Peer to Peer Jargon Buster

If you’re new to the industry, we’re aware that peer to peer investing can be a baffling subject, and we understand that the cluster of jargon that comes along with peer to peer can be quite daunting. Therefore, in today’s blog we thought we’d break down a lot of the specific terms you’ll come across when delving into peer to peer investing to ensure you’re all clued up.

Peer to Peer: Known to many as P2P, peer to peer lending is a method of investing in which individuals or businesses lend money to another. Normally, this is done via an online platform such as Sourced Capital. The benefit of this form of lending is that it matches borrowers and lenders more efficiently (than a lot of high street banks), provides faster access to finance and higher returns on investment (Up to 12%), however it can also come with risk and investors should always do their due diligence on their investments, checking what security measures are in place.

Bridging Loans: Effectively bridging loans do what they say on the tin, they bridge the gap between a debt becoming owed (such as purchasing a property) and credit becoming obtainable (such as the selling of a property). Another way to look at bridging loans is simply as a short-term loan in problematic scenarios. Naturally, bridging loans therefore come with higher rates of interest then your standard loan.

Loan to Value: The Loan to Value (LTV) calculation is used to assess the coverage of security on a loan. The calculation demonstrates the value of a loan, compared to value of the property it is being lent against. This is often displayed as a percentage. For example, a £50,000 loan being raised against a property valued at £100,000 would provide a 50% Loan to Value.

Loan to Gross Development Value: The Loan to Gross Development Value (LTGDV) is another method used to assess the coverage of security on a loan. This calculation takes into account the end value (the gross development value) of the project. For example, if a borrower is raising £200,000 and the project has a Gross Development Value of £1,000,000 the Loan to Gross Development Value would be 20%.

Forecasted Valuation: The forecast valuation of a property is the value of a property after factors effecting price have been taken into place. These factors could be refurbishment/ development of the property or the construction of nearby infrastructure which impacts the final price of the property.

Anti-Money Laundering Check: Anti-money laundering, often referred to as AML, is a term used in the financial and legal industries, to describe the legal controls that require financial institutions and other regulated entities to prevent, detect, and report money laundering activities. This is often in the form of identify checks of borrowers and investors.

First Legal Charge: A first charge is a form of legal charge used to provide security to a borrower. This is the standard method of security for mortgage and peer to peer lending companies when lending against property assets. If money needs to be recovered from a borrower, the legal charge allows the lenders or those they assigned to do so, take control of the property, and sell the asset to recover capital. A first legal charge allows lenders to recover their money before any other creditors have access to recover money.

Second Legal Charge: Similar to a first charge, a second charge can be placed to allow the recovery of capital in the event of default from the borrower or similar situations in which a lender may wish to recover capital. In order for a second charge to be executed, all first charge recoveries must be settled.

Innovative Finance ISA: IFISA investments allow you to invest your tax-free ISA allowance, while investing in peer to peer (P2P) lending. In the 2021/22 tax year the ISA allowance is £20,000, you can only open and pay into one IFISA each tax year.

SIPP/SSAS: Both SIPP and SSAS are forms of HMRC approved regulated pensions which allow greater control of how an individual’s pension is invested. This can often yield a greater return than traditional pension funds. Both forms of pension investment had tax benefits compared to a regular peer to peer investment.

Draw Down: The Draw Down is often used to describe the process of a borrower receiving money from the raised funds of their project. This is often staged over the duration of the investment term to provide additional security to the lender. Typically, with a peer-to-peer lending loan used for property, the release of funds is staged after the completion of a satisfactory independent report on the progress of works.

Liquidity: Liquidity is a term used to describe how accessible money is to be taken out of a specific asset. This would include factors such as the speed, cost and process which must be taken in order to retrieve funds from the asset.

Special Purpose Vehicle: A Special Purpose Vehicle often referred to as a SPV, is a type of legal company that can be setup to hold property. A SPV is normally used in P2P Lending as a company should be used for one project only and therefore represents fewer risks and liabilities for the lenders.

Term: The Term of a project is used to describe the expected duration of a loan. The term of a loan is used as a consideration when assessing the liquidity of an investment and also when calculating the expected return over the cover of the investment lifecycle.

We hope that after reading these definitions you now understand P2P lending a little more than when you started. For more information on P2P and all things property, feel free to browse the rest of our site or get in touch, using the details below.

Email us: investorteam@sourced.co

Call us: 0333 900 9999

Changing the Story for Young People Across the UK

At the beginning of 2021, the people of Sourced put forward Charities in which the group would raise monies for as its charity of the year. The Sourced employees and those apart of the network suggested charities that were close to their hearts but also charities that align with Sourced’s values and vision.

Centrepoint were chosen, the UK’s leading youth homelessness charity. The charity has been changing the story for many young people for over 50 years. A whopping 121,000 young people approach their local councils because they are homeless or at risk of becoming homeless, and a massive 57% of those young people receive no help.

