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Research reveals investor confusion over risks involved when investing through property investment platforms

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New research from secured property lender Fitzrovia Finance reveals a lack of understanding of some of the fundamental risks involved through investing through property investment platforms, with 75 per cent of investors wrongly believing first charge secured debt/loans are riskier than second charge mezzanine debt/loans.  

A further 7 per cent said they didn’t know which was riskier.

The research also also revealed that 18 per cent of retail investors who have used property investment platforms don’t feel they clearly explain the level of risk involved in their investments.

The findings follow the recent announcement that later this year the FCA will introduce more explicit rules to strengthen peer-to-peer lenders (many of which are property lending platforms) risk management and governance.

Fitzrovia Finance has also just completed a review of 20 of the most prominent online property investment platforms in the UK, and the investment opportunities they are promoting. The returns offered through these platforms ranged from a modest 2.8 per cent to 15 per cent reflecting a significant variance in risk as well as return – and not always correlated.

Brad Bauman, CEO, Fitzrovia Finance, says: “Fitzrovia Finance launched in 2017 as a secured property debt investment platform for institutional investors, and to date we have entered into GBP119.9 million of loans, with no defaults.

“Because of growing demand for better returns, given poor bank interest rates, the property debt investment platform sector allowed us to offer institutional quality investment opportunities with a clear and transparent process for keeping risk to a minimum and delivering attractive risk adjusted returns of over 5 per cent to private investors.

“The industry must strive to ensure that each opportunity promoted to private investors is clearly explained, the risks are transparent and the returns appropriate. This will help ensure that investors have the necessary information they need before deciding to invest.

“There are some ‘property’ investment opportunities being offered to private investors where for example, the returns are 8 per cent or 14 per cent or even higher.  These will include a lot of features that represent higher levels of risk such as second charge loans or unsecured debt, and this must be clearly explained to investors.”

Fitzrovia Finance launched to institutional investors in 2017, and in April this year it opened its door to private investors, who from an investment of GBP1,000, can benefit from attractive returns of up to 5.5 per cent pa. These are derived from investing in loans to carefully selected property companies, secured on quality properties with first charge security and in excess of 150 per cent asset cover.  This means every GBP100 loan for example, is secured against GBP150 of bricks and mortar assets.

Fitzrovia Finance focuses on providing investors, with the enhanced reassurance of a business built and run by a highly experienced, expert team operating a ‘7 Step Risk Control’ process developed over many years of experience and success in property lending.  As a result of this, it rejects around 80 per cent to 90 per cent of loan requests and to date it has not experienced any defaults.

Through Fitzrovia Finance, private investors can now join institutional investors in securing attractive returns – currently up to 5.5 per cent pa – from secured property lending. Fitzrovia Finance’s lending is focussed on experienced residential and commercial property developers, with a strong record of successful projects. Typical loan durations are 12 to 36 months and the maximum loan to value is usually limited to 65 per cent or less of development value, helping further to control risk.

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