Why you should use P2P lending to help get you on the housing ladder

11 December 2018  |  Admin  |  0 Comments

It would take a typical couple 23 years to save the average £50,000 house deposit, according to challenger bank Aldermore. So, if you're looking to get on the property ladder sooner rather than later, you're probably looking for ways to speed the process up. If you're already taking advantage of Help to Buy and saving as much as your salary will allow, and still aren't seeing your pot grow as quickly as you would like, making some smart investments could be the way to go.

One way to boost your house deposit pot is by investing in peer-to-peer lending (P2P). This is often thought of as relatively low-risk and low-maintenance way to ensure your money is working for you and, depending on how long you're willing to invest for, you could see a very impressive return. Richard Litchfield is Head of Operations at the P2P platform Lending Works. Here, he outlines why you should consider using this method to accelerate the savings process.

The potential returns beat inflation

The interest rates on most savings accounts rarely beat inflation so, if you're putting money away for the long haul, it is likely to lose value over time. So, investing in peer-to-peer lending can be a great way of preventing this from happening.

For example, at Lending Works, someone who invests with us over three years can expect a return of up to 5% per annum, and anyone who invests for five years can expect a return of 6.5% per annum. This is far higher than the interest rates offered on most — if not all — savings accounts. So, rather than simply leaving your cash to sit in an account, depreciating in value, putting it to work is going to help you reach your savings goals sooner.

Peer-to-peer lending is low-risk

Compared to other forms of investment like stocks and shares, peer-to-peer lending is often considered relatively low-risk and stable. It's also regulated by the Financial Conduct Authority (FCA), which means platforms offering this kind of service must be clear and upfront about any risks you might face. Plus, they need to have a plan to help you out if anything goes wrong. The best firms sometimes also offer a high level of security by having a protection fund or insurance that can be used to prevent you from suffering severe losses if a borrower defaults on their repayments.

It allows you to diversify

You can also diversify your investment portfolio with P2P. So, in other words, you don't have to put all your eggs in one basket, which will help to reduce the risk even further. Most peer-to-peer lending platforms will allow you to loan your money out to a range of different people and, as a result, you won't be hit so hard if a borrower is struggling to pay you back, because you'll still have money coming in from other sources.

You can access your money when you need it

Compared to a lot of other investment methods, P2P is very flexible. You will usually have plenty of freedom to transfer money in and out of your account as you wish, while many other investment types require a long-term investment. Of course, the longer you invest for, the better returns you're going to get. But, if you prefer a higher level of flexibility because you're worried you might need the money you've tied up at some point, peer-to-peer lending is likely to be a very attractive option.

You can choose exactly how you want to receive your income from P2P, too. Once your money has been borrowed, you'll begin to earn interest, and you should be able to decide what you want to do with this. When you have a long-term goal like buying a house, I would recommend reinvesting the money, because this will help your savings pot to grow much quicker. But, you can also withdraw the money from your account as you go. You'll typically be given the option of doing this weekly or monthly, and you can decide whether you want to withdraw the full payments, or just the interest you've earned. Again, it's worth keeping as much money as you can afford in your account, because this will allow you to earn the highest returns.

It's low-maintenance

Perhaps one of the best things about peer-to-peer lending is that it doesn't have to take up a lot of your time at all. In fact, most platforms will allow you to automate the whole process, so your money is always working for you without any input necessary.

Of course, if you prefer to take more of a hands-on approach, you can do everything manually and decide exactly who you're willing to lend to as you go along. But this isn't necessary so, if you're short on time, this kind of investing could work wonders for you.

When you're looking to buy your first home, scraping a deposit together can be a long and frustrating process, but peer-to-peer lending can help you to save up your money more quickly.