Warning: We are not currently in “normal market conditions”: as a result of COVID-19, there's a supply/demand imbalance and many lenders will only allow access to your funds slowly if at all. It also remains to be seen how each lender's underlying loans will perform. Proceed with extreme caution until this situation is resolved and things are clearer.
Launched in April 2013, Assetz Capital has grown to be a top 6 player in the peer-to-peer market, offering investors a range of inflation-busting accounts through loans secured against UK property and businesses.
The platform is FCA regulated and open to retail investors both here in the UK and internationally (UK bank account required), with 30,000+ active lenders on the platform. The current loan book sits at around £750 million (May 2019) with a target of £1 billion by the same time next year. Assetz have 100 employees across offices in London, Manchester and Edinburgh.
Your lending options
There are 6 different types of account on offer, which can be broken down into:
3 “access” accounts
These accounts are designed to give you predictable access to your money when you need it.
Ranging from immediate to 90-day access, these accounts are automatically highly diversified across a large volume of property and business loans. They're perfect for set-and-forget investors, and have around £185 million invested in them.
2 “automated” accounts
These accounts also automatically invest your funds, but you can only access your funds before the end of loan terms by selling your stake to other investors through the secondary market.
They pay higher rates of interest than the Access Accounts. One is just for loans secured against property, and the other is just for loans to businesses.
1 manual lending account
Unlike all the other accounts, this one requires you to look at each available loan and decide which ones you want to invest in. This pays the highest rate of interest, and it's great if choice and control are important to you again.
Like with the Automated Accounts, you can only get your money back early if you can find a buyer on the secondary market.
|Quick Access||30-day Access||90-day Access||Property Secured Account||Great British Business Account||Manual Lending|
|Target rate of return pa||4.1%||5.1%||5.75%||5.5%||6.25%||Up to 11.9%|
|Security types||Mix of all loan types||Mix of all loan types||Mix of all loan types||Property and land||SME business assets||Choose from all loans available|
|Maximum investment||£100,000||No maximum||No maximum||No maximum||No maximum||No maximum|
|Interest payments||1st of the month||1st of the month||1st of the month||Throughout the month (depending on the loan's start date)||Throughout the month (depending on the loan's start date)||Throughout the month (depending on the loan's start date)|
|Provision fund cover||Yes||Yes||Yes||Yes||Yes||No|
|Liquidity (under normal conditions)||Instant withdrawals||Maximum 30 day wait||Maximum 90 day wait||Secondary market only||Secondary market only||Secondary market only|
You can choose which account you invest in depending on how important rate of return, liquidity and passivity are to you.
If your priority is a higher rate of return and you want to invest for the longer term, then the Automated and Manual Lending Accounts are good choices. On the other hand, if you’re looking for an easy return on your cash without being locked in, the Access Accounts are perfect.
The great news is you don’t have to stick to one choice: you can spread your investments across the various accounts in whatever proportions you like to get a mix that suits you.
Remember: peer-to-peer lending involves risk. I've not hammered home the risk point in this article because it's covered in my main peer-to-peer lending article. Make sure you read that before investing if you're not familiar with how peer-to-peer lending works and what the risks are.
Having played with nearly all of the accounts I now invest solely in the Quick Access Account for a number of reasons:
- It’s completely hands off: there’s no picking and choosing of loans or reading of credit reports. I’m prizing my time and the simplicity of my investments more these days, and this autopilot account fits that bill nicely.
- It lives up to its name with instant liquidity, so it’s a great place to park some cash while building up the next property investment deposit.
- It’s highly diversified and works like a fund with nearly every investor in the Access Accounts spread across every loan, reducing the risk of being caught in a loan-gone-bad.
- Regardless of the dates on which each loan originated, interest is paid on the 1st of each month so it’s a cinch to track payments, and you have the choice to take this as income or allow it to be re-invested.
Things I like about Assetz Capital
And not just for us investors… The company itself posted its first profit in 2016, three years after its inception, which is a big ol’ tick in the box when I’m weighing up P2P lenders.
I’m always wary of platforms that are burning through venture capitalists’ cash at alarming rates, as running out could spell the end of diligent loan monitoring and a rush to the exit from investors.
I took this milestone of profitability as a good omen and began investing a five-figure sum with Assetz Capital later that year and have been pleased with the results.
Attractive interest rates
P2P platforms usually target a similar ‘spread’: the difference between the rate they charge borrowers and what they pay to investors. That spread is where they make their money.
