Investors have a lack of understanding of some of the fundamental risks associated with investing through property investment platforms, according to new research from property lender Fitzrovia Finance.
The lender revealed that 75 per cent of investors who have used these platforms wrongly believe first charge secured debt/loans are riskier than second charge mezzanine debt/loans, while a further 7 per cent said they did not know which was riskier.
It also revealed 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 Financial Conduct Authority (FCA) will introduce more explicit rules to strengthen peer-to-peer lenders (many of which are property lending platforms) risk management and governance.
Alongside this research Fitzrovia Finance conducted a review of 20 of the most prominent online property investment platforms in the UK, and the investment opportunities they are promoting. The lender found that the returns offered through these platforms ranged from a modest 2.8 per cent to 15 per cent, reflecting a significant variance in risk and return.
On the findings, Fitzrovia Finance CEO Brad Bauman said: “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.”
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