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Blog>British Pearl

Considerations when comparing P2P and crowdinvesting options

19 June 2019 • James Newbery

Savers and investors have been facing difficult decisions over the past decade since the financial crisis. In 2009, the Bank of England slashed the base rate to 0.5%, and even went as low as 0.25% at one point. It’s only recently crept up to 0.75%, making income generation tougher than ever. These low-interest rates - combined with economic growth slowing and recent tightening of financial conditions - have left investors facing capital risks as stock market volatility increases.

In response to this, and powered by innovative technologies, alternative investment options such as peer-to-peer (P2P) platforms and crowdfunding have become more prevalent. But with more companies gaining traction, and each with their own models and asset classes, it can be complicated for prospective investors to decide where to put their money.

P2P is a broad term - treat it as such

There is a huge amount of variety within the sector, and with it a range of rewards and risks to look out for. A potential investor must do their homework before deciding if alternative investing is right for them and then which platform and investment model is most appropriate

Here are five things to look out for when comparing alternative investment options.

1. The company and their investment offering

There is a great divergence of risk profiles across P2P providers and products that may, on the surface, appear very similar.

In many cases, with P2P you lend directly to a borrower. However some providers, like British Pearl, are different. We are not a P2P intermediary: instead, our “borrower” is a Special Purpose Vehicle (SPV) that holds an individual property investment that we source, secure and manage on behalf of our investors. As a Loan Investor, you are only exposed to the credit/counterparty risk of that vehicle, which is managed by British Pearl, a Financial Conduct Authority (FCA) regulated company. There is no third party such as a developer on the receiving side of the loan and the loan-providing customer benefits from a first charge over the property.

Remember to check that the platform or provider is appropriately regulated by looking them up on the FCA register. And while you’re there, see how they are regulated: are they an intermediary, or an asset manager (such as British Pearl)?

As well as understanding the underlying asset of the investment, it’s important to know how the company selects and monitors it, and how they ultimately manage your money. All of this information should be clearly and publicly available. Their investment process and due diligence process will have a crucial impact on the quality of the investment including both income you could receive and capital security.

2. Income - the risk / reward balance

Your potential earnings have to be appropriate for the type of investment you’re taking on. For instance, development loans over 9-18 months will offer a higher interest rate than a 5-year buy-to-let loan, but the risk profile is very different. The buy-to-let loan is likely to be income producing from day one with a high level of certainty around the cash flows, the interest rate on a development loan could easily drop considerably lower should development costs over-run, the timeline become drawn out, the ability to sell the development weaken, or other problems arise.

3. Capital security

How secure your capital is directly relates to the underlying asset of the investment, as well as how the company manages it. At British Pearl we try to build in as much capital protection as possible by working hard on the following three areas:

i. Buying well with cash in order to negotiate strong discounts to open market values (as reflected in property purchase price versus the individual RICS valuations provided for each investment)

ii. Carrying out any specific works to maximise the property value. This may be minimal for a new build property, extensive refurbishment for an older property or anywhere in between

iii. Structuring each specific investment in a way that we believe is most appropriate to allow customers to build customised portfolios

The key factors to look at to understand the capital risk include the loan-to-value (LTV) ratio, which is a core measure for both loan- and equity-based investments. A higher LTV means that there is a higher chance of the underlying security value falling below the loan value and risking the loan capital not being fully paid back. If you have a higher LTV level then you should expect to receive a higher interest rate due to the increased risk.

Find out more about the importance of LTV to British Pearl investments here.

Secondly for property loan investments, it’s important to know what the legal level of security the loan holds. Is it a first charge or a second charge? A first charge is more secure than a second charge since as it is paid before the second charge. Both are paid before any investor shares or equity are paid back at the end of the investment term, or if the investment goes into default.

Every company will have a different approach to capital security, so it’s important to research each one and not assume it’s a “one-size-fits-all” regulatory scenario.

4. Diversification

What would happen if you lost all of your investment with one company? Sadly, in the world of investing this can and does happen. Which is why diversification is so important to any investing strategy.

There’s no silver bullet in investing to completely eradicate risk - but diversification may well be the closest thing. Having money invested across a range of assets with different risk profiles helps to give a fair balance of risk and reward across the board. You should consider your diversification within the platform, but also view your overall portfolio in the context of any other savings or investments.

5. What happens if it all goes wrong?

There is always the chance for something to go wrong and an investment not to play out as hoped. Loans can default, share values can fall and investors should be aware of where they stand if this happens.

Firms’ histories should be scrutinised where possible - have they delivered against their investor expectations? While historic default rates are interesting they may not tell the full story. If assets have been relatively robust then developers are incentivised to keep up loan repayments to protect their equity exposure. In a falling market this behaviour can change.

At these times it’s worth considering if there is a provision fund in place to plug the gap on any investment shortfall. But, ultimately, these should not be relied upon as a guarantee, and any investor should ensure that they have a diversified portfolio. That is, no single investment should be of a size that will be too painful to the investor if it turns sour.

To date, at British Pearl we have not faced a single default and have paid out monthly loan interest and share dividends in line with expectations.

So after considering all of the above, the next question to ask yourself is: am I comfortable enough with the level of risk for the potential reward?

A key element to help you answer this is transparency. How the company presents information, what that information is, and how it makes you feel are important factors in this decision.

Read more about our approach here.


The advent of online investment platforms has provided a new way for investors to diversify their holdings and boost their returns in a low interest environment. But it’s still a new field, and the sector has a responsibility to enable investors to make informed decisions. Investors must understand their investment risk - from the due diligence carried out by the investment platform on each investment through to the counterparty risk they face. All of this requires the investment platform to be as transparent as possible so that investors can understand the nuances of individual platforms. New measures announced by the FCA recently will help this exciting industry flourish while helping investors balance and protect their portfolios in uncertain times.

James Newbery is Investment Director at British Pearl

When you invest with British Pearl, your capital is at risk and invested sums are not covered by the Financial Services Compensation Scheme (FSCS). Forecasts are not guarantees and performance may vary. Tax treatment depends on individual circumstances and may change. Read our key risk statement.

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Your capital is at risk. The value of your investment can go down as well as up and you may get back less than you invest. Past performance is not a reliable guide to future performance. Your investments are not protected by the Financial Services Compensation scheme (FSCS). Forecasts are not guarantees and performance may vary. Our Resale Market opens only when investments are fully sold. Exiting early, when you want and at the price you want is not guaranteed. Risks include the total loss of your share investment or loan. Tax treatment depends on individual circumstances and may be subject to change in the future. If you are not sure about investing, seek independent, professional advice. Before investing, read our Key risks.

British Pearl ® is the trading name of British Pearl Limited (Company No. 7151774), a company authorised and regulated by the Financial Conduct Authority (Register No. 674693) and British Pearl Finance Limited (Company No. 10575280 and Register No. 770867), which is an appointed representative of British Pearl Limited. Both companies are wholly owned subsidiaries of British Pearl Group Limited (Company No. 9701436) and all are registered in England and Wales at 14th Floor, 33 Cavendish Square, London, W1G 0PW