Property-backed peer-to-peer (P2P) lending has become an increasingly popular way for investors to diversify their portfolios, enjoy attractive returns, and support real-world projects. By lending money directly to property developers or businesses, investors can often achieve yields higher than those available from traditional savings accounts or Cash ISAs.
But as with any investment, there are risks. However, understanding these risks can help you make informed decisions and protect your capital.
So, what are the key risks in property-backed peer to peer lending?
1. Borrower default risk
The main risk with any peer to peer loan is that the borrower may not be able to keep up with their loan repayments, sending them into default. In property-backed P2P, this could happen if a developer runs into cash flow issues, if there are construction delays, or if the completed property fails to sell at the expected price.
Default risk can be mitigated in a few ways. Firstly, it is important to choose an experienced and well-run peer to peer property lending platform which has a strong track record of carrying out intensive due diligence on every loan and every borrower. Good platforms will detail their lending process openly on their website and will be available to answer any investor questions.
Next, look for loans that are secured against property, with low loan-to-values (LTVs) attached. In the event of a default, the platform can take charge of the property and sell it to recoup investor capital if need be.
Finally, maintain a diversified portfolio by investing in a range of different property backed loans, alongside other types of investments such as equities, cash and bonds. This reduces the impact of any losses in one area of your portfolio.
2. Property market risk
Most adults can remember the Global Financial Crisis, which saw the value of UK properties drop by approximately 16% in 2008 alone[1]. Property values can fluctuate due to economic conditions, changes in demand, or shifts in interest rates. If the property securing a loan falls in value, it makes the collateral less valuable and could place investor capital at risk.
This risk can be minimised by investing in property loans with low LTVs. For example, Loanpad has an average LTV of 45.44% on all of our listed properties. This means that these property values would have to fall by 54.48% before the underlying collateral is affected.
3. Liquidity risk
Unlike listed shares, peer to peer loans are not instantly tradable. If you need access to your money before the loan term ends it may be difficult, depending on the type of account that you hold. Loanpad offers two accounts – Classic and Premium. The Classic account allows for daily withdrawals, offering the option of instant liquidity to investors. The Premium account pays a slightly higher interest rate but requires 60 days’ notice on any withdrawals subject to liquidity.
4. Platform risk
When you invest through a P2P platform, you are also exposed to the financial health and operational reliability of that platform. If the company behind the platform were to fail, your investments could be at risk of disruption or even loss. This risk can be managed by ensuring that you choose to invest in a platform which is regulated by the Financial Conduct Authority. You can also research your platform of choice on Companies House to check their most recent financial statements and ensure that they are keeping up with their disclosure requirements.
It is also possible to mitigate this risk by investing across a number of different peer to peer lending platforms, while also maintaining non-P2P investments.
5. Economic risk
Broader economic conditions such as high inflation, rising interest rates, or a slowdown in housing demand can affect borrowers’ ability to repay and the overall performance of property markets. While macro-economic events are beyond the control of the average investor, keeping on top of the latest financial news can offer some insight into potential red flags which might impact on certain areas of your investment portfolio. For example, rising credit card defaults may indicate that consumer credit investments are becoming riskier. Likewise, mortgage defaults could suggest looming issues in the property market.
Economic risk can also be mitigated by choosing relatively short-term loans, so that you are less exposed to long term economic shifts.
And as ever, diversification is essential to minimise your exposure to one particular sector.
[1] https://www.theguardian.com/money/2009/jan/06/house-prices-fall-in-december
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |
Unnecessary taxation can erode your hard-earned investment returns, which is why 22.3m UK savers and investors chose to shelter their money in an ISA during the 2023-24 tax year1.
While the Cash ISA is best for risk-averse savers, and the Stocks & Shares ISA is favoured by traditional investors; the Innovative Finance ISA (IFISA) is arguably the best tax-efficient option for property investors and / or those seeking to diversify their investments.
What is an Innovative Finance ISA?
Launched in 2016, the IFISA was initially intended to allow investors in P2P loans and crowdfunding platforms a way of shielding their returns within a tax-free wrapper. More recently, the Innovative Finance ISA remit has been extended to include long term asset funds (LTAFs) and open-ended property funds as well.
Up to £20,000 can be invested in IFISA accounts during each financial year, and investors can hold multiple Innovative Finance ISAs simultaneously. Unlike Cash ISAs, IFISAs are not covered by the Financial Services Compensation Scheme (FSCS) and it is important to note that capital may be at risk in the event of a borrower default. However, good Innovative Finance ISA managers will ensure that they have strong risk management policies in place to minimise the risk of default. For example, Loanpad takes property as collateral on every loan, with an average LTV of 45.47%.
All ISAs share one big advantage: returns are completely tax-free. Interest earned within an IFISA is not subject to income tax, and any capital gains are also shielded from HMRC.
For example, if you invest £10,000 in a property-backed Innovative Finance ISA paying 6% in annual returns, you would earn £600 in interest each year, and you can keep every penny of these earnings without any tax deductions. If this interest is reinvested, you can also benefit from the effects of compound interest, which can help you to build wealth more quickly.
Loanpad offers two ISA-eligible accounts, the ISA Classic and the ISA Premium. These accounts are currently targeting returns of 5% and 6%, respectively. The ISA Classic allows for daily access so that investors can make withdrawals when needed. The ISA Premium account requires 60 days’ notice before any withdrawals are made subject to liquidity.
How to use the IFISA in property-backed lending
Loanpad’s Innovative Finance ISA accounts allow investors to back British properties and earn interest on property-backed loans. Every loan is secured against physical property which can be sold in the event of a borrower default, thereby providing an additional layer of security for investors.
This is one of the most direct ways to access diversified property market returns. Each investment is spread across a number of property loans, which reduces the risks associated with a default and offers exposure to different properties in a variety of neighbourhoods.
To access the benefits of property-backed ISAs, simply choose a regulated P2P property lending platform such as Loanpad, open a new account, deposit your funds and start investing.
All new investors must complete an appropriateness test to ensure that they are aware of the risks involved in P2P lending. While past performance is no indication of future success, Loanpad has maintained a zero-capital default record to date due to the platform’s risk-averse strategy and strong underwriting due diligence.
Get in touch with us today to learn more about Loanpad’s Innovative Finance ISA and how property-backed loans work.
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |
P2P INSIDER
Supercharge your understanding of Peer to Peer investing todayProperty-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.
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |
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.
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |