Property-backed peer-to-peer lending has become an increasingly prominent segment of the P2P lending market in recent years. But what is it exactly?
In short, property-backed P2P lending refers to P2P loans which are secured by property. That property might be a residential development, commercial buildings, buy-to-let portfolios, or land with planning permission.
On these types of secured loans, the property acts as collateral. If a borrower defaults, the platform has the legal right to recover funds through the sale of the property itself. When assessing the value of property collateral, P2P lending platforms will assign a Loan-to-Value (LTV) which effectively states how much the platform is prepared to lend against the overall value of the property. As of September 2025, Loanpad’s average LTV was 45.04%. This means that in the event of a borrower default, the value of the property would have to fall by more than 55% before Loanpad’s share is impacted.
This collateral is what makes property-backed P2P lending different to unsecured loans. It provides investors with an extra layer of protection, although, of course, it doesn’t remove risk entirely.
How does property-backed lending work?
When a property developer or landlord applies for finance, they will approach a P2P lender with their plans. The platform then assesses the deal, taking into consideration elements such as the borrower’s track record, the property’s value, and the LTV.
If the platform is satisfied with the borrower’s credentials and the property collateral, the secured loan is listed on the platform. Investors can then choose to fund part of the secured loan.
For the duration of the loan’s term, investors will earn interest on their investment. This is typically paid monthly, quarterly or annually, depending on the platform.
At the end of the term time, the secured loan is repaid in full, and the investors can recoup their capital investment and either withdraw their money or use it to invest in another loan.
If the borrower fails to repay, the platform can enforce its charge on the property to recover investors’ funds.
The benefits of property-backed lending
For borrowers, there are a number of benefits associated with using a P2P lending platform to finance their next project.
- Speed. Traditional banks can take weeks or even months to approve a loan, whereas property-backed P2P lending platforms are often quicker.
- Flexibility. P2P lenders may consider projects that high street lenders view as too risky or unconventional.
- Short-term finance. P2P lenders and lending platforms are more comfortable offering secured loans with a shorter duration, of say six to 12 months, which suits developers who are bridging a funding gap.
For investors, property-backed P2P loans can offer attractive returns, with the reassurance of underlying security in case the borrower defaults.
Property-backed P2P lending also offers a way for retail investors to participate in the property market without directly owning or managing property. By lending to developers and landlords via online platforms, investors can earn interest while benefiting from the security of property as collateral.
While property-backed P2P lending is not risk free, it is possible to manage risk by choosing a reliable and regulated property-backed lending platform, and by carrying out your own due diligence before investing. This might involve checking the loan terms, the LTV, and the borrowers’ credentials on Companies House.
Done correctly, property-backed P2P lending can diversify your investment portfolio and help to support the British property industry, while earning competitive returns.
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If you invest in any form of property loan, you may be familiar with the LTV acronym. LTV stands for Loan-to-Value, and it is one of the most important concepts to get to grips with as a property investor.
What is Loan-to-Value (LTV)?
Simply put, LTV is the ratio between the amount of money being borrowed and the value of the property securing that loan.
For example, if a borrower wants to borrow £500,000 to finance a property development, and the property securing the loan is valued at £1m, the LTV would be 50%.
LTV is used by every property lender and property lending platform as a way of assessing the security behind each loan. It is particularly important when property is being used as collateral against the overall loan. If the borrower is unable to keep up with their repayment schedule and all other efforts to refinance or recover the loan have failed, the lender can make a claim the collateral and sell it in order to recoup investor capital.
It is worth noting that there is a difference between a first charge and a second charge when it comes to property collateral.
Lenders who have a first charge on a property will be first in line for repayment whenever the property has been sold. Lenders with a second charge claim will be paid second, which effectively increases the risk as there is a possibility that there may not be enough money left to pay everyone.
