This year I've found myself writing about peer to peer lending a lot, as I've been allocating more and more of my short- and medium-term funds to it. This article is my BondMason review, which is the platform I've done the deepest dive into.
You can use peer-to-peer in lots of different ways, but the approach I've adopted has four characteristics that work for me:
(Importantly, in terms of risk it's not at all the same as a savings account – which I cover here – but at the moment it's impossible to even keep up with inflation without taking some degree of risk. It's also completely different from property crowdfunding, which is an equity investment.)
There's just one drawback…
To reduce your risk, you should really split your investment between lots of different peer-to-peer platforms. That way, if one of the platforms implodes horribly, it only affects a fraction of your holdings.
But that's a real hassle. It means picking the platforms in the first place, going through their application process, transferring funds in, juggling all the usernames and passwords when you want to check on how things are going… urgh.
At one point, I had funds with 8 different platforms.
Now though, I'm in the process of radically simplifying – without losing the safety that comes from diversification.
The simplest explanation for BondMason is this: you give your money to them, and they invest it for you across lots of different platforms.
Whatever you invest gets split between at least 100 different loans that the BondMason team has hand-picked to invest in. These loans come from 33 different platforms that they've done their due diligence on and accepted (while rejecting 117 more in the process).
Can you imagine the hassle of operating accounts with 33 different platforms, and picking the best individual loan opportunities with each of those? It'd be virtually impossible. And, in fact, literally impossible – because BondMason have relationships with some lenders who don't accept funds from regular individual investors anyway.
The majority of the loans they make are secured against property, spread across the UK. Their average loan-to-value is currently a conservative 56%, and the loans are secured by a first charge against the property in 80% of loans.
Their aim, by spreading funds across a whole range of different loans, is to make a gross return of 7.5%pa (before fees and losses).
After their fees, you can expect a return of more like 6%
After their fees, you can expect a return of more like 6%. Which isn't at all bad for no effort whatsoever.
If you've been paying attention, you should have noticed a contradiction: the point of diversifying is to remove reliance on just one platform… but even though BondMason diversifies for you, you're still reliant on them.
This is a risk I'm comfortable with, for a few reasons:
Is there some eggs-and-baskets risk here? Yes. But for me, I consider it a bigger risk to just hold loans on two or three platforms because I can't be bothered to spread my investment any further.
There's also a very real cost in having funds sitting in cash constantly losing purchasing power (if you've got £100,000 sitting in the bank you're effectively getting £3,000 poorer every year) because it's too much effort to do anything with it.
I've invested with BondMason since February 2017, and I'm in the process of moving the majority of my non-emergency-fund cash and other peer-to-peer investments over to them.
If a target net return of 6% sounds good to you, they currently have a refer-a-friend offer that will pay you a £50 bonus once you've invested with them for 3 months.
(And full disclosure – because I'm your friend (we're friends, right?), they'll give me a little something too.)
There's no tie-in though: if you want to withdraw your funds at any time, you can typically get them back within 1-2 days.
To make sure you get your £50 bonus:
As ever, I only share investments I've been using myself for a good amount of time – but I could be totally wrong, and this isn't a recommendation about what investments are suitable for you. Always do your own research – and obviously, your capital is at risk.