing them to take up innovative investment opportunities.”

In summary

Investment in peer-to-peer lending offers an opportunity for those seeking better rates* and independence from the stock market to diversify their portfolio. While there is a risk that some or all of an investment can be lost with peer-to-peer lending, the risk can be spread to manage this*. By investing an affordable amount in peer-to-peer lending and considering whether, within the chosen platform, the investment has been allocated to enough different projects, risk can be reduced*.

Kuflink offers investors the chance to choose their own investments or, for those who prefer to invest more widely and with less input, an auto-invest option is available, which is regularly updated, fully vetted and selected by experts to maximise potential returns.

Find out more about peer-to-peer lending today.

*Capital is at risk and Kuflink is not protected by the FSCS. Past returns should not be used as a guide to future performance. Securing investments against UK property does not guarantee that your investments will be repaid and returns may be delayed.

Introduction – Advantages and disadvantages

I am excited to share insights on the advantages and disadvantages of investing in online P2P platforms. Peer-to-peer lending has experienced remarkable growth in the UK, attracting a diverse range of investors seeking lucrative returns. However, it’s essential to understand both the benefits and potential drawbacks before embarking on this investment journey.

Advantages of P2P Lending

1. High-Interest Rates One of the most alluring aspects of P2P lending, especially on platforms like Kuflink, is the opportunity to earn high-interest rates of up to 9.13% per annum*. This presents a compelling alternative to traditional savings accounts, which often offer meager returns. However, always check the website for the latest rates. Also, peer-to-peer Investment Interest is paid Gross to anyone across the Globe who invests on the platform.
2. Diversification of Investments Kuflink Auto Products and other reputable P2P platforms offer products that automatically diversify investments across multiple opportunities. This diversification spreads the risk, ensuring that your capital isn’t tied to a single loan.
3. Versatility in Loan Purposes P2P loans cater to a diverse range of purposes, empowering investors with a myriad of choices. Whether you wish to fund small businesses, support property portfolio growth, or finance housing developments, P2P lending provides numerous investment avenues.
4. User-Friendly Platforms Unlike some complex investment options, P2P platforms like Kuflink are designed to be user-friendly and straightforward. With fully online operations and minimal jargon, they cater to both seasoned investors and newcomers. Moreover, P2P lending often allows for low minimum investment amounts, making it an accessible option for beginners.
5. Secondary Market for Increased Liquidity While it’s essential to avoid assuming an early exit from investments, P2P platforms often offer a secondary market. Here, investors can sell their loan parts to others, providing added liquidity in case of unforeseen circumstances.
6. Innovative Finance ISA The introduction of Innovative Finance ISAs revolutionised P2P investing. With Kuflink’s Innovative Finance ISA, you can utilise your annual tax-free allowance to invest in loans and earn tax-free interest, provided you meet HMRC requirements.
7. Enhanced FCA Regulation for Investor Protection The P2P sector now operates under tighter regulations enforced by the FCA, offering investors improved protection. While regulatory approval is essential, I encourage investors to conduct their due diligence and not solely rely on a company’s FCA regulation status.
8. Segregation of Funds: Kuflink prioritises the safety of our investors’ wallet funds by strictly following the client money rules set forth by the FCA. This means that all wallet funds are kept entirely separate from our own firm money. By ensuring this segregation, we can guarantee that your investments are secure and won’t be impacted by the financial health of our firm.
9. Additional FSCS Safeguard: As an extra measure, Kuflink offers the protection of the Financial Services Compensation Scheme. In the unlikely scenario of a bank failure, your wallet funds are further safeguarded up to the value of £85,000. This additional layer of protection gives you peace of mind, knowing that your investments are backed by a safety net.
10. Confidence in Investment Decisions: The robust investor protection measures implemented by Kuflink allow you to invest with confidence. You can focus on your financial goals, knowing that your hard-earned money is in safe hands and that your investments are backed by stringent regulatory guidelines.