In their own words, Assetz Capital ‘aim to attract the highest quality credit that still has a degree of risk’, usually charging borrowers a competitive 8-12% per annum.
This balance is important as while there are other platforms that advertise higher rates to investors, these come with a greater risk to you and me: the higher the interest rate charged to a borrower, the harder it is for them to pay it back.
Additionally, when looking at rates, it’s worth remembering that if a borrower is willing to pay a very high rate, it’s probably because they haven’t managed to secure cheaper lending elsewhere, which should raise some alarm bells.
Good loan selection and strong underwriting
This is probably the most important, yet often overlooked aspect of any P2P platform, as the due diligence conducted on borrowers is just as important as the underlying security.
In fairness, it isn’t easy for the casual investor to look into the procedures in place for any platform but I’ve been fortunate enough to ask Assetz a few questions about how they pick their loans.
Assetz Capital have been continually tweaking their underwriting procedures and make-up of their loan book based on analysis of years’ worth of experience, using the platform itself to measure metrics for different loan types, discontinuing those that haven’t worked so well and focusing on those that do.
Business Loans: Assetz Capital have diversified their offering by including a large proportion of business loans, plugging a funding gap where traditional high-street lenders have been retreating. These loans make up the largest number of loans by Assetz.
They're nearly always secured against property owned by the businesses but they also look at company performance and likelihood of repayment of the loan, and tend towards the Small to Medium Enterprise (SME) market encompassing manufacturing, industrial, care, leisure and more.
As with all P2P platforms, where the borrower is a limited company, the directors give personal guarantees and a floating charge is placed on the company. However, Assetz Capital go a step further and ensure their interest is noted at the HPI for any vehicles the business owns and on the insurance for company equipment, meaning these can’t be sold without Assetz being alerted.
Amortised loans: The loans they offer range in length from 6 months to 5 years and the longer loans tend to be amortised, i.e the capital is paid back over time like a mortgage, reducing the loan-to-value and your risk exposure.
This is not very common in P2P lending, but it’s a nice safety measure: it effectively means the risk reduces the longer the loan goes on.
I’m strongly in favour of this arrangement because a business or property developer that is able to repay the capital must be doing significantly better than one that can only service the interest – and by the end of the loan term, the debt is repaid, or at the least, significantly reduced. Compare that to an interest-only loan: if the redemption date happens to come around during a slump in the market, the business might find itself unable to repay as planned or move to another lender.
Rental Property loans: Development loans in commercial and residential property account for the largest part of Assetz’ loan book when measured by value.
Within these loans are a significant number of income-producing property. In the 2008 recession, when values fell, rents remained stable and actually increased. If, or should I say when, a recession happens again, in the event of defaults Assetz could repossess these properties and still service the interest for investors while waiting for the right sales price to be achieved, or of course for property to appreciate in value once again.
As a property investor, these loans appeal to me. They also have the added benefit that with the interest continuing to be paid monthly, other investors in the same loans as me (who may otherwise demand a sale at a loss), might be more inclined to take the income and wait it out.
Northern Ireland & Scotland: Assetz Capital lend across the UK with roughly 83% in England and Wales. However, they also have a good lending volume in Northern Ireland (8%) and Scotland (9%).
These aren’t markets I buy rental property in directly because I’m not familiar with the geography or local regulations, but I’m more than happy to invest in loans there.
The competition amongst lenders in these regions is currently much lower than in England and Wales, so if you are seeking a higher rate in the Manual Lending Account, these loans are more likely to offer it. At the time of writing (May 2019), the Hometrack 20 cities report features Glasgow and Belfast in the top 5 for price growth over the last 12 months so these loans look like a safe bet too, and it’s good to see Assetz Capital leading the way with Relationship Managers based in Edinburgh and Northern Ireland.
Strict loan monitoring
A bugbear of mine is the tendency for P2P lenders to focus efforts at approval and funding stage, only to neglect them until close to redemption.
Assetz Capital have a dedicated project management team of 8 portfolio managers working with the borrowers and conducting site visits throughout the length of the loans, so will take remedial action early on if anything is amiss. You can actually see this monitoring going on for many of the loans, which is a great comfort.
The Quick Access Account is as liquid as it gets: you can get your money out in a matter of hours. Assetz achieves this by always carrying a cash surplus it can use to pay investors out, while it shuffles things around behind the scenes to allocate that investor’s stake in loans to other investors.
