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The Government recognises that it is a serious problem and on Thursday this week Facebook’s chief technical officer, Mike Schroepfer, is to appear before the Commons Digital, Culture, Media and Sport Committee as part of its enquiry into fake news.
In the meantime, authorised and properly regulated companies, offering respectable financial products have to demonstrate their credentials and encourage potential customers to carry out some simple checks if they have any doubts.
You might be particularly interested in peer-to-peer lenders because of the high interest rates they offer. None of them can provide the £85,000 per-person money-back guarantee of the Financial Services Compensation Scheme (FSCS), but they should all be authorised and regulated by the Financial Conduct Authority (FCA). So, a good first step, to see if they are legitimate, is to go to the FCA website and check the “Financial Services Register.”
Peer-to-peer FCA registered firms (just like many stocks and shares investment firms) have to warn customers that their money is at risk, but to safeguard their investors’ money they put in place a range of particular approaches.
The very largest British Government-backed peer-to-peer lender, that has invested more than £3 billion globally and earned investors £177 million, for instance, says that not all the businesses that it lends to will be able to pay back their debt and so lenders’ money is at risk, but they manage that by encouraging lenders to invest in a wide range of businesses to ‘diversify’ so that their wins compensate for the loses. Their investors make money.
One of the leading UK property specialist peer-to-peer lenders, CrowdProperty Ltd, only offers investments in short term (6-24 month) residential development projects that add value by improving a property or site, and then selling it for a profit, being completed by experienced property professionals. Its co-founder, Mike Bristow, says:
“Investing in property is generally more secure than business investments because they are always against a physical asset – land – that will never net to zero, regardless of ups and downs in the market. But to make money you still have to know what you are doing.
“Lenders tell us that they keep coming back to us for three big reasons:
1. The expertise of our board in selecting only the very best and safest projects – which means we have a perfect track record of all our projects paying back lenders their full capital and 8% interest;
2. We take “first legal charge” on all the properties subject to the loans - which means we have all the rights that a mortgage company holds and can repossess a property if the worst happens and a developer defaults;
3. If we repossess a property we have the in-house expertise to continue a project ourselves and recover our lenders’ funds.
“The big reason we can offer higher returns is because of our efficient cost base. Banks lend savers’ funds out to property projects like ours at generally higher rates than us yet offer savers interest rates that are considerably less than inflation (although savers’ funds are protected by FSCS). That’s largely because banks have large costs bases, including for example their branch networks and legacy IT systems costs. Peer to peer lenders have built more efficient businesses which results in a better deal for borrowers and lenders alike. The Government has recognised this and now encourages peer to peer lender through an ‘Innovative Finance ISA’, making these higher returns also tax free up to someone’s ISA allowance. The peer to peer lending sector in the UK is leading the world changing things for the better – something we should celebrate.
“Check out our website or give us a call if you would like to find out more.”