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The Safest P2P Lending Company
Andrew Hagger of MoneyComms, formerly a spokesperson for Moneyfacts, has written a report into P2P lending, commissioned by Landbay.
Hagger set out his views on the sort of P2P lending companies you should lend through if you're new to P2P lending, and which specific companies fit the bill:
“If I was asked to choose a provider for a less experienced investor with virtually no appetite for risk, I would explain that their capital is never going to be 100% guaranteed as with FSCS backed savings accounts, but would point them in the direction of what I consider the four lower risk providers i.e. Landbay, Lending Works, RateSetter and Zopa (incidentally all members of the P2P Finance Association).”
A simple system to find a winner
Andrew uses a simple system to compare P2P lending companies to evaluate which is lowest risk: tally which has the larger number of safety features. He writes:
“Landbay is currently the only P2P platform that offers a protection fund, auto diversification of funds, security of tangible assets and doesn’t permit investing money with a single borrower or project. The returns on offer from Landbay may be lower, but the overall risk management initiatives to protect customers’ money are the most comprehensive in the market.”
Andrew's report does not cover Lending Works' additional safety feature, which is in the form of insurance against some types of bad debt. This gives Lending Works the same tally score as Landbay, since, like Landbay, it also has a protection fund, auto diversification and it does not permit investing money with a single borrower.
Andrew continued by praising his second to fourth choices and by warning about the P2P lending companies that allow you to put all your money into a single short-term property loan called a “bridging loan”:
“Zopa, RateSetter and Lending Works are also providers that I feel are more suitable for first time P2P investors – the funds are well spread, protection funds are in place and the lending is purely to credit worthy personal borrowers – no bridging loans or development finance projects.
“That’s not to say that other players in this market should be discounted, however those lending to businesses for bridging or development finance that give you the option to put all your lending eggs in one basket are not for the novice P2P customer but more suited to experienced investors happy to accept more risk in return for greater rewards.”
Consider other factors
One risk not covered in Hagger's system for choosing the lowest-risk P2P lending companies is how long the P2P lending companies' records are. Zopa and RateSetter are two of the oldest P2P lending companies in the world at nine and four years old. Landbay was founded last year.
Not all P2P lending companies offering bridging and development loans have you put all your money in one property. Wellesley & Co. for example, has a bad-debt provision fund and automatically diversifies your money across all outstanding loans – currently over 100.
Notably, the report for Landbay did not compare the companies' bad-debt rates, the size of their bad-debt provision funds, or the quality or size of any property taken as security for loans.
Commission: we receive commission from all the companies mentioned in this article for publishing their mathematically calculated 4thWay® Risk Ratings and our editorially independent 4thWay® Insight Report, which are our own proprietary research products to help individual lenders like you make good investment decisions. We do not take commission for including P2P lending companies in our free comparison tables. All P2P lending companies will be included over the next few weeks. Learn How we earn money fairly with your help.