This is true ‘under normal market conditions’, which actually has nothing to do with the property market and all to do with investor sentiment – i.e. it’s all good unless everyone’s trying to cash out at the same time.
The non-Access accounts involve longer and unknown wait times, because you need to wait until another investor on the Secondary Market wants to buy your position from you. You’re rewarded for this lower flexibility with higher rates, and it’s nice to have this get-out-early option at all.
Each account, with the exception of Manual Lending, has a provision fund that meets even the most stringent of the Bank of England’s stress tests, and covers both the interest payments and capital lent. The current value of these provision funds are well above the current default rate (<0.5%) of each account’s loan book.
The provision funds are funded by using a proportion of the interest spread. I think this is a smart move by Assetz Capital; instead of advertising higher rates and some investors therefore losing out because of defaults, the provision funds cover any expected defaults, so the advertised rate is much more achievable and you don’t have to worry too much about being caught in the wrong loan.
This is certainly true in ‘normal market conditions’. In a recession default levels could of course exceed the size of provision funds.
You can read here how Assetz define a credit event, default and bad debt and the current levels for each. The good news is that after use of provision funds and recovery of assets, the bad debt level is currently 0.00%, with no loss of capital.
Funds rarely go uninvested
For the five non-manual accounts there is little to no cash drag where your funds are left outside of loans earning nothing. That’s thanks to the ‘Invest Idle Funds’ feature, where funds waiting to be invested are automatically funnelled into the Quick Access Account.
When new loans are available in higher paying accounts, you can withdraw that cash immediately and invest again to get a higher return.
It may sound simple but really this is pretty innovative and the ability of the platform to handle this is impressive. If you are waiting around to get invested your overall annual return will be significantly less impressive.
For example, if you’re targeting loans paying 10% per annum in the Manual Account but your money spends a month on the sidelines waiting for the right loan to come along, your effective annual return is reduced to around 9.1%.
By having those funds channeled automatically into the QAA where they earn 4.1% for that month, you end up with an effective annual return of 9.5%.
This is good news for your returns, and helps you make smart decisions: the knowledge that you are earning something in the QAA may make you think twice about investing in a less-than-ideal loan just to put your money to work.
Any interest you receive in the UK is subject to income tax over the Personal Savings Allowance of £1,000 for lower-rate taxpayers, £500 for higher-rate taxpayers and £0 for additional-rate payers.
Example: If you are a higher-rate taxpayer any investment over £12,200 in the 4.1% Quick Access Account will take you over the £500 limit, taking your post-tax return down to under 2.5%.
Assetz Capital offer an Innovative Finance ISA (colloquially known as a peer-to-peer ISA) which acts as a tax wrapper and is part of a growing family of ISAs that collectively allow up to £20,000 worth of deposits per tax year which can earn interest tax-free. If you have an existing ISA/s you can also transfer these funds in without issue.
One strategy you could use is to allow interest payments to build up in the IFISA, rather than taking them as income, and so compound over time, tax free.
What's not to like?
Well, there are a few things, but they’re really niggles rather than anything too serious.
Rates of return aren't guaranteed
The rates advertised are ‘target’ rates rather than guaranteed and they can also move up or down, with changes announced at the start of each month.
It’s sensible for a lender to be able to react to the market and change interest rates as needed and but it’s possible that investors might get a lower return than they expected. On the bright side, there is a minimum rate as well, currently 3.75% for the Quick Access Account.
In the 3 years I’ve been invested in the QAA, the return has been as advertised and the target rate has even increased in that time – but it’s something to bear in mind.
If you invest in both the Access and Automated/Manual Accounts, you can find yourself invested in the same loans twice. This is essentially a by-product of how the platform works to seamlessly keep funds invested.
It’s generally not a problem as you can sell your position on the secondary market if you feel too over-exposed but it’s something to consider and look out for.
Time to become fully invested
At the time of writing, Assetz have around 480 loans available for investment but the time to become invested varies.
Smaller sums in the Access Accounts generally become invested pretty quickly, perhaps a few days at most. Larger sums in the Automated and Manual Accounts can take longer, especially if you want good diversification.
In summary, there’s an awful lot I think Assetz Capital have got right and the platform, while it has some drawbacks, does an incredibly good job of balancing demand and supply of loans: not an easy feat.
With the variety of accounts on offer, there’s something to suit nearly every investor regardless of risk tolerance or investing horizon.