There are many reasons why young people may be referred to Centrepoint, including:

-Care leavers who have no support

-Those who’s family breakdown/ they have loss of home

-Child sexual exploitation

-Escaping violence or being neglected at home

-Escaping gangs

-Refugees and unaccompanied minors

Covid-19 has also had a big impact. Lockdowns have exacerbated situations for many young people and there has been a 50% increase in calls to the Centrepoint helpline. Youth employment has been its worst in four decades with 1 out 5 young people being unemployed.

A big part of Sourced’s vision is to increase affordable, quality homes across the UK, helping with the housing shortage.

Sourced have been on a mission to raise as much as they can for the charity and completed a “Move in March” challenge, which included 121,000 steps over just 10 days in March. A number of the Sourced team completed the challenge raising over £1,200.

The Sourced team have also hosted an afternoon tea for it’s HQ team and organised a competitive office bake off that raised over £200, which all has gone into the pot to help Centrepoint.

This month the Sourced team have 14 people taking place in a 10KM run at Tatton Park, Cheshire. The team have been in training through rain and shine and are hoping to raise at least £500 for the cause. Donations have been coming in through the Just Giving page which the team are ­­grateful to friends, family, colleagues, investors, and suppliers.

The team also have a few more challenges planned for the rest of the year, so keep an eye out for what they get up to! ­­­

Investment Projects Presented By Local Experts

When deciding to invest into property, choosing the right location is a good place to start, and the type of property investment strategy that Sourced Capital’s Borrowers choose to embark upon, is often very much location dependent.

Some Sourced Capital investors aren’t too concerned where a project is located, their priority might be the type of strategy or returns they will achieve. While other investors focus on the location and prefer to invest in projects closer to home, so that they can go on site and see the updates for themselves.

Sourced Capital have projects all around the UK, as its Network now includes over 150 property specialists, who are experts in their local areas. Having the knowledge of the local area means that Sourced Borrowers are knowledgeable on the specific location and local market.

Each developer or borrower will have different aims and interests when either building their portfolio or flipping properties, whether it be for capital appreciation or achieving maximum yield. We’ve taken a look at some recent projects in different pockets of the UK and seeing why each strategy works in that area.

 

Scotland and the North of England offers the most affordable properties.

Northern England and Scotland reign as the UK’s investment property hotspots, according to a report released by Zoopla.

The north offers plenty to investors looking for a well-rounded property investment – one that can provide good rental yields and the potential for capital growth. Despite a continuing growth in house prices, northern cities still remain largely affordable, which is the key balance in today’s property investment market.

Scotland’s economy is expected to continue to rise strongly over the next five years, as well as a continued rising population. Fuelled by a reputation for quality of life, excellent transport links and a job market that is stable. There is amazing potential for property investment in Scotland, entry costs for investors are viable with prospects of high returns and strong capital growth.

Past Sourced Project in Scotland – McCrorie Place, Kilbarchan

Conversion Project in Kilbarchan

The McCrorie Place project launched in September 2019. The borrower, Phil Gordon, borrowed £182,000 for the conversion of a 4-bedroom detached house, spread over 2 floors. The property was flipped after being renovated. Sourced Capital has repaid the loan plus interest, a total of £202,566, to investors.

Phil is an experienced property investor and joined the Sourced Network back in 2018 and became the director of Sourced Glasgow Central.

At the time, the location saw strong capital growth with a healthy valuation on four bed properties within the area. Because of this, there was a demand for properties of this type in the location, which provided confidence with the open market exit. The strategy for this project was to flip the property. The water damage was repaired and there was a refurbishment throughout.  The target market were families from the surrounding areas, either looking to upsize or relocate from one of the surrounding towns to the highly sought after, village of Kilbarchan.

Phil says “This property is a short distance from Glasgow and close to transport links. It was a repossession property which needed a light refurb. Once the works were complete, I put the property on the market, there was high demand for homes like this in the area and the property sold really quickly. A successful project all round”.

Read more about this project here.

 

The North West is one of the UK’s biggest regions – with some of its biggest towns and cities including Manchester and Liverpool. What you might not know, however, is that it also has some of England’s cheapest investment properties. Birkenhead, Middlesbrough and Kingston-Upon-Hull were named amongst some of the more affordable towns in the UK, and all three towns saw more than 90% of all properties currently listed for sale as below the average UK house price of £256,405. The North East is one of the best places to invest in property with its array of low property prices, high rental yields and good probability of rising property prices in the future.

Past Sourced Project in the North-East of the UK – Columbus Ravine, Scarborough

Conversion Project in Columbus Ravine

Borrower of the Columbus Ravine project, Sarah Corrie-Pierce, was looking to raise £244,474 for the purchase and works of this guest house, converting it into 3 new 2-bed apartments. The project is now finished with a buyer secure, waiting for the sale to complete.

