Investing For Income With Peer-to-Peer Lending
The stock market remains largely volatile, and the banks’ interest rates stagnant. It’s hardly surprising then today’s investors are in need of an alternative means to invest their money.
The House Crowd has been offering a great alternative for frustrated investors ever since it was founded back in 2012. Many of The House Crowd’s investors are looking for a way to increase their income and have earned over £40m in consistent returns over the past seven years, by investing in secured property loans and development finance.
“People invest for different reasons,”noted Frazer Fearnhead, CEO of The House Crowd. “There are those who would argue if it’s best to invest for capital growth or for income, but my view is that capital growth is speculative.
“You can look at the housing market for example and you may consider that properties always go up in value – and they may do over a sufficient time frame, but it’s speculative. You’re at the mercy of the marketplace and forces beyond your control.
“Whereas investing for income is putting money into assets that pay out on a regular basis, regardless of whether the underlying value of that asset is going up or down.”
This being the case, it still doesn’t mean that when you invest for income that you won’t be subjected to your own elements of risk. There is always a possibility that the borrower will default on a payment, which can reduce or even eliminate your returns. Capital preservation is also something else that prospective investors will have to take into account.
“Preservation of your capital in many ways is more important than the overall return you get,” says Fearnhead. “One of the biggest strengths of our investment model at The House Crowd is not just delivering you great returns when things go well but the safety net that is in place to protect your capital if things don’t go to plan.”
The House Crowd lends money only to property owners and property developers and take a legal charge over every single one of the properties. This means that if the borrower doesn’t pay back the loan, the platform has the legal right to repossess and sell the property to try and obtain its market value. As a result of this rule, The House Crowd has recorded no capital losses in respect of its loan book to date.
“Of course people have to choose their own criteria for risk and reward and assess those risks,” explains Fearnhead. “It’s always best to diversify your available capital over a wide spread of investments, because, with the best will in the world, there is always a risk, and something can go badly wrong with one particular investment.”
Investment opportunities on The House Crowd’s platform offer target returns ranging from 6 per cent to more than 10 per cent, but Fearnhead clarifies that potential investors should resist the appeal of double-digit returns, especially when considering investing for income.
“It does frustrate me when people see the headline interest rates and just go with the highest interest returns,” he said. “You just have to be sensible about things. There is a correlation between the interest rate you’re getting paid and the risk. You should only put a small amount of your available capital into higher risk loans and accept that there are likely to be more problems in delays and recovery than with lower LTV loans.”
By doing all they can to mitigate risk on behalf of their clients, The House Crowd are able to give them peace of mind. Investors are able to benefit from the best ratios of risk and reward, all with minimal fuss.
Capital at risk and rates not guaranteed. Withdrawals may be restricted due to illiquidity. Investments are not covered by the Financial Services Compensation Scheme (FSCS). Please read our full risk warning.