Disadvantages of P2P Lending

1. Risk to Capital Unlike savings accounts protected by the Financial Services Compensation Scheme, P2P investments carry inherent risks. While platforms like Kuflink diligently work to mitigate these risks, there is no guarantee of full repayment, as it relies on borrowers fulfilling their obligations. It is crucial to understand these risks thoroughly before lending on a P2P platform.
2. Platform Variation and Due Diligence The P2P lending landscape encompasses a wide range of platforms, loans, and security types. Conducting thorough research on various platforms is crucial to making informed investment decisions. Understanding operator backgrounds and historical loan performance can significantly impact your choices.
3. Tax Responsibilities and HMRC Requirements Earnings from P2P investments are subject to HMRC tax requirements, and investors must fulfill these obligations. Fortunately, P2P earnings can contribute to the Personal Savings Allowance, exempting tax on interest up to certain limits based on the taxpayer’s rate.
4. Peer to Peer Investments are normally not FSCS protected Investments in Peer to peer Investments are not FSCS protected unless you have been advised on the investment, where protection may be available if the adviser has ceased trading and the advice was questionable.

Conclusion – Advantages and disadvantages

In conclusion – Advantages and disadvantages – P2P lending offers an array of advantages, including high interest rates, diversification, and user-friendly platforms. However, it’s vital to remain aware of the potential risks involved, such as the lack of FSCS coverage and variation between platforms. Conducting thorough research and staying informed will empower you to make prudent investment decisions tailored to your financial goals.

FAQs

Advantages and disadvantages

1. How much interest can I earn with P2P lending on Kuflink?
   Kuflink offers attractive interest rates of up to 9.13% per annum* on P2P investments. However, always advise clients to check the website for the latest rates.
2. Are my investments fully secure with Kuflink’s Innovative Finance ISA?
   While Kuflink takes measures to protect investments, it’s essential to recognise that P2P investments are not covered by the FSCS, and your capital is at risk.
3. Can I withdraw funds from my Flexible ISA investment during the period?
   Yes, Kuflink’s Flexible ISA allows investors to withdraw funds during the current period for added flexibility.
4. How does Kuflink manage the risk of interest and default?
   Kuflink takes on the risk of interest and default, ensuring that investors’ cash flow is unaffected even if borrowers fail to repay.
5. What types of loans are available on Kuflink’s platform?
   Kuflink offers a variety of loans, including Innovative Finance ISA products that spread investments across multiple UK properties and 1-year select loans secured on a single UK property, allowing investors to choose according to their preferences and risk appetite.

Over the past decade or so, many borrowers have found it increasingly difficult to secure finance from the mainstream banks. This is especially true for small businesses, which have arguably suffered the most since the financial crash. Despite the cautious lending market, many of these borrowers have managed to fund their projects using alternative finance solutions such as peer to peer lending and crowdfunding.

These two methods are usually based online and provide a reliable source of finance away from the high street lenders’ strict criteria. Although they have a lot in common, it’s fundamental that potential borrowers and investors understand the difference before deciding which is the best route for them.

The similarities between P2P & crowdfunding

On the surface, P2P lending and crowdfunding appear pretty similar; both involve a number of investors contributing to one fundraise, and both are becoming increasingly popular as alternative sources of funding. They remove the need for borrowers to approach banks, which are renowned for slow procedures and inflexible terms of agreement.

These two funding streams have also opened up the world of investing to a broader crowd as platforms are often structured in a more accessible, less technical manner than the traditional worlds of stocks and shares or bonds. They are also popular amongst seasoned investors looking to diversify their portfolios, particularly in light of the effect Brexit has had on the stock and property markets. As with all investments, your capital is at risk in both cases.

What is crowdfunding?

Crowdfunding can be used to raise money for a huge variety of projects and has become the funding route of choice for lots of innovative start-ups. From craft beer brands to vegan lunches, investors can pick projects they believe will be successful and fund their raise in return for equity in the business.

Firms that fundraise through crowdfunding often offer extra perks too as a gesture towards maintaining happy, long term relationships with their investors. These perks depend on the individual company, but for example a drinks brand may offer free cocktail nights or bottles of products to their investors.

What is P2P lending?

For centuries, people have been bypassing the banks and lending money to one another on their own terms. This simple principle, along with a few tweaks to protect both sides of the arrangement, is a basic form of peer to peer lending.

P2P platforms such as Kuflink bring lenders and borrowers together, undertaking due diligence on the loans they agree and then offering their community of lenders the opportunity to fund these loans in return for interest.

Most platforms exist solely online and take security for loans in the form of various assets, such as property.

What is the difference between them?

The main difference between peer to peer lending and crowdfunding is that the former is loan based, and the latter is equity based. Returns in peer to peer lending are usually fixed rate, although in some cases a target rate is given. As the monetary value of equity in a business depends on its performance, returns are much more variable with crowdfunding.

Terms also tend to be fixed in peer to peer lending subject to the borrower meeting their repayment date, however there are no fixed end dates in crowdfunding – it’s up to you to decide how long you hold on to your equity for.