Loanpad always takes a first charge on every property that is taken as security against each loan alongside our lending partners with Loanpad ranking above our lending partners upon repayment. This allows us to reduce risk for our investors, by ensuring that they are first in the queue should a loan default lead to a collateral sale.
Why does LTV matter to investors?
For retail investors in property P2P lending, the LTV figure provides a snapshot of risk.
In theory, the lower the LTV, the lower the risk of capital loss. For example, if a loan has an LTV of 50%, the property would have to fall in value by 50% before investors’ capital is at risk, assuming the platform can recover the property in a default.
If a loan is offered at 80% LTV, there is less of an equity cushion if things go wrong. Even a modest fall in property prices could impact recovery values.
Essentially, the lower the LTV, the greater the buffer between the loan amount and the underlying security.
LTV in P2P lending
When reviewing any new borrower applications, property lending platforms such as Loanpad will carry out extremely thorough due diligence to ensure that every borrower is creditworthy and that the underlying collateral has value.
In order to minimise risk to our investors, we keep our LTVs very low. As of September 2025, our average LTV was just 45.04%. This means that a property would have to decline in value by more than 54.96% before our collateral is impacted. As a result of our conservative LTVs and strong due diligence process, no investor has ever made a capital loss with Loanpad to date.
LTV is one of the simplest yet most powerful indicators of risk in property-backed P2P lending. While it should never be the only factor you consider, it provides a clear benchmark for assessing how much security sits behind your investment.
As a P2P investor, it is very useful to understand and monitor LTV, alongside other factors such as borrower experience, market conditions, and platform due diligence. When you have more knowledge about a loan and its underlying risk, you can make more confident and informed investment choices.
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The Bank of England has been gradually lowering the base rate for more than a year now, with the pace accelerating over the past six months. Since January 2025, the base rate has gone from 4.75% to 4.25%, with further cuts predicted before the end of the year.
These rate cuts began in 2024 in response to higher rates of inflation, which spiked post-pandemic and due to the war in Ukraine. The idea is that lowering the base rate reduces the cost of borrowing, encouraging more people to spend. For example, mortgage holders might find that they are able to renegotiate a lower rate when their existing term expires, freeing up some extra money in their budgets each month which can be spent on goods and services, thereby boosting the British economy.
So how will further rate cuts impact Loanpad investors?
The base rate is the interest rate at which commercial banks can borrow money from the Bank of England. If the central bank raises the base rate, it directly affects how much banks pay to borrow money, and they may pass this on to their customers by increasing the cost of mortgages and loans.
Unlike banks, peer-to-peer lending platforms such as Loanpad do not borrow money from the Bank of England. Instead, Loanpad’s funds come from its investors and investing partners directly.
While the Bank of England’s rate cuts have an indirect impact on the broader financial ecosystem across the UK, for the P2P sector, this impact is more nuanced.
- Rates
P2P lending platforms can typically offer higher investor returns than traditional savings accounts because they operate outside the traditional banking system. A reduction in the Bank of England’s base rate can drive traditional savings rates lower, making P2P loans potentially more attractive to investors seeking higher returns. However, this could also result in lower interest rates on P2P loans as platforms adjust their offerings in response to cheaper borrowing costs.
- Loan demand
The availability of cheaper financing could see demand for loans soar, and P2P lending platforms could benefit from this boost by receiving more borrower requests. However, P2P lenders such as Loanpad follow very strict due diligence protocols, which means that only the most creditworthy borrowers will be offered funding, no matter how many applicants there may be.
- Search for returns
A lower base rate also means that bank-based savings rates may be reduced. This could send one-time savers seeking out higher-risk investment options such as stocks and shares or P2P loans. The government is currently discussing ways to encourage more savers to become investors, and this campaign could also have the effect of encouraging more people to diversify their finances and consider P2P lending and other alternatives.
At Loanpad, we are currently targeting returns of between 5.1 and 6.1 per cent for our investors, depending on what type of account is chosen. We try to keep our rates ae competitive and consistent as possible.
