Risk v's Reward on P2P Property Loans ??

Some of the key questions/loan filters for me are:

-do I trust the platform/introducer? They will always know more about the loan and have more control over how it is managed than lenders. So, I want to be confident that they have relevant experience and competence. They may also have different incentives from lenders. How much confidence do I have in their drive to offer high-quality loans?

-do I trust the borrower? Often, there isn't much information available on this. But, when there is, substantial past experience and past loans repaid are positives.

-first charge or second charge? I agree with people who've said that they think that subordinated tranches are generally mispriced and should pay higher yields.

-residential or commercial? Residential is arguably less volatile and easier to price than commercial. But being owner-occupied is a substantial negative because it can be hard to get possession, even with a charge on the property, so residential investment properties are much better.

-capital raising, refurbishment or development? Existing properties which don't need much work have the most predictable values. Existing properties which need substantial refurbishment are more difficult to value, and might have to be sold at a significant discount in a forced sale, but these can be excellent deals since the money raised is used to increase the value of the security. On development deals, you have to be sure that you understand the basis of the valuation, and the borrower's experience is particularly important.

-security value? What's the value now? Has it been valued by a professional valuer with local knowledge? The loan originator should have a formal, recent valuation, addressed to them, from a valuer with professional indemnity insurance. I agree that it is misleading to present the LTV using the final value of a development – the LTV should be based on the value right now.

-security value in a forced sale? What discount to today's valuation should you apply if you assume you're making a forced sale in a falling market? A crude rule of thumb is to expect a 10-20% discount for a forced sale, plus whatever falls there are in the wider market. Some properties may be more or less sensitive to falls.

-any big unknowns? A classic would be cases where a property doesn't yet have planning permission. You have to be very wary of the LTV in this case. It might be valued at £500,000 now, with a value of £300,000 if a planning application fails and £700,000 if it succeeds. The valuation is fair for day 1, but you wouldn't want to lend on this basis, since if planning isn't received, the security could immediately become worth less than the loan, whereas if it does succeed, most of the benefit goes to the owner, since a lender's upside is capped.

It would be a shame if p2p platforms stop offering people the diversity of deal types that they are looking for. But in defense of property deals, I think there's a lot to be said for deals where the security is immovable, usually not too difficult to value, and where there's a relatively quick and efficient legal process for taking possession of and selling that security if you have to. Given how hard it is to know what's really going on inside a company, and the complexities of the administration/liquidation process if things go wrong, I feel more secure having my loan backed by a property. The information asymmetry between lender and borrower is, to my mind, a lot less on property deals.