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. |
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.
| 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 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.
| 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. |
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.”
| 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. |