In the past, when we have changed our rates we have made these changes slowly and gradually, so that our investors can adjust their portfolios and make any necessary changes. We will always communicate any rate changes with our investors clearly, while always ensuring that we continue to deliver the great service that we are known for.
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ISA reform is coming. Earlier this year, Chancellor Rachel Reeves signalled that she was open to reviewing the UK’s current ISA regime, with some speculation suggesting that this may involve streamlining the current range of ISA products, or even lowering the annual allowance.
In July, the government opened up a consultation into ISA reform, with further details expected to be announced at Reeves’ Mansion House speech on 15 July. However, on the day of the speech, no references to ISA reform were included.
This lack of a clear ISA policy has kept savers and investors in the dark, wondering how their ISA allowance could change in the next financial year.
So what is likely to change?
As of now, we really don’t know very much at all. In her Spring Statement, Reeves said that her goal was to encourage more UK taxpayers to invest rather than save, in an effort to boost the British economy. The government later released a statement saying that it is “looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.”[1]
This suggests that any ISA reformations will focus on boosting the popularity and accessibility of investment ISAs such as the Stocks and Shares ISA and the Innovative Finance ISA (IFISA). One way that the government may do this is by making the Cash ISA less attractive.
Prior to the Mansion House speech, it was rumoured that Reeves planned to slash the annual Cash ISA allowance from £20,000 to £5,000, while keeping the £20,000 limit for other investor-focused ISAs. This could encourage more people to look beyond Cash ISA options when choosing where to invest their annual ISA allowance.
How can you maximise your ISA allowance now?
In her Spring Budget, Reeves reassured savers and investors that ISA reform would not be implemented in the current financial year. That means that until 5 April 2026, every UK taxpayer can make full use of their £20,000 annual ISA allowance as usual. This £20,000 can be spread across Cash ISAs, IFISAs, Stocks and Shares ISAs and Lifetime ISAs (although there is an annual limit of £4,000 on this type of ISA).
Furthermore, all existing ISA balances can be transferred, either to different account providers or from one type of ISA to another.
With no guarantees that this structure will remain in place after April 2026, savers and investors should take action now to ensure that they are making the most of their current allowance.
This might involve putting aside extra money for ISA savings and investments, while the annual allowance is still at a high.
Savers might also take this time to research alternatives to Cash ISAs. For example, IFISAs can also offer fixed returns by matching investors with borrowers who pay an agreed interest rate on a daily, monthly, quarterly or annual basis, for the duration of the loan. No two IFISA providers are the same, so it is important to conduct thorough due diligence before placing any money with a provider. It is also important to understand the risk associated with investment ISAs, namely that there is a chance that investor capital could be lost due to an unperforming loan or poor stock performance.
Whatever the future holds for the ISA, there are plenty of options available to UK taxpayers who want to grow their savings and investment portfolios and take advantage of tax-free returns – at least in the current financial year.
[1] https://assets.publishing.service.gov.uk/media/67e3ec2df356a2dc0e39b488/E03274109_HMT_Spring_Statement_Mar_25_Web_Accessible_.pdf
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P2P INSIDER
Supercharge your understanding of Peer to Peer investing todayAll investments come with an element of risk attached. A stocks and shares portfolio can crash overnight, while newer alternatives such as cryptocurrency are notoriously volatile.
In peer-to-peer lending, the key risk is that the borrower could be unable to repay their loan. This would result in a default, and may result in investor losses, including capital losses.
However, at Loanpad, we have set a few key processes in place that reduce the risks for our investors and help to protect your investments.
- All of our loans are backed by property
We take collateral on every loan so that in the event of a borrower default, the underlying property collateral can be sold to recoup our investors’ collateral. Before any new loan is approved, we ensure that the underlying property collateral has a good chance of being sold in a timely manner if need be.
