Peer-to-Peer Property Lending Explained

Peer-to-peer (P2P) property lending platforms connect private investors with property developers and landlords who need short-term finance. Investors lend money, typically for terms of six to twenty-four months, and receive interest payments — often at rates significantly above those available on savings accounts or cash ISAs. The loans are secured against real estate, providing a theoretical floor to investor losses in the event of default.

The sector attracted billions of pounds of retail investment during the low-interest-rate era when savings rates were negligible. As interest rates normalised from 2022 onwards, the spread between P2P returns and savings narrowed, making the risk-return trade-off less compelling. Understanding what you are actually investing in — and what could go wrong — is essential before committing capital.

How P2P Property Lending Works

1. A property developer or landlord applies for a loan on a P2P platform
2. The platform credit-assesses the application, arranges a valuation of the security property, and sets an interest rate
3. The loan is listed on the platform, with a minimum investment amount (typically £500–£5,000 per loan)
4. Investors commit funds; once the loan is fully funded, it is drawn down
5. The borrower pays monthly or quarterly interest, which is distributed to investors
6. At loan maturity (or on sale of the property), principal is repaid

The platform charges arrangement fees to the borrower and may take a margin on the interest rate spread between what borrowers pay and what investors receive.

Types of Loan Available

Bridging loans — Short-term finance (typically 6–18 months) used by developers or investors purchasing property before longer-term finance is arranged or the property is sold. Higher risk due to short term and often development-stage security.

Development finance — Loans funding construction or refurbishment projects, typically drawn down in tranches as work progresses. Security is on the development site; value increases as development progresses but risk is higher in early stages.

Buy-to-let loans — Longer-term loans on stabilised rental properties, similar to a conventional buy-to-let mortgage. More predictable cash flows and more straightforward security.

Mezzanine finance — Second-charge or subordinated loans on top of senior debt. Higher interest rates, higher risk: in a default, mezzanine lenders are repaid only after senior lenders have recovered in full.

The Security Position

A key marketing point for P2P property lending is that loans are "secured against property". This is broadly true — in the event of default, the platform pursues enforcement against the security property to recover investor capital. However, investors should understand the limits of this protection:

Loan-to-value (LTV) ratio is the loan amount divided by the property's current market value. A 70% LTV loan means the loan is 70% of the property's assessed value — theoretically, the property could fall 30% in value before the loan is impaired. However:

• Valuations are point-in-time estimates and may not reflect current market value
• Enforcement is costly and time-consuming — legal fees, receiver fees, and selling costs reduce recoveries
• Development projects may have valuations based on "gross development value" (the expected value after completion) rather than current "as is" value; if the project stalls, the as-is value may be much lower
• Second-charge and mezzanine loans rank behind senior debt; in enforcement, they may recover little or nothing

Never treat P2P property loans as capital-guaranteed. Losses of principal do occur, particularly in development and bridging finance.

Interest Rates and Risk

As of 2026, P2P property lending platforms advertise returns broadly in the range of:

• Buy-to-let / lower-risk first-charge loans: 6%–9%
• Development finance / bridging loans: 8%–13%
• Mezzanine / second-charge loans: 10%–15%+

These rates reflect the underlying risk. A loan advertising 14% is not comparable to a savings account offering 5% — the additional return compensates for material credit, illiquidity, and platform risk.

Platform Risk

Several P2P lending platforms have failed or been placed into wind-down in recent years, including:

• Lendy — ceased operations in 2019; investors faced lengthy recovery processes with significant principal losses
• FundingSecure — ceased operations in 2019
• Collateral — administration, 2018

The FCA has strengthened rules for P2P platforms following these failures, requiring:

• Transparent risk disclosures
• Orderly wind-down plans if the platform ceases
• Restriction of retail marketing to sophisticated investors or those who certify a 10% net-worth limit

However, regulation does not eliminate platform risk. If the platform itself fails, the wind-down process is managed by an administrator, which can take years. Unlike bank deposits, P2P investments are not covered by the Financial Services Compensation Scheme (FSCS).

Before using any platform, check:

• FCA authorisation status (the FCA register is publicly searchable)
• Platform financial health — are their accounts publicly filed and solvent?
• Track record — have they experienced defaults, and how were they resolved?
• Wind-down provisions — does the platform maintain a contingency fund?

Loan Defaults and Recovery

Platforms typically handle defaults through their own recovery teams or through appointed Law of Property Act (LPA) receivers. The process usually involves:

1. The platform takes enforcement action after a defined default period
2. A receiver or administrator is appointed to sell the property
3. Proceeds are distributed to investors in order of security priority

Recovery timelines range from a few months to several years, depending on the property type, market conditions, and any legal complications. Even in successful recoveries, investors may not receive full principal if costs are high or property values have fallen.

Tax Treatment

Interest income from P2P lending is classified as savings income for UK tax purposes. It is subject to income tax at 20%, 40%, or 45% above the personal savings allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, nil for additional-rate).

Since 2016, qualifying P2P loans have been eligible for the Innovative Finance ISA (IFISA), which allows investors to hold P2P loans within an ISA wrapper, shielding interest income from tax. The annual ISA allowance (£20,000 in 2026/27) applies across all ISA types, so allocating to an IFISA reduces the amount available for stocks and shares or cash ISAs.

Non-UK residents cannot open new UK ISAs and are therefore not entitled to the IFISA tax shield. Interest income is still subject to income tax as savings income, with any applicable double taxation treaty relief.

Bad debt relief — UK investors can claim income tax relief on capital losses from P2P loans (where the borrower defaults and capital is lost), set against P2P income in the same or future years. This is a useful mitigation but underscores that losses do occur.

Practical Considerations for International Investors

Many UK P2P platforms restrict access based on jurisdiction. US persons are typically excluded due to SEC regulations. Platforms vary on whether they accept investors from other jurisdictions — check the platform's terms before registering.

For those who can access UK platforms, international investors should be aware:

• Interest is typically paid gross (without deduction), and the investor must declare and pay tax under applicable self-assessment obligations in both the UK (if taxable there) and their country of residence
• Double taxation treaties may provide a credit for UK tax against local tax, but reporting obligations exist in both jurisdictions
• Currency risk applies if converting sterling income to another currency

Is P2P Property Lending Right for You?

P2P property lending is most suitable as a limited allocation within a broader portfolio — not as a primary savings or investment vehicle. It is most appropriate for:

• Investors who understand and accept illiquidity
• Those with a long enough horizon to ride through potential default and recovery periods
• Investors who can diversify across multiple loans (reducing concentration risk)
• Sophisticated or high-net-worth individuals familiar with credit investment

It is not suitable as an alternative to cash savings for money that may be needed at short notice.

Capital is at risk. You may not get back the full amount invested.

How Global Investments Can Help

Global Investments takes an evidence-based approach to alternative income investments, including property debt. Our advisers can assess whether P2P property lending fits your risk tolerance and income objectives, and can recommend appropriate platforms and allocation sizes. We can also compare P2P income to alternatives — corporate bonds, listed REITs, infrastructure funds, and diversified credit funds — to ensure you are achieving your income objectives in the most appropriate risk-adjusted structure. Contact us to discuss your income strategy.