Peer-to-peer lending could be the way forward for first time property buyers.
In 12 months prior to June 2014 property prices in London have surged by 19.3% in London – according to data from ONS. This has meant that the amount needed for a deposit has shot up. The latest figures from LSL Property Services backs this up – showing that the average first time buyer slapped down just over £30,000 for a house in the South East of England in July.
Over the first half of 2014 more than £500 million of new money was lent via peer-to-peer lending platforms, with more than 66,000 retail investors offering loans to individuals and small business – according to recent research from the Peer-to-Peer Finance Association.
With returns of over 5 per cent on offer at the major platforms, the peer-to-peer sector’s popularity looks set to increase and could see the public raise a deposit of £31,000 in five years by starting with an initial £11,000 and adding an extra £250 a month.
Despite this, Danny Cox – Head of Financial Planning at Hargreaves Lansdown – is wary of savers viewing peer-to-peer lending as a straightforward alternative to cash products. In his opinion, you don’t get equity-like returns without taking on equity-like risks. Cox reckons that the first place most people will look is the NISA tax wrapper, with its new £15,000 annual allowance. Cox said:
“For shorter time horizons, usually less than five years, you’re looking at cash Isa products.”
But with rates on cash ISA products so low, it’s difficult to get a return much above inflation at the moment – which is why peer-to-peer lending has to become a more widely-considered option for first time buyers. Danny Cox’s reservations about peer-to-peer lending aside, his advice for those sizing up the peer-to-peer lending space is to go with a well-known platform.