Landbay, LendInvest, Assetz: peer-to-peer lending to buy-to-let investors

You can lend a share of buy-to-let mortgages via several peer-to-peer websites. Here are the pros and cons.

If you think buy-to-let is a potentially sound investment, but don’t have the money to put down on a deposit yourself, you can now invest in a share of a buy-to-let mortgage.

You can do this via a peer-to-peer (P2P) website, with several out there to choose from. Here are three examples.

If you would prefer a stake in the actual bricks and mortar, read our guide to Crowdfunding rental property.

Landbay

Landbay allows you to invest in a share of a three-year fixed rate mortgage. You can invest in any/all of three different bands, depending on your attitude to risk and the returns you want to achieve.

The A+ band means you are investing in the first 0-60% of the mortgage, and comes with average returns of 3.6-3.9%. The B band is for the 60-75% band which Landbay says generates average returns of 5-6%. The C band is the 75-80% range and averages returns of 8.5-9.5%.

There is a Protection Fund in place for the less risky A+ band and there are no fees for lenders.

There is a minimum investment of £100 and this is matched with the next available loan that meets your risk band. You are then locked into your share of the mortgage, although there is a secondary market if you want to sell earlier, but there are no guarantees your investment will be bought.

Of course, if the borrower is not able to repay the mortgage you run the risk of losing some or all of your money, particularly if it’s invested in the B or C bands.

Launched in May, Landbay aims to have loans spread over 10 properties by the end of July in order to minimise risk.

Compare peer-to-peer investment opportunities

LendInvest

LendInvest offers the opportunity to lend to both residential and commercial buy-to-let investors.

You can invest in whole loans or parts to spread risk but you’ll need a minimum of £10,000 to get started.

Interest is paid monthly and the capital is repaid at the end of the term of the loan, which can be between three months and five years. You can get your capital out by selling your loan to another investor though LendInvest.

LendInvest says investors are averaging returns of 8.15% AER. This figure includes fees, which are equivalent to 30% of the interest rate on shorter-term loans and 20% on longer-term ones.

Assetz Capital

Most investments on the Assetz Capital platform are businesses looking to borrow. However, it does offer loans to buy-to-let investors too. These are typically for five years and at a fixed interest rate.

The loan-to-value (the amount borrowed of the property's value) ratio on these loans is just 50% and there is what's known as a first charge, or first claim, on the property should the borrower default.

There is also an aftermarket, where loans can be sold to other investors.

Unlike its competitors, Assetz doesn’t charge lenders a fee, just borrowers.

Wealth warning

The value of any property can fall as well as rise, which could present a problem if a property needs to be repossessed and sold for any reason.

This type of investment is also fairly 'illiquid', in that there isn't a regular marketplace where people buy and sell them, although all of the companies we've featured do offer ways to sell.

And while peer-to-peer platforms offer an alternative way to potentially earn a better return on your money, they don’t come with the same protection that banks and building societies offer.

Any investments you make won’t be covered by the Financial Services Compensation Scheme, which protects up to £85,000 of UK deposits per institution.

Each and every company encourages you to spread your risk by investing small amounts in lots of different loans. That way if a borrower does default, the impact is minimal.

Another factor you should bear in mind is that returns aren’t taxed at source so you will need to fill in a self-assessment tax return each year to pay what you owe. There are plans for P2P companies to be able to offer ISAs from April 2015.

Compare peer-to-peer investment opportunities

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Pros and cons of buying ex-local authority property

Crowdfunding rental property

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