We know that alternative assets can be a source of income, but until a few years ago pension funds and pension investors had largely shied away from delving in alternatives. However, a period of lower yields in traditional assets has led to changes in pension investor sentiment over the last couple of years and they have started to flirt with alternative assets. And since for many years property was the asset that dominated most investors’ alternative allocation, peer-to-peer (P2P) property lending has been the natural next step for many investors looking for yield and for fixed returns. Roxana Mohammadian-Molina, Chief Strategy Officer at P2P property lending platform Blend Network, explains why P2P property lending has become such a popular investment product and how, if used appropriately, it can help boost your pension portfolio’s returns.
According to the Moneyfacts UK Personal Pension Trends Treasury Report, the average annuity income fell by 6% in the first three months of 2020, its lowest level on record. The data shows that in Q1 2020, the average annual standard annuity income for a 65-year old person was 1.7% lower than the previous lowest level recorded in October 2019. Moreover, those saving for retirement will also have seen their pension funds severely hit during the first three months of 2020. The impact of Covid-19 on the global stocks markets has caused the average pension fund value to drop by 15% in this period, its worst quarterly performance on record. Many popular ABI pension fund sectors posted even heavier losses, with UK Smaller Companies (-31%), UK All Companies (-30%) and UK Equity Income (-28%) pension funds hit the hardest. In fact, only 11% of pension funds avoided losses in the first quarter of 2020. And although pension fund performance did improve significantly during the remaining of the year compared to the first three months of 2020, annuity rates still remain largely subdued.
Amid the recent episode of market volatility and the broader cycle of low interest rates witnessed over the past decade, it comes as no surprise that the appetite for P2P property lending has steadily grown as the product has matured, especially among pension investors. P2P, regulated by the Financial Conduct Authority, is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. P2P property lending is the practice of lending money to property developers in loans that are secured against legal charges on the underlying property. Since property has been the asset class that for many years has dominated most investors’ alternatives allocation, investors’ familiarity with property has contributed to the increasing popularity of P2P property lending. At Blend Network, in 2020 we saw a large increase in the number of investors looking to lend their SIPP and SSAS in 8-12% return p.a. P2P property-secured loans.
Another reason why P2P lending has become increasingly popular as a financial instrument is its ability to allow investors to do well by doing good. The BBC’s Housing Briefing estimates that we have built 1.2 million fewer homes as of today, than we should have, and the need for more homes is increasing. P2P property lending allows investors to participate in the national housebuilding effort by investing in pre-vetted and pre-screened loans and lending directly to property developers who, in the case of Blend Network, are building more affordable homes. The interest earned by P2P property lending is usually higher than the interest on cash deposits (although cash investments are protected by the FSCS and P2P lending is not and places investors’ capital at risk) and while there is a risk that a borrower may default, P2P property loans usually offer fixed returns, thus shielding investors from the volatility of stock markets. This makes P2P lending an attractive option to investors who are looking to achieve higher returns, particularly retirees looking for the security of an annuity.
Although investors have been able to access P2P investments via SIPP and SSAS since 2014, interest in P2P lending by pension potholders has greatly accelerated in recent years as the industry has matured. The emergence of P2P as an asset class in its own right, which has attracted institutional investors to the space along the way, has opened it up to a wider range of investors, combining retail, family offices, institutional investors and pension holders. In my opinion, as P2P lending is regulated by the FCA, this has generally enhanced the trust in the sector and made lenders more comfortable about lending through an online platform. The FCA introduced new, more stringent rules in December 2019.
In summary, P2P property lending has emerged as an attractive option to boost pension portfolios’ returns for many investors and allow them to invest in causes that are important to them and to the country such as housebuilding. I strongly believe that P2P is about to become a key part of every pension portfolio.
If you’d like to explore P2P property lending, register here with Blend Network.
About the author
Roxana Mohammadian-Molina is Chief Strategy Officer and Board Member at Blend Network and sits on the Board of Women in Finance 2020. Blend Network is a London-based P2P property lending platform where investors can invest from £1,000 on property-secured loans. Returns on Blend Network are 8-12% p.a. and all loans are secured against property.
Your capital is at risk if you lend to businesses. P2P lending is not covered by the Financial Services Compensation Scheme. Investments are illiquid (the inability to sell assets quickly or without substantial loss in value). Past performance is not a reliable indicator of future results.
Blend Loan Network Limited is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (FRN. 574048)
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