- First charge on every loan
A first charge is a legal right that gives one lender priority over others to claim money from a property if the borrower defaults. Loanpad takes a first charge on every loan, so we will be first in line to be paid if a loan goes into recovery proceedings. This is important as it gives us the best possible chance of being able to make our investors complete by repaying their capital investment. This is one of the reasons why Loanpad investors have not lost a single penny of their capital to date.
- Low LTVs
Loan-to-Value (LTV) is the percentage of a property’s value that you’re borrowing. For example, if you buy a house worth £100,000 and borrow £80,000, your LTV is 80 percent. The higher the LTV, the riskier the loan for the lender. Loanpad maintains very low LTVs in order to minimise lender risk. As of July 2025, the average Loanpad LTV was 44.46 percent. This means that the value of the property would have to decline by 55.54 per cent before our ability to recoup the capital investment is affected.
- Senior lending position
Loanpad’s lending model brings together established property lenders and retail investors, with the property lenders taking on the highest risk – or junior – part of each loan. Our retail investors invest in the senior part of the loan, which means that they are effectively shielded from the riskiest parts of the loan, but can still earn competitive returns. If a loan goes bad, the property lenders will incur the greatest losses, while the retail investors will be repaid first.
- Ongoing due diligence
Every new loan that is onboarded to the Loanpad site is subject to intensive due diligence focusing on property valuations, borrower experience, and the legal and security aspects of each loan. This due diligence continues even after the loan has been approved, to ensure that the borrower is still able to make repayments, and that everything is going according to plan. By keeping such a close eye on every loan, Loanpad is able to actively manage the loanbook and identify any potential problems ahead of time.
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Two Decades In, P2P Lending Still Delivers Strong Returns
Peer-to-peer and online direct lending made an average return of 7.61 per cent in 2024, according to the latest statistics from the 4th Way P2P And Direct Lending (PADL) Index.
This means that online lending has outperformed inflation in nine out of the past 10 years and has earned investors 7.31 per cent per annum annualised, net of investing costs and bad debts over the past decade, 4th Way said.
By comparison, 4th Way calculations showed that the FTSE 100 has returned 4.77 per cent annualised over the same period, after assuming one per cent in investor costs. FTSE 100 returns have beaten inflation in six out of the past ten years.
According to 4th Way, in 2024, the FTSE 100 delivered 8.54 per cent in net returns to investors, beating online lending returns by 0.93 per cent.
“Share investors returns pipped P2P lending last year, but despite now coming out of a tough time for borrowers, the past few years have shown the reliability of this asset class, with solidly positive results,” said Neil Faulkner, co-founder and managing director of 4th Way.
“Indeed, online lending as an asset class has had positive returns every year since it started in 2005, even when considering all closed platforms. 20 years later, when will the wider investing community will catch on?”
Faulkner added that online property lending has stably paid out approximately six to eight percent per annum, “comfortably” beating the stock market in the long run and without the volatility associated with equity investing.
Despite another year of positive returns, the PADL data found that P2P and online direct lending suffered its heaviest ever losses in December 2024, with total loan write-offs amounting to almost £4m in interest and capital. Without these losses, the PADL Index would have reported a return of 8.12 per cent for the year.
4th Way reported that the worst 12-month period for online lending happened around 10 years ago, when the sector pulled in 5.51 per cent in net returns, while the stock market made just two per cent. The best 12-month period saw investors earn 8.77 per cent from their online lending investments.
The PADL Index comprises data collected from six of the largest P2P and online lenders in the UK, including Loanpad. Together, the total lending volume of these platforms is equal to half the size of the P2P lending market, at around £750m.
Independent ratings agency 4th Way has tracked the performance of the online lending sector since July 2014.
“Loanpad is a proud constituent of the PADL Index, and we report our performance data directly to 4th Way,” said Neil Maurice, Chief Operating and Finance Officer at Loanpad.
“We are not surprised to see another year of positive returns for the asset class. P2P lending has been around for 20 years and during that time it has proven its ability to deliver competitive, consistent returns for investors, while adding diversity to investor portfolios.
