Crowdfunding

Crowdfunding

Crowdfunding (or, peer to peer lending) is where a group of individuals (a crowd) get together to fund an idea, business or, in this case, provide the cash for you to buy a property. The loans are primarily for buy to let (BTL) properties or development projects i.e. non-regulated property transactions. As a result of banks taking forever to lend money, the Bank of Individuals is fast becoming one of the new ways of raising finance. It’s all done on an on-line platform and, provided you meet their lending criteria the money is advanced over a shorter time frame when compared to a main high street bank.

Crowdfunding Lenders

The following crowdfunding firms specialise in providing short term finance for property investment and property development transactions:

• Lendinvest.com: Provide short term financing for BTL property transactions only. Basically, it’s simply an online bridging loan platform. In January, 2014, it was widely reported that they had offered the largest crowdfunding loan in the world at that time, a £4.1m loan to a developer for a project in Croydon, South London. The loan has since been repaid.
• Wellesley & Co: Offer short term loans for BTL and development transactions only. Maximum term: 18 months.
• Crowdproperty.com: Provides finance for property professionals with a good track record. Minimum loan amount is £400,000.
• Landbay.co.uk: Provides 3 year fixed rate BTL mortgages for property investors. Minimum loan is £50,000 and maximum is £500,000.
• Proplend.com: Provide short term loans for income-producing commercial properties. Loans from £100,000 to £5m.
• Relendex.com: Provide loans for income producing commercial properties. Also lend on residential and commercial development projects. Minimum loan is £100,000 to £2m.
• The Bridgecrowd.com: Provide short terms loans secured on property. Minimum loan is £30,000 and maximum is £4,000,000.
• Funding Circle.com: Provide loans for property investment and development. Minimum loan is £200,000.

These are new lending platforms that have just come on stream. Let’s break it down: If you strip away the technology and the fancy buzzwords, such as crowdfunding peer to peer lending platforms, they are no different in operation than traditional bridging lenders. Whether they can offer you better rates, a smoother lateral thinking underwriting process, or a faster turnaround service compared to the traditional bridging lenders, it is too early to tell. The £4.1m loan arranged by Lendinvest was all over the media, whereas brokers arrange much larger deals on a daily basis with no fanfare. I have covered bridging loans and the conclusion is that you need to speak to a specialist broker who has access to a wider panel of bridging lenders. By all means, see what these crowdfunding platforms can offer you in comparison to the bricks and mortar bridging firms.

Also, read how a couple has partnered with a developer to convert a £650,000 bungalow to a £1.4m detached house using crowdfunding: How to become a Building Society.

It’s a fact: Crowdfunding sources are the new lenders on the block, providing alternative funding solutions to property investors.

Two Sides to Crowdfunding

There are two sides to crowdfunding platforms:

1. Finance: They can provide finance for BTL/ property development transactions.
2. Investment vehicle: They are also investment vehicles where you can invest in the lending platform itself and receive a rate of return e.g., invest £10,000 for 10% p.a. return.

For the record, we have covered crowdfunding as the new additional lending source for property investors and this will always remain our focus. However, when visiting these on line lending platforms, you’ll soon discern that they are also looking for investors and offering attractive rates of interest. Let’s look at their investment side in more detail.

Investment-based property crowdfunding platforms

The other side to peer to peer platforms is that they allow you to invest in the platform. In essence, you become the lender and the money you invest in the platform is used to finance property transactions. In return for investing, you will be offered a rate of interest. Therefore, you can purchase BTL properties with a crowd of like-minded investors for a fraction of the amount you would need if you were to buy on your own. Likewise, you don’t get to pocket all the property growth, rental income or uplift on exit.

In addition, the barrier to entry on these platforms is low, and for first time property investors who do not have the 25% minimum deposit and funding costs to proceed on their own, they can be an attractive offering, especially when the returns being offered on these peer to peer platforms are much higher than traditional savings accounts. It does come with some serious health warnings: It’s for high net worth, sophisticated investors who have experience in investing in these types of investment schemes. High net worth is anyone earning at least £100,000 + per annum.  It’s not for novice investors; hence the FCA has restricted the amount that novice investors can invest to 10% of total net assets. We are not advocating for you to invest in these lending platforms.

For more information about the investment side of crowdfunding platforms, please refer to the FCA’s policy statement PS14/4: The FCA’s regulatory approach to crowdfunding over the internet and the promotion of non-readily realisable securities by other media.

In addition, the Financial Services Authority (now the Financial Conduct Authority and the Prudential Regulation Authority) put out the following statement on crowdfunding. If you want to invest in a crowdfunding platform: Please seek independent professional advice. The golden rule: You should only invest money that you can afford to lose.

The property crowdfunding platforms that specialise in property investment are:

• Wellesley & Co: Minimum investment is £10
• Fundingcircle.com: Minimum investment is £20
• Propertypartner.co: Minimum investment is £50
• Landbay.co.uk: Minimum investment is £100
• Crowdproperty.com: Minimum investment is £500
• Relendex.com: Minimum investment is £500
• Propertymoose.co.uk: Minimum investment is £500
• Thehousecrowd.com: Minimum investment is £1000
• Proplend.com: Minimum investment is £5000
• Crowdahouse.com: Minimum investment is £5000
• TheBridgecrowd.com: Minimum investment is £5000
• Lendinvest.com: Minimum investment is £10,000
• Propertycrowd.com: Minimum investment is £10,000

If you want to invest in a crowdfunding platform: Please seek independent professional advice.

Mortgageintellectual.com is not recommending that you invest in any specific property. You must conduct your own due diligence before investing in property or a crowdfunding platform. Property prices can rise and fall in value and past performance of the UK property market is no guarantee to future performance.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

The Financial Conduct Authority does not regulate most types of buy to let mortgages, bridging loans, development loans and commercial loans.