There is an alternative way to invest in real estate without buying property (and advisers need to know it)

As UK house prices continue to hit new all-time highs, unaffordable prices are holding back prospective home buyers despite new 95% mortgages and various Help to Buy schemes.

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Roxana Mohammadian-Molina | Blend Network
2nd June 2021
Roxana Mohammadian-Molina
"If you look at the real estate market growth over the last decade or longer, it is easy to see that much of it is the result of limited housing inventory."

In April, the price of the average house in the UK reached £238,831, a record high since Nationwide started recording monthly prices in January 1991. April’s price was almost £7,000 higher than the previous month and nearly £16,000 higher than in April 2020. The first-time buyer house price to earnings ratio reached 5.3 in Q1 2021, one point higher than in 2013 and only 0.1 below the ratio’s all-time high of 5.4 in the wake of 2008-09’s Global Financial Crisis. Therefore, it is not surprising that according to a recent survey, 40% of buyers who are actively engaged in the process of finding a home say they can’t find a home at a price they can afford.

With this in mind, many people may be wondering if they should throw their hat in the ring and invest in real estate - or, if they’re too late. They may also be wondering whether they should invest in real estate in a traditional sense - as in, becoming a landlord. Now, here’s the good news. Not only do I strongly believe now is still a good time to invest in real estate since more growth is likely on its way, but there is also another way to invest in housing without dealing with tenants or the other minutiae of landlord work. This alternative way of investing in real estate without buying a property is peer-to-peer (P2P) property lending, an easy, fast and secure way of achieving high returns but without the worries of acquiring a property.

P2P is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. P2P property lending focuses on lending money to property developers who are building homes. Having emerged only a decade ago, P2P lending has a devoted investor base that has been wooed not only by its attractive returns but also by its ability to let investors take control of their investments. If you look at the real estate market growth over the last decade or longer, it is easy to see that much of it is the result of limited housing inventory. In 2015, the UK Government announced its target to build 300,000 new homes a year, yet according to Government data the number of new homes completed by developers in the year ending June 2019 stood at just over 170,000 – it was even lower in 2020 as a result of the pandemic. The UK continues to suffer a deep shortage of housing which is helping prices to surge. For this reason, many predict that house prices will continue to be supported over the next years.

P2P property lending platforms allow investors to invest in property-secured loans to real estate developers. The benefit for lenders is that they can earn a good return and do good by helping build more homes. The benefit for borrowers is that they can access the funding they need to build more homes. The interest earned by P2P property lending is higher than the interest on cash deposits (although cash investments are protected by the FSCS and P2P lending is not, and your capital is at risk) and while there is a risk that a borrower may default, P2P property loans usually offer fixed returns, thus shielding investors from the volatility of stock markets. In most platforms, investors can invest any amount they want from only a few hundred pounds. Blend Network allows investors to invest as little as £1,000 and earn 8-12% return p.a. Due to the current environment of extremely low interest rate on cash deposits, many investors looking to get on the property ladder decide to invest in P2P property lending to make their savings work for them while they manage to save the amount needed for a deposit on a property.

In summary, P2P property lending is fast becoming an increasingly popular alternative way to invest in real estate quickly, easily and securely, but importantly without buying property.

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