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What effect could peer to peer lending have on property developers?
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Could property developers get funding through peer-to-peer lenders in the future rather than the banks? Funding Circle, the online marketplace for small business loans, could soon make this a reality. The peer-to-peer lender is now moving into property lending to small and medium-sized developers and investors, and plans to let customers lend to professional developers looking for between £100,000 and £3 million to build or refurbish property.

Loans are likely to start being offered from April, in a bid to capture the market from banks that are cautious about lending due to fears of a property bubble. Funding Circle’s hoping to provide a “faster and better service” financing residential and commercial landlords, as well as providing mortgages for businesses. The way the peer-to-peer lender works is to match lenders looking to make an investment with small business borrowers. The reason default rates are so competitive is because of low overheads and efficient technology, the company says.

This latest news comes as fears increase that a property bubble is forming due to the government’s Help to Buy scheme, as well as foreign investors pushing up prices in London. Recently, The Bank of England announced it’s set to withdraw household mortgages from its Funding for Lending programme to try to take some heat out of the market. As well as this, Bank of England governor, Mark Carney, has said that interest rates won’t go up anytime soon, but has hinted that he’s also concerned about the market getting out of control.

So how is Funding Circle’s new announcement likely to affect London? Well, we can see that lots of developments are currently underway in the UK capital. However, these developers are often large, multinational conglomerates and if they’re UK-based, have capital and a strong reputation behind them. For smaller developers it’s a lot harder to get access to funds, so Funding Circle could provide the perfect opportunity.

As houses in prime parts of London and the centre of town boom in price, this could be a great opportunity for smaller developers to snap up a property that is in need of work and then refurbish it, selling it on for a profit. Whereas the banks previously provided more opportunities for credit, they are now tightening access which means it’s likely that more and more innovative methods of lending are likely to fill the gap. However, one thing lenders on Funding Circle should remember is that it’s not always possible to vet projects as closely as they may like, as this can be costly. The peer-to-peer lender has said it will offer attractive terms for lenders and borrowers, yet will stay cautious regarding what development and investment it allows through its platform. There has also been criticism by some who claim that Funding Circle has stepped away from its original purpose, which was to fund small business investment in a difficult climate.

As to whether this trend catches on we’ll have to wait and see. We could see a rise in the amateur property developer taking on bigger and bigger projects – who knows!

Thanks to Robert Holmes, an estate agent in Wimbledon, for this guest post.
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