P2P mortgage loans: unlocking opportunities in the accommodation market

The demand for accommodation and prices are growing, so many people worldwide opt for mortgage loans. Getting a mortgage loan from a bank is a long and demanding procedure that’s why peer-to-peer lending alternatives is increasing in popularity.

Peer-to-peer lending, or P2P lending, is a form of crowdfunding that enables borrowing money not from banks but from individuals with P2P lending platforms as intermediaries between lenders and borrowers.

How does P2P lending work?

While the approach of borrowing money from one another has existed for ages, P2P lending has evolved into a business where P2P lending platforms act as middlemen in the process by creating a space, regulating and optimising it. In a nutshell, here is how this concept operates.

Lenders provide their funds for loans and receive interest. A borrower fills in an application and can choose from the available loan products, or the platform can automatically distribute the investment across a few loans.

The repayment terms normally depend on the loan size, its duration, and the borrower’s credit score. The main difference between the banks and traditional lenders is the accessibility of such loans. Also, a borrower is liable not to a company but to individual investors.

For investors, P2P lending is an opportunity to tap into more investment options, build a passive income, and diversify the portfolio.

Investors can deposit the funds into an account, indicate the return they expect and the risk level they are willing to take, and leave the platform to pick the borrowers, or they can choose borrowers on their own.

P2P for mortgage loans 

P2P lending became increasingly popular during the 2008-2009 financial crisis when banks started to cut off loans, and requirements grew. A loan application with a bank takes a lot of time, while borrowing through a P2P crowdfunding platform is fast and accessible. This is another reason why P2P consumer lending took off.

In 2020, the European P2P lending industry (excluding the UK) reached $2.9 billion and is expected to grow. It means that in the future, P2P mortgage loans may compete with traditional ways of financing.

Pros and cons of P2P mortgage loans

P2P mortgage lending offers significant benefits to both lenders and borrowers.

For lenders, the benefits are the following:

• P2P lending returns are higher than those delivered by other investment options.
• Passive income, everything can be managed without leaving your home.
• Fixed incomes in the form of interests.
• Buyback guarantees are provided by many platforms to protect lenders. If a borrower doesn’t repay a loan on time, the platform takes the responsibility to buy back the loan.
• A lot of opportunities to diversify your investment portfolio.

For borrowers, the main advantages of P2P lending are the following:

• Easy access to P2P mortgage loans than those issued by traditional financial institutions.
• In many cases, the interest rates are lower (even though they depend on many factors, including the credit score, loan size, etc.) than those imposed by banks.
• One can get a loan much faster than when applying for a loan in a bank.

However, even though the benefits of P2P lending are significant, it also has drawbacks that frighten off some lenders and investors.

For investors:

Credit risks are high because many borrowers apply for a P2P loan because their credit score is too low to get a loan from a bank.

• Lower liquidity, investors normally cannot cash out their funds whenever they want.
• The absence of government protection is another detail lenders have to consider. Even though, new regulations are being introduced to provide more consistency to this sector, they still do not cover all the aspects of P2P mortgage lending.

For lenders:

Higher interest rates than when taking a loan from a bank if the credit score is low or if the loan is needed urgently and the sum is high.

Top P2P lending platforms

With the development of the P2P loan investing sector, new platforms keep emerging. That’s why investors and borrowers may find choosing the most optimal platform challenging. Here, you can find some of the top industry representatives to explore your options.

PeerBerry

With over five years of experience, PeerBerry is a leading service provider in Lithuania and one of the best-performing P2P lending platforms in Europe. PeerBerry provides buyback guarantee and group guarantee. It enables investing not only in real estate but also leasing along with other loan types.

The minimum investment starts with 10 EUR, and the ROI is over 11%.

NEO Finance

Neo Finance is another leading P2P mortgage investing platform in Europe.

The minimum investment starts with 20 EUR with the average loan duration of 63 months, among which the min duration is one month and the maximum 120 months.

Neo Finance protects its 14,000+ investors by providing them with buyback guarantees and helps them to boost their income with auto-investing functionality.

Heavy Finance

Heavy Finance is a P2P lending marketplace focused on agricultural loans. The platform was launched in 2020 but it has already grown to one of the leaders in the P2P lending sector. 

The loan period ranges between 4-48 months, and all loans are backed by heavy machinery. The minimum investment is 100 EUR.

Bondster

Bondster is a Czech-based fintech startup that was kicked off in 2017 and has gained traction within the last couple of years. This platform offers a variety of loans: mostly personal loans along with real estate, business, and other opportunities.

The minimum investment starts with 10 EUR with buyback guarantees and auto-investing features available.

Crowded Hero

Crowded Hero is a Latvia-based equity investment platform launched in 2019. It is known for being safe, transparent, easy to use, and compliant with all regulatory requirements. It was among the first providers to obtain an ECSP license.

With an average profitability of 20% on a yearly basis, and a minimum investment of 100 EUR, Crowded Hero is one of the viable platforms for beginners and professional investors.

Final word

Even though P2P mortgage lending is in its early development stage, this sector is promising enough to make the industry grow, given the permanent demand. With the introduction of unified regulatory requirements for crowdfunding platforms in Europe, this sector will get a solid base for consistent development.