New FCA regs to restrict individual property investment platform investors to max 10 per cent of investable assets from average 30 per cent currently
New regulations being introduced by the FCA later this year will restrict individual investors new to the property investment platform sector to investing a maximum of 10 per cent of their investable net assets through these platforms.
New research from secured property lender Fitzrovia Finance reveals individual investors who already use online property investment platforms have on average GBP39,178 invested through them, which makes up around 30.2 per cent of their entire savings and investment portfolios.
The high level of exposure here could in part be explained by the fact that they expect high returns from their investments. Over two -hirds (69 per cent) expect a return of over 5 per cent, about one third (35 per cent) want a return of between 6 per cent and 7 per cent, and one in five (21 per cent) expect a better than 7 per cent return on their investments.
Fitzrovia Finance recommends that individual investors – including sophisticated ones – invest no more than 10 per cent of their investable net assets through property investment platforms.
By diversifying investments across different loans and platforms, investors will minimise concentration and spread risk. Fitzrovia Finance recently reviewed 20 prominent online property investment platforms in the UK and their investments, and found returns being promoted ranged from 2.8 per cent to 15 per cent, with varying degrees of risk involved. Whilst these are appropriate opportunities to earn differential returns, investors must ensure that the risks are transparently explained and understood.
Fitzrovia Finance commissioned research with 311 retail investors who have used property investment platforms and found that 70 per cent have more than GBP20,000 invested through them, with 31 per cent having more than GBP50,000. Surprisingly, 76 per cent claim that they have more than 10 per cent of their savings and investments invested through property investment platforms. Only 8 per cent said that they had less than 5 per cent invested through these sites.
Brad Bauman, CEO, Fitzrovia Finance, says: “The new guidance from the FCA has been implemented to discourage individual investors from being over exposed to property investment platforms. For sophisticated investors, the opportunities available through our and other secured property debt platforms provide a great choice to diversify their portfolios and improve returns on their investments in a low interest environment and given a volatile stock market. However, we recommend that investments should be spread across a number of platforms and they should only make up part of your overall portfolio – certainly no more than 10 per cent.”
Fitzrovia Finance launched to institutional investors in 2017, and in May this year it opened its door to individual investors, who from an investment of GBP1,000, can benefit from attractive returns of up to 5.5 per cent pa. These are derived from investing in loans to carefully selected property companies, secured on quality properties with first charge security and in excess of 150 per cent asset cover. This means every GBP100 loan for example, is secured against GBP150 of bricks and mortar assets.
To date it has entered into GBP132 million of loans, with no defaults.
Fitzrovia Finance focuses on providing investors, with the enhanced reassurance of a business built and run by a highly experienced, expert team operating a ‘7 Step Risk Control’ process developed over many years of experience and success in property lending. As a result of this, it rejects around 80 per cent to 90 per cent of loan requests and to date it has not experienced any defaults.
Through Fitzrovia Finance, individual investors can now join institutional investors in securing attractive returns – currently up to 5.5 per cent pa – from secured property lending. Fitzrovia Finance’s lending is focussed on experienced residential and commercial property developers, with a strong record of successful projects. Typical loan durations are 12 to 48 months and the maximum loan to value is usually limited to 65 per cent or less of development value, helping further to control risk.
Fitzrovia Finance competes with mainstream lenders, including traditional banks, to lend money to established, experienced property businesses looking to borrow for projects of between GBP1 million and GBP15 million.