FANCY making money from the buy-to-let boom with an investment of just £100? Interested in lending money to rich people and getting a 12% return on your cash?
The world of peer-to-peer lending, where savers lend money directly to borrowers, is growing and evolving fast.
Lending in the first three months of this year was more than double that in the same period of last year, leaping from £491m to £1.2bn, according to the trade body the Peer2peer Finance Association.
There is an increasing variety of ways to get involved, with everything from buy-to-let loans to “posh pawn” on offer.
The latest launch, in mid-May, was for Landbay, a peer-to-peer lender specialising in buy-to-let. Savers can lend as little as £100 for three years and get returns of between 3.5% and 10% depending on the level of risk they are prepared to take.
There are three types of lending: A+, B and C, with A+ involving the least risk. The type determines the return and what happens if the borrower defaults.
In the event of a default and sale of the property for, say, 25% less than the original value, the borrower would lose all their deposit, and the C class would be first to be hit, losing 5% of the loan. But the B and A+ lenders would not be affected.
John Goodall, chief executive of Landbay, said: “Right now, if you are looking at the average rate of return, and someone has put 70% of their money in A+, 20% in B, and 10% in C, then they would average 4.6%.”
Each loan — even if it is the minimum of £100 — is split into £10 contracts, which can be invested across as many as 10 properties, which reduces the risk further.
The success of another new launch, HNW Lending — which offers individual loans of between £60,000 and £1m against valuable assets, such as classic cars, fine wine, jewellery, yachts and art — means it is looking for new investors to meet the growing demand. Launched at the end of April, it has already completed loans worth more than £200,000, but in the past month has received requests for loans totalling £7.5m.
Investors looking to get involved need a much higher minimum of £60,000, but interest rates start at 6% and can go as high as 12%.
Ben Shaw, founder of HNW Lending, said: “There is a strong demand from many high-net-worth individuals to raise funds against their valuable assets. If the worst happens and a client cannot pay back their loan, the value of their asset against which we have provided funds should more than offset this.”
Even phone companies are getting involved, with the mobile provider Giffgaff joining forces with the peer-to-peer stalwart Ratesetter to offer phone users a new way to fund their latest mobile.
But you should always shop around for the best offer, whether for a phone or a loan. And remember that peer-to-peer lenders are not covered by the Financial Services Compensation Scheme, so you could lose your money if the borrower defaults or the platform goes bust.
Zopa, the largest peer-to-peer lender, currently offers 5.2% interest for customers lending money for five years, which is about 2.1 percentage points higher than the top-paying five-year bond listed on Moneyfacts.