Sarah joined is the director of Sourced Scarborough, previous to property, Sarah was a teacher, but since swapping the classroom for the building site, Sarah has put her passion for property and people at the forefront of her first major development.

Sarah chose this location for the new apartments for many reasons, one being because Scarborough is the third most visited place in the UK and that the location is great for the target market of first-time buyers and serviced accommodation owners.

Watch the Borrower, Sarah, share the ins and outs of this project from a video shot in January. Click here to watch the video.

Sarah was also involved with the 41 High Street, Hull project, raised by Sourced Capital. This project was a historic building which was previously used as an office and has been converted into 8 apartments with an overall GDV of £1,570,000.

Hull has some of the UK’s best international connections due to its location near several major airports. The property is located within a 10-minute walk to the Hull main train station and a 5-minute walk to Hull marina, a popular visitor location.

Log in and view more details about this project here.

 

The South is more than just London.

With over 50 Sourced offices in the South alone, it is the biggest region of the UK with the biggest population. The south-east is one of Europe’s fastest-growing and most prosperous areas with the second-largest regional economy in the UK. The South-East also benefits from huge rental demand especially because of high south-east property prices.

The South-West is also a good area for investing, according to Warren Lewis at the Property Reporter, rent rises in the South-West of England were faster than anywhere else in England and Wales. Another report from Which? says that while London remains subdued, buy-to-let in the South-West is booming. The report says that while the North-East is good for yields, the South-West could be a better all-round investment for property investors.

Property prices in South-West England are slightly above the national average. According to HM Land Registry statistics, the average house in the south-west currently costs £258,372, just above the national average of around £256,405. However, there is still affordable investment property available in the south-west for investors who do their homework.

Project in the South-West of the UK – Wellsway, Bath

Property Project Bath

Borrower of the Wellsway project Catherine Lamond, was looking for a raise of £433,500 for the purchase and refurbishment of an end of terrace house, which was then split into 4 flats.

Catherine Lamond, director of Sourced Bitterne, has been in property for over 10 years. She studied surveying and has gone on to become a RICS planning and development surveyor. She has undertaken refurbishments and extensions and also has experience in conversions and new builds.

The apartments of the Wellsway project are in a perfect location to be used as student apartments, due to Bath being a major student city, with around 22,000 students. Bath is one of the country’s main tourist cities. It is not all about tourism though, other industries in the area include those which offer well-paid jobs, which is great news for the local property market. Bath benefits from excellent train services to other parts of the country and is a popular place to live with those who commute to Bristol and even to London.

The property itself required a light refurbishment and a title split, to then sell as individual flats. Listed for investment in November with a return for investors of up to 12%, proved popular with investors and was funded quickly. The project was completed in April 2021, repaying £472,515 to investors.

Log in to view the latest updates here.

 

One of the biggest reasons for investing in South-East buy-to-lets is its proximity to London… without actually paying London prices. Historically, as prices have risen in London they’ve rippled out to other towns and cities of the south-east, offering good profits for investors. The South-East is one of Europe’s fastest-growing and most prosperous areas with the second-largest regional economy in the UK. Many South-East towns and cities have successful economies of their own and many internationally-significant businesses offering highly paid jobs that support the housing market.

Project in South-East of the UK – Dury Falls, Hornchurch

Project Hornchurch

This project was listed for investment in August 2020 with a return for investors of up to 12% pa.  The borrower of this project, Everton Brown, is an experienced property investor who requested a loan of £367,500 for the purchase of the land, demolition of the garage and the build of a 3-bedroom detached house.

The works on this project were completed in April 2021 and the property has been sold, pending exchange of contracts.

Hornchurch is a suburban town in East London, England and part of the London Borough of Havering. It’s popular with families for its affordable thirties semis and large executive homes. Discovering the plot of land for sale, Everton saw a great opportunity to build the modern 3-bedroom family home. Hornchurch has plenty to offer, with its high street lined with Victorian shops and its town centre full of eateries and bars.

Everton has been a landlord since 2006 and joined the Sourced Network back in 2018 when he became the director of Sourced Barnet. Since then, Everton has grown his BTL portfolio, carrying out refurbishments on all of his properties and maintained a rental income.

Watch the Borrower, Everton Brown, walk through the recently built family home, showing off all the finishing touches. Click here to watch the video.

 

Sourced Capital’s borrowers are part of the Sourced Network, which now consists of more than 150 property sourcers who are all experts in their local area. They operate in set areas, allowing them to have excellent knowledge of the local market and investment strategies that work for that area.

Read more about locations and investing in our previous blog – https://www.sourcedcapital.co/blog/location-location-location/ and to see where our borrowers are located see the map below.

If you have any questions or queries about how you can become a virtual property developer, contact our investment team who will be happy to help!

Email: investorteam@sourced.co

Call: 0333 9009 999