Ever fancied a shot at being a buy-to-let landlord? You wouldn’t be alone.
With pensions, endowments and savings rates all having seen their fair share of crisis in the last decade or so, more and more people have been turning towards the long-term reliability of bricks and mortar. But buying property as an investment can be challenging.
Buy-to-let mortgages usually require a minimum deposit of between 20% and 25% of the property price and you will have to demonstrate adequate income to qualify for a mortgage on the remainder. Interest rates are higher too than on residential loans. Associated buying costs, such as stamp duty, solicitor fees and surveys can add up to thousands, while tax, lettings agent fees and bills for maintenance and simple wear and tear will need to be deducted from the rent you earn. The good news however, is that there can be a way to benefit from buy-to-let returns without having to get involved with any of this hassle and cost and that is via peer-to-peer lending platforms.
Investing in buy-to-let via peer-to-peer
Peer-to-peer lending is an alternative finance industry that’s growing fast. (You can find out more in our guide to peer to peer). This means the types of things you can invest your money in is becoming more diverse. So, as well as lending to consumers via peer-to-peer in the form of personal loans, you can also choose to lend to carefully-vetted property investors.
Peer-to-peer providers, such as Landbay and Wellesley and Co. take your money and lend it out to residential property investors as buy-to-let loans. LendInvest, another property peer-to-peer lender, focuses on short and medium-term lending in the form of bridging loans for property. The result is, while you don’t have the hassle and added costs of being a landlord yourself; you can expose your portfolio to the property market. And this means the potential for much higher returns than you would get from putting it into a high street savings account. For an idea of interest you could earn, have a scout of Fundshare’s comparison tables – bearing in mind rates are advertised gross of tax.
There are other advantages too of investing in property via peer-to-peer:
- Your cash is backed by a tangible security: When you lend via peer-to-peer to property investors, your cash is backed against the tangible asset of bricks and mortar. So, in the unlikely event that one or more loans are defaulted on, the home/s could be sold quickly at auction and the capital realised and repaid. (This is on top of providers’ standard ‘provision funds’ which kicks in immediately to cover any losses).
- You can enter the market with a tenner: The minimum starting loan is just £10. That’s a long way from the tens of thousands you would need as a new buy-to-let landlord. And if it’s all going well, upper limits don’t tend to apply.
- Your money is lent responsibly: Peer-to-peer providers in property are very choosy about who they lend your cash out to. Only experienced property investors with a successful track record will qualify. Loans will need to be ‘first charge’ mortgages, and with relatively low loan-to-value – typically between 50% and 75%. The so-called ‘rent-to-income’ ratio is also vetted – for example, the rentable value of the home should amount to at least 125% of the interest payable on the buy-to-let loans. Each borrower may also need to show a personal income outside of property investment.
- The homes you invest are rented: The properties invested in via peer-to-peer are all let out to tenants. As well as avoiding the uncomfortable territories of having a charge over owner-occupied homes, tenanted properties can be sold more quickly and easily should the capital ever need to be realised.
- Your cash is spread across the UK property market: Unlike if you bought a buy-to-let property direct, with peer-to-peer your cash will be chopped up across several loans secured against homes in different locations. So, as well as getting exposure to all corners of the UK housing market, your risk is also intended to be kept to a minimum.
- You are in control of risk: You can also weigh up your own risk and return.
- You can choose your account: Just like with a high street savings account, you can choose whether you want to retain access to your cash or plump for higher returns with a peer-to-peer fixed rate bond. So if you decide you just want 12 months’ exposure to the residential property market via peer-to-peer, that’s what you get – no For Sale signs, fees, delays or hassle in sight.
Our straightforward guide to peer to peer investing
Download the guide and take it with you wherever you go.