Is it worth investing in the bridging finance market?
To become a bridging finance lender requires a great deal of finance and expertise. It is possible to be an investor in the bridging loan sector without forming a bridging finance business.
Peer-to-peer bridging is a system where a private investor can invest small amounts in a lending fund. This fund then lends to property developers as bridging loans. These loans often have very high interest rates, but
small investors earn around 4%. This is higher than leaving money in high street bank savings accounts but there are risks. If the borrower defaults on their loan, then it can take some time to receive any money back.
The investment is not covered by the Financial Services Compensation Scheme, so if the investment fund fails, the investor is not compensated for their loss.
The Bank of England governs most bridging finance lenders and has rules about the amount of risk that lenders can take. Peer-to-peer lenders are not governed by the same regulations so could, in theory, offer high-risk loans.
Many people are put off buy to let investing by the increased costs to purchase and run a property business and are looking for alternative property investments. Investing in peer-to-peer property funding can result in decent returns, but if an investor has large sums to invest, it is not a good strategy to risk it all in alternative property investment schemes. Owning property in the right location purchased with a commercial mortgage or bridging loan can be less risky.