“While past performance is no guarantee of future returns, the long track record of P2P lending helps show that this asset class can deliver for its investors. This is thanks to strong due diligence, conservative lending practices and well-chosen investment opportunities. We look forward to seeing what 2025 brings.”
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How P2P Lending Enhances Portfolio Diversification
Savvy investors understand the benefit of a diversified portfolio – especially during times of economic volatility. The post-Covid investment landscape has been characterised by uncertainty and has led many seasoned investors to reimagine their portfolios in a way that is better suited to the current investment landscape.
For some, this may mean choosing more fixed income opportunities and carving out a small portion of high-yielding investments.
Peer-to-peer lending can offer fixed returns which are competitively priced. As with investment products, investors should always carry out their own due diligence to ensure that they have chosen a regulated platform which has a good reputation in the market.
Why diversification matters
Diversification is a cornerstone of sound investing. By spreading investments across different asset classes, sectors, and geographies, investors can reduce the risk of large losses from any single investment. P2P investing is not correlated with the stocks and shares market, or with the public bond markets, so it offers a way to diversify your money outside of the mainstream. If the stocks and shares portion of your investment portfolio sees a sudden drop in value, the P2P segment of your portfolio is unlikely to be impacted.
Creating a diversified portfolio can also mean choosing a variety of yield opportunities. For example, the majority of investors will choose to keep a certain amount of their investment portfolio in a low-interest cash account, or in low-paying government bonds. These types of investments exist at the lower end of the risk spectrum and offer some reassurance to investors that in the event of a market crash, at least one part of their portfolio will be shielded from the risk of capital loss.
For most investors, a diversified portfolio is about creating balance. Higher-yielding investments often come with higher risk. It is possible to earn double digit returns but there is a risk that in the event of a borrower default, some or all of the investor’s capital investment could be lost. The risk of capital loss has to be weighed up against the opportunities to earn a higher return. In a well-diversified portfolio, higher risk investments should be balanced out by the inclusion of lower-risk strategies elsewhere.
Diversification within P2P
It is also possible – and advisable – to add diversity within the P2P segment of your investment portfolio. You can do this by investing your money with more than one platform, and by choosing to spread your investments across multiple P2P loans, rather than manually selecting one loan at a time.
By spreading your investment, you are also reducing the risk of capital loss. If all of your money is tied up in one P2P loan, and the borrower goes into default, you could lose some or all of your initial investment. However, if you are invested in 100 loans and one of them goes into default, that would represent a maximum loss of one per cent of your overall portfolio.
Additional P2P diversification can be added by splitting your money across several different types of P2P loans. It is possible to use P2P investing to access property-backed loans, consumer loans, business loans, and even litigation loans. Research the market and ensure that you have all of the information you need before committing your funds.
P2P lending can be a valuable component of a diversified investment portfolio. By adding an alternative asset class that offers the potential for higher returns and lower correlation to traditional investments, retail investors can enhance their portfolio’s risk-return profile while maintaining a focus on long-term growth.
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What’s Ahead for P2P Property Lending in 2025?
2024 was not without its surprises – a new UK government, ongoing geo-political tensions across the world, and the end of an era of stubbornly high base rates. Yet throughout the year, the peer-to-peer property lending sector remained relatively robust. In fact, 4th Way published research this year showing that P2P returns have outpaced the stock market over the past decade, with annualised returns after costs of 7.36 per cent per annum, compared with 4.9 per cent per annum for the stock market.
Despite macro-economic volatility and the difficult lending environment, platforms like Loanpad continued to grow their loan books and attract more investors, proving the resilience of P2P property lending. Loanpad passed its £100m lending milestone while maintaining its zero loss record, further demonstrating the growth potential of P2P even during tough years.
