2020 has brought on its fair share of volatility, as was evident with the coronavirus stock market crash in March, where the S&P 500 index fell by more than 30% after reaching record highs just the month before. This is a harsh reminder of just how volatile the stocks and shares market can be at times.
If you?re looking to diversify your portfolio with alternative investments that are less prone to volatility, P2P lending could be a viable alternative to add to your list of choices.
How Does P2P Lending Work?
Peer to Peer platforms offer quick, personal and accessible loans to individuals and business owners through an online platform. Additionally, P2P investors in the UK can make tax-free returns* on their investment as a result of the government?s IF-ISA arrangement.
This arrangement allows investors to invest up to ?20,000 within a tax year, without having to pay capital gains tax on returns accumulated during the course of this period.
A Viable Alternative in Volatile Times
Peer to Peer lending is a viable investment alternative in volatile times. Look at how it performs relative to market volatility, as well as considering its direct involvement with the property market.
Providers continue to mitigate investor risk by maintaining high levels of due diligence on new loan approvals*. They also provide additional support for borrowers who may be struggling to meet payment deadlines.
P2P Investments and Volatility
P2P investments are less prone to volatility as a result of borrowers needing to service their loans regularly*. While the coronavirus pandemic may mean that payments are delayed, this won?t necessarily have a bearing on the investors? payout at the end of the day*. The same can?t be said for all types of investments.
Investments Secured by Property
P2P lending allows for investment into loans that are secured by property. If the borrower defaults, it will only take a few months for the P2P platform to sell the property in order to recover costs*.
Finding a provider that holds first legal charges (meaning they are first in line to take control of the property in case of a default) is a great way to get additional peace of mind**.
Increased Support for the Property Market
It?s also useful to note that support for the general property market has remained steady, even amidst the pandemic.
The FCA has announced a three-month payment holiday for homeowners and landlords. The Bank of England has also cut its interest rates for mortgages to a historic low of 0.1%pa, providing additional short-term relief.
Stringent Credit Committees
P2P lending platforms have stringent credit committees to vet each loan before it is approved. Platforms are covering all bases before approving new business loans to ensure that they are viable. This is another means of increasing investor confidence.
Additional Support for Borrowers
Peer to Peer platforms tend to offer a more personalised service than banks, working with borrowers to help them find suitable solutions in unpredictable times.
Additional support is typically available through the Collections team of any provider – they can help find an appropriate solution in case a borrower is struggling to meet payment deadlines***.
Getting Curious About Other Investment Types
In times of uncertainty, and especially with the increased volatility of the stocks and shares market during the coronavirus pandemic, investors have a responsibility to get more curious about finding alternative options to continue growing and diversifying their portfolios.
As the key factors in this article suggest, P2P lending is one of the prospects worth keeping in mind during your decision making process.
*Capital is at risk. HMRC Rules Apply.
**Securing investments against UK property does not guarantee that your investments will be repaid and returns may be delayed.
***Failure to meet the repayment criteria of a loan could result in the security being repossessed