Another key difference is the relationship between investors and borrowers. For P2P, there is no direct relationship and although some details such as credit history may be provided, investors will not know the identity of the borrower. The platform conducts all necessary due diligence and investors use this information to decide whether the opportunity suits their investment profile.

With crowdfunding, borrowers pitch directly to potential investors, who must then conduct their own due diligence. This relationship tends to be much closer as it’s an ongoing partnership where both parties benefit from the successful performance of the borrower.

Finally, from a borrowers’ perspective, you’re giving away equity with crowdfunding whereas you pay interest on the loan with peer to peer. The interest you pay on a P2P loan is usually split between investors and the platform you’re borrowing through, for example if you’re paying 7% interest per annum, investors may earn 4% per annum and the platform retains the remaining 3%. Regardless of the outcome of the project you’re borrowing for, you’ll be liable to repay the loan in full plus the interest or risk having your security repossessed.

For more information on Kuflink’s peer to peer opportunities, visit kuflink.com or contact our Investor Relations team on hello@wp1www.kuflink.com.

The Kuflink platform launched on 17^th August 2016, giving investors across the UK a chance to fund exciting opportunities and take control of their finances.

Since that day, thousands of you have joined the Kuflink community, helping us to kickstart countless savvy business ideas and earning yourselves millions of pounds in interest along the way.

We’ve come such a long way from where we started and are looking forward to a truly bright future, which we’d like to thank you all for supporting. We couldn’t have done it without you!

                                                             Industry Recognition

We’ve won 7 fantastic industry awards, including Crowdfunding Platform of the Year, Best Specialist Finance Provider and Business Product Innovation of the Year!

                                  Funded Over £57 Million for Smart Business Projects

From care homes to brand new housing developments, we’ve helped countless entrepreneurs to kickstart their next business project and made investments accessible to everyone.

                                                            Three Ways to Earn

When the platform first launched, we offered Select-Invest opportunities only. Since then, we’ve added Auto-Invest – great for automatic diversification and ‘hands-off’ investing – and our Innovative Finance ISA.

                                                      Supported Dozens of Great Causes

With your help, we have provided funding to national charities and local causes including The Princes Trust, The Scouts, The Gr@nd, numerous sporting teams and even some of our fantastic investors!

                                                                 We’ve gone global!

Investors from across the planet are making the most of their money with Kuflink. With the rise of borderless bank account providers such as Revolut, customers from near and far can invest on the platform, subject to meeting our criteria of course.

                                                  Grown to a team of 40 employees

We know that a business can only be as good as its employees, which is why we’ve hired the very best minds from across the finance and property sectors.

                                                             And that’s not all…

The future looks bright too… over the past few months, we’ve tripled the size of our tech team to support the upcoming launch of the Kuflink App and Kuflink Mastercard. Watch this space for more info as we have it!

Many people are struggling to get on the property ladder, so finding the capital to invest in property may seem like a pipedream. The average purchase price for a buy-to-let property from 2016-2018 was £183,278 (MoneySuperMarket) with most lenders insisting on a substantial deposit before approving a BTL mortgage. Even if it is affordable, it’s rare to have the time required to commit to investing in property. However, there is an alternative way to invest.

With Kuflink, your investment is secured against UK property. So, whilst it’s not the same as traditional property investing such as buy-to-let or development, our peer to peer opportunities are backed by the same asset.

One of the biggest advantages of peer-to-peer is that you can choose how small or large an amount you want to put in. With Kuflink, customers can put in as little as £100 into an opportunity – a great way to ‘test the waters’ before you commit to a larger sum. Standard property investment doesn’t only involve huge deposit and mortgage costs, but also landlord maintenance costs, which are reported to reach £8,359 on average per year (Platinum Property Partners).

In addition to the flexibility, peer-to-peer firms have already combed through all the paperwork, so you don’t have to worry about solicitors or surveyors. Kuflink publish all the relevant details and reports alongside each opportunity, the cost of which can easily run into the thousands if you’re managing property yourself.

This also means that you don’t have to be a property aficionado to invest in peer-to-peer. We’re committed to giving you all the information you need in a clear, accessible way; this includes a synopsis of the loan, such as what the borrower is using the money for and their strategy for paying it back, and all the essential number-crunching such as the value of the asset.