While no one knows what 2025 has in store, a few key trends are already emerging that give us an idea of what we can expect in the year ahead…
1. Increased IFISA uptake
The Innovative Finance ISA (IFISA) is now a well-established part of the financial services landscape, and uptake is likely to grow as sophisticated investors seek higher yields for the tax-free elements of their portfolios.
In the November 2023 Budget, then-Chancellor Jeremy Hunt extended the remit of the IFISA to include open-ended property funds and long-term asset funds for the first time. These changes came into effect in April 2024, and since then a number of IFISA-eligible funds have launched, raising awareness of the structure and its benefits to investors.
The upcoming ISA season will further spotlight the IFISA, giving another boost to the tax wrapper and the P2P platforms that offer it.
2. Consolidation
The P2P market has come under increasing regulatory scrutiny in recent years, and this has led to the departure of a number of platforms which were unable to meet the high standards of practice which have been set by the Financial Conduct Authority.
While some P2P lenders have opted to trigger the wind-down provision in their business model, others have simply pivoted away from P2P and rebranded themselves as alternative lenders. Further consolidation could take place in the market next year as smaller players wind down or are bought out.
3. Bank retrenchment
Banks have been lending less money to small and medium-sized enterprises (SMEs), and this has allowed the alternative lending market to boom in recent years. Banks have shown little willingness to resume these lending activities, and this creates a huge opportunity for alternative lenders to step in and supply much-needed funding to businesses, consumers and property investors across the country.
4. The rise of AI
Alternative intelligence (AI) entered the mainstream in 2024, but 2025 will see even more fintechs attempt to harness the power of AI to grow their businesses and reduce their overheads.
AI is already being used by some alternative lenders to collate and analyse data, and provide customer service via the use of chatbots. In the wider credit ecosystem some firms are using AI to create credit scoring models with the intention of speeding up their underwriting process. If successful, P2P lenders could dramatically enhance their loan decision processes to attract more borrowers and originate more loans.
5. ESG redefined
Environmental, social and governance (ESG) issues have been a corporate buzzword for years, but in 2024 the sheen came off ESG investments a little, as investors prioritised yield and became sceptical of the term ‘ESG’ amid a number of high profile greenwashing scandals.
The new eco-buzzword of the season is ‘impact’ investing, which focuses on biodiversity and longer-term results such as the green energy transition. The redefinition of ESG is likely to continue across 2025, particularly if stability returns to the markets, and investors feel that they can be more considered with their portfolio allocations.
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Is the UK Property Market Poised for a Comeback?
The UK’s property market can be seen as a key indicator for the economic health of the country. A prolonged housing shortage means that in theory, demand is outpacing supply. However, the Covid pandemic, rising interest rates, the higher cost of living and a lack of wage growth has led to a recent slowdown in property sales, and a drop in house prices over the past two years.
This property slowdown has been widely documented, and it has understandably rattled many property owners and investors. However, independent industry analysis suggests that there is less reason to believe that we are headed towards a property crash. In fact, according to most sources, the UK’s property market recovery is already underway.
The most recent Halifax1 data found that average house prices fell by 0.1% in May 2024, month-on-month, and by 0.3% quarter-on-quarter. However, on an annual basis, property prices are actually up by 1.5%.
In certain areas, this annual growth was even more pronounced. Halifax reported that the strongest performing area in the UK was the north-west of England, where house prices grew by 3.8% on an annual basis in May. In Northern Ireland, prices were up by 3.2% over the same period.
And while the base rate remains stubbornly high at 5.00%, a slew of analysts have predicted a rate cut by the end of the year. This appears to have reassured house buyers, who have been actively seeking out mortgages again. In March, the Bank of England confirmed that UK mortgage approvals reached an 18-month high2, with lenders approving a total of 61,300 home loans.
This suggests that would-be homeowners are regaining their confidence and showing a willingness to invest in property again, despite the market’s recent volatility.
