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The 5 Most Property Crash-Resistant P2P Lending Accounts
Nationwide says we've just had four months in a row of falling property prices.
To some people, that means there are more falls to come. My colleague has expressed his views on that in a separate piece.
But some peer-to-peer lending accounts seem almost deliberately built to be resistant to property crashes and other extreme events.
What does crash resistant mean?
The five exceptional P2P lending accounts listed below, especially if used collectively, offer you fantastic prospects in containing bad debts from property crashes, so that you can continue to make stable, highly satisfactory returns.
I don't think any other combination of lending accounts will place you any further from the impacts of a severe property crash.
Indeed, it would be hard to find investments of any kind that will offer you as much resilience.
What crash resistant doesn't mean
By “resistant”, I don't mean: 1) resistant against borrowers taking longer to repay or 2) resistant against problems selling your loans early.
These accounts may or may not offer some resistance in those two ways.
But, regardless, if you don't like those two things happening to you, the solution is not to find the right P2P lending accounts. It is instead to lend less money through P2P. Because those two things are part and parcel of money lending that you simply have to expect from time to time. Even at the very best P2P lending providers.
And – particularly in the case of problems selling early – such incidences are not even limited just to times of property crashes and recessions. Those sorts of delays are simply the inevitable flip side to putting your money into any kind of investment that offers stable returns. It's the other side of the same investing coin.
You can, however, hugely minimise the risk of higher losses from bad debts caused by falling property prices. So that's my focus here.
Amalgamating the extensive, continuous research and investigations from the entire 4thWay team, these following P2P lending accounts seem very much where it's at in resisting lending losses due to property-market crashes. Here they are, in no particular order:
1. Diversify out of property with AxiaFunder
If we face falling house prices in 2023, you'll want to diversify some of your lending out of property lending.
AxiaFunder* is hugely disconnected from property lending. Here, you fund legal cases, usually for claimants. These cases are ultimately due to be repaid by the defendant or its agents, if the case is successfully resolved in the claimant's favour – and yours.
AxiaFunder's team assesses not just the prospects of a case being successful, but also whether the defendant is likely to be able to pay the claimant (and therefore lenders) at the end.
This is quite an extreme way to diversify out of property. While insurance often covers some of your losses, the risk of making substantial losses on any one of AxiaFunder's cases are very real. That is in contrast to many kinds of property lending to prime borrowers, where losses are often not expected, even if a loan turns bad.
Yet the returns when it goes well with AxiaFunder are usually huge, and this is the key way your risks are mitigated. There are some strong reasons to believe that the majority of claims – but certainly not all – will be successful.
Read the AxiaFunder Review. (Technically – legally – AxiaFunder investments aren't lending, but there's more on that in the review.)
2. Diversify to borrowers who don't own property with Lendwise
Personal loans rarely end up relying on property to ensure that lenders turn an overall profit after bad debts occur.
With such loans, the downside protection for lenders is not about recovering a lot of bad debt through selling property or through other means. It's rather about selecting borrowers well, and pricing the interest rates correctly to cover future losses.
Lendwise's unique personal loans take this disconnect from property a step further.
Standard, prime personal loans are usually around 60% lending to homeowners. In contrast, Lendwise's borrowers are less likely to already own their own home.
This is because Lendwise* focuses exclusively on lending to people to fund their post-graduate studies and expenses. Most of them won't yet own their own home – especially the full-time students, who are usually in their 20s.
Borrowers in these loans are usually borrowing because it gives them better job prospects and pay at the other end of their studies.
This probably explains why bad debts and late loans are low. In the long run, lenders have been taking in twice as much interest as lenders are suffering in bad debts and late payments. That record is likely to improve further as Lendwise's results mature even more.
3. Diversify overseas with Lande
The world is more connected than ever. Still, crashes and recessions don't all come across the globe in unison, or in equal strength.
Back in 2020, 4thWay's specialists began to contact non-UK P2P lending companies to start assessing them. They've been building a pile of knowledge on them, most of which isn't yet in the public eye. But slowly we've been moving that way, with the opening of our sister website 4thway.eu.
One EU-based P2P lending company particularly stands out so far in terms of its results, its history, its transparency with 4thWay, and the level of data supplied. It's called Lande*, which lends to farmers.
Around half of the lending through Lande is secured on grain that is insured against disasters or sometimes secured on farm machinery. The grain is typically valued at two-and-a-half times the loan amount. Lande also does property loans, but, as its a different country, even those loans still diversify your risks away from a local property crash.
The rub for UK lenders is that you lend in euros, which fluctuates in price against the pound. This can either boost or reduce your lending results.
Read the latest in Lande Is The 1st European P2P Lending Company To Earn A 4thWay PLUS Rating.
4 & 5. Use property lending accounts built to withstand property crashes: Proplend and Loanpad
If you lend in lots of loans across many P2P lending accounts that have the 3/3 4thWay PLUS Rating, you'll be very well placed to cope with severe property crashes and recessions.
That's even if you exclusively lent in property lending accounts.
But it's clear that two property lending accounts are especially well built to see you through an absolutely horrendous disaster period. Splitting part of your money lending in these two, taking the time to spread across enough loans, is going to give you incredible downside protection.
Proplend* tranche A loans and the Loanpad accounts limit your risk, so that the amount you and the other lenders lend is at most half of the property valuation.
In Loanpad's case, even though it does development lending, it bases the property valuation on the initial, pre-development value of the site until the development is 75% complete. Only if a development is three-quarters finished will it then allow borrowers to borrow up to half of the hoped-for sale price of the soon-to-be-completed property.
While Loanpad* does loans to residential property developers, Proplend mostly does loans on commercial properties (such as care homes, shops and so on) that are being let out by their owners.
So these two P2P lending providers also diversify your money across different kinds of property lending. That's another way to keep risks under control, because different parts of a property market can be hit harder by different downturns.
Loanpad has the edge on safety, although you'll currently need to be patient to turn a profit on it after inflation, as you earn 4.9% on what is undoubtedly its best lending account, the Loanpad Premium account.
Proplend, meanwhile, is on track to pay lenders around 6.7% on its tranche A loans.
As the inflation rate starts to drop dramatically, it'll be a time of good profits for Proplend lenders, as property prices and interest rates will be buoyed by the prior bout of inflation. Loanpad will catch up shortly after that.
These accounts are well placed to handle a property crash that is even worse than in 2008/9, when distressed sale prices on some properties was 55% below market value.
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Independent opinion: 4thWay will help you to identify your options and narrow down your choices. We suggest what you could do, but we won't tell you what to do or where to lend; the decision is yours. We are responsible for the accuracy and quality of the information we provide, but not for any decision you make based on it. The material is for general information and education purposes only.
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*Commission, fees and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from AxiaFunder, Lande, Lendwise, Loanpad and Proplend, and other P2P lending companies not mentioned above either when you click through from our website and open accounts with them, or to cover the costs of conducting our calculated stress tests and ratings assessments. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.