Our alternative property investments are even suitable for those with lots of experience in the industry, as they provide a time-efficient solution to investing. The average 40-hour week doesn’t allow too much time for building and maintaining a comprehensive portfolio of property and, with leisure time often thin on the ground, our online platform means you can invest in minutes at whatever time suits you.

So, if you’re looking for a time and cost-efficient way to invest in property, why not consider peer to peer as an alternative to the traditional means?

Capital is at risk. Kuflink is not covered by the Financial Services Compensation Scheme.

In decades gone by, banks enjoyed almost a total monopoly over financial services and the general public would rarely have considered looking elsewhere.

Today, reports show that two thirds of people use financial products from a provider other than their main bank, and it’s not just consumers that are being drawn in by the bright lights of Fintech – some of the banking industry’s most respected professionals are leaving the incumbents.

Kuflink’s Chief Financial Officer Tim Spurr, former Financial Director at Barclaycard, explores how the two worlds compare…

Banks are not focused on solutions

When we place our money in a bank, we expect to be able to withdraw it in full whenever we need and, in 99% of cases, that’s a service banks really deliver on. They’re able to provide that so reliably because they’re obsessive about risk. It’s the first and last thing they think about.

Banks over-optimise and over-engineer their systems and processes to mitigate risk, even if that means that changing anything or implementing new solutions is a process that drags out over months or years. Sometimes, finding an iron-clad solution takes so long that they miss the mark altogether and customers lose out on innovation – or they did, until Fintech came along.

Getting things done

For the most part, Fintechs aren’t challenging the incumbents on a product front but we are targeting the same customer base. And we’re much, much faster at finding workable solutions that can be delivered in real-time. Risk still sits at the heart of what we do and it’s essential that we keep our customer’s money safe, but our agility means we can respond to challenges as and when they arrive. There is no need for Fintechs to delay our innovations while we obsess over ‘what- ifs’, as tweaking our processes isn’t the year-long ordeal that it can be for banks.

It’s not a competition, it’s a partnership opportunity

Peer to peer lending disintermediates the banks and opens up the market, but it can’t substitute all the functions of a bank. Even if it could, challengers should expect the majority of people to continue banking with the trusted oligopoly whilst dipping in and out of Fintech. Solutions that deliver the best of both worlds are definitely possible; many of the products we have already adopted into our everyday lives fit neatly alongside a bank’s core systems without encroaching on their principles. The best part of these new ideas are the choice, variety and novelty they bring. We need to be clear that we aren’t here to replace the system – we’re here to expand it, disrupt it, and finesse it.

We have to make sure our investments in growth pay off

Like most other start-ups, we’ve been in an exciting phase of growth since we launched. There’s a keen market for both our loans and investment opportunities, and we’re regularly adding new products to the table. Going forward, our focus will be on working in a scalable, sustainable manner and ensuring that our unit economics deliver affordable operations at our full capacity. That’s where the teams’ vast experience in property and finance will shine through, as we have the right in-house knowledge to drive long-term success. All Fintechs start out with a great idea and Kuflink is no different, although our extensive and varied backgrounds are what give the company so much potential and make it such an exciting thing to be a part of.

Following their introduction in 2013, permitted development rights that allow homeowners in England to extend their properties without the need for a full planning application will now be made permanent.

Permitted development rights mean that, instead of a full planning application, homeowners will only need to provide evidence that they’ve considered the impact on their neighbours. With the new regulations, prospective developers can build a single-storey rear extension on a property of up to six metres for terraced or semi-detached homes, extending to eight metres for detached homes. Homeowners will still need to notify their local planning authority regarding any proposed changes and, depending on the size of an extension, they may still be required to hold an official neighbour consultation. This is great news for homeowners who now hold fewer obstacles to overcome when they want to do significant work on their property.

For example, a young couple are living with family and don’t have the funds to get onto the property ladder, so they want to build a living space behind the current property. With the old rules they would have required planning permission, but the new regulations will streamline the process. The impact of these rules in their temporary period has been significant; over 110,000 extensions have been completed since 2014 in the UK.

In addition, new legislation has come in to benefit commercial properties; businesses can change the use of a property without planning permission. This means that if an insurance company moved into a property where a clothes shop used to be, the building could be changed into office space without the need for a full planning application. These rules will also allow commercial premises to be temporarily changed into community services such as a public hall.

If these new rules have got you thinking about extending your property, or perhaps you were already considering a change, contact our property finance team today to discuss how we could help kickstart your next project.

Contact us by email at hello@wp1www.kuflink.com or by phone on 01474 33 44 88