This has also been reflected in the housebuilding market. In a recent trading statement, housebuilder Bellway3 reported a rise in customer demand as a result of “an improvement in affordability, driven by a moderation of both mortgage interest rates and consumer price inflation and an increase in wages.”
By June 2024, the average rate for a two-year fixed mortgage at 75% loan-to-value was 5.89%4. This is more than double the average rate of early 2022. However, property buyers may be willing to stomach these rates in the expectation that they will come down again by the time they need to refinance. In the meantime, they can take advantage of slightly lower property values to buy their dream home or investment property now.
Historical data from the Office for National Statistics5 found that by the end of 2023, average UK property prices were at a 12-year low. By December 2023, the average home was selling for £285,000, £4,000 lower than 12 months previous. In many ways, it is a buyers market – just as long as buyers are willing to stomach a couple of years of higher rates.
Seasoned property investors know that this is a cyclical market which is closely tied with macro economic movements.
[1] bit.ly/3NNhwpu
[2] bit.ly/3YpRspj
[3] bit.ly/3YvvfXb
[4] bit.ly/3C4xPvA
[5] bit.ly/48ugQ1U
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How Loanpad is Adapting to Interest Rate Changes
Interest rates have been on a rollercoaster ride in recent years. Covid saw the base rate fall to an all time low of 0.1 per cent1, and these record low rates were held until December 20212, when the Bank of England began to make small quarterly increases as the economy returned to normal working conditions.
However, a new blow was dealt in October 2022, with the now-infamous Liz Truss budget3. This caused inflation to spike, and the Bank of England began accelerating its rate hike plan. 18 months later, the base rate was at a 15-year high of 5.25 per cent4.
The base rate is a key indicator of market health. The central bank sets the rate at which banks can borrow from it, and this duly informs the rate at which loans are set.
Any changes in the base rate are therefore likely to have a knock-on effect on the price of lending, and this includes the price of peer-to-peer loans.
“You have to take into account interest rate changes,” says Neil Maurice, Chief Operating and Finance Officer at Loanpad.
“In the year or two coming up to the interest rate rises we were already talking about the potential impact of interest rate rises.”
In order to manage this risk, Loanpad made the decision to place the majority of its new loans onto variable rates to enable more flexibility in increasing its rates to investors as base rates increased.
From July 2022, Loanpad began been increasing investor rates by approximately 0.1% per month. This was done with the full co-operation and support of the platform’s lending partners.
“We had that conversation with our lending partners and we learned that borrowers don’t want to be exposed to massive interest rate rises throughout the term of the loan but they’d accept a smaller capped movement,” explains Maurice.
“So in October 2022 onwards, we moved most of our new loans onto a variable rate structure.”
As of June 2024, Loanpad was targeting returns of between 5.5% and 6.5% for investors, representing an increase of almost 2% from June 2022. However, Maurice notes that these rates could also drop again in the future, depending on the movement of the base rate.
“As interest rates come down our rates should also come down as well,” he says. “We have to be able to adapt to the market and pay our investors competitive rates.”
By implementing variable rates, Loanpad can ensure that investors are getting competitive returns on their investments. However, it is important to note that higher rates for investors means higher rates for Borrowers, so there is an important balance to be struck to ensure both investors and borrowers are offered a competitive product.
With any lending product, it is important to do detailed due diligence to ensure that you understand the risk involved, and are not merely looking at the target returns. While Loanpad works hard to manage its risks – including interest rate risk – no investment is entirely risk free. Market conditions can change dramatically, as we have seen in the recent past, and past performance is no indication of future success.
Loanpad is committed to doing what’s best for both its lending partners and its investors, through the active and prudent management of the loan portfolio.
[1] https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2020/march-2020
[2] https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2021/december-2021
[3] https://www.gov.uk/government/publications/autumn-statement-2022-documents/autumn-statement-2022-html
[4] https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2024/may-2024#:~:text=Monetary%20Policy%20Summary%2C%20May%202024,maintain%20Bank%20Rate%20at%205.25%25.
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