FundingSecure claims to be the only peer-to-peer lender in the UK to specialise in loans that are secured against the personal assets of borrowers and, at up to 16%, the rates of return potentially on offer are among the highest on the market.
The firm is a privately owned UK company that was formed in 2012 in Stokenchurch, Buckinghamshire, and started trading a year later. There are now 12 people employed at the company with the majority of shares held by directors.
Since launch, the company has created an impressive track record, with loans in excess of £280 million and more than 3,500 active investors. The company recently showed a six figure profit on its accounts, so, on paper, it all looks like a solid proposition. In fact, it all sounds a little too good to be true, so let’s delve deeper…
FundingSecure doesn’t share the same high ratings as some of the other IFISA providers we’ve looked at, managing a distinctly average 3 stars out of 5 on TrustPilot with some investors saying that the company’s is more focussed on keeping borrower happy, as opposed to the investor.
Others say there are not enough regular updates on how loans are performing, and that the firm is slow when it comes to taking action on loans that are not performing. All that said, most investors are complimentary about rates of return, with many attesting that they are as high as the company states.
- Formed in 2012
- Loans in excess of £280 million to date
- Rates of return up to 16%
- Invest from just £25
- Loan period of six months
- Typical Loan-To-Value (LTV) 70%
- Secondary market available (albeit with conditions)
The FundingSecure ISA
Openly available to all UK taxpayers, FundingSecure’s IFISA is reasonably easy to get started by paying in funds by bank transfer, or by transferring in other ISAs, but despite the high rates of interest claimed (typically 12-13% per annum), there is very scant detail on how the products operate, or on the firm’s track record of pay outs to investors. What is clear is that the biggest investors (in excess of £100,000) secure the highest rates of return.
According to the website, once investors are signed up, investors do have control over which loans they choose, so at least you will have some control over investment strategy. But details on the secondary market are more than a little confusing – existing tax liabilities are transferred from accrued interest to buyers. Whereas, on other platforms, the interest is paid into the fund every month, here it’s retained within the loan. Make of that what you will.
It’s worth pointing out too that borrowers can repay early, in which case investors are paid up to the date of repayment.
FundingSecure is upfront in that it lends to borrowers that can’t borrow elsewhere, so essentially, what they’re saying is that these are subprime loans. However, while the firm don’t use credit scores as part of the lending criteria, underlying assets are required for security and all loans are restricted to an LTV of 70%.
Full background checks are carried out on borrowers, as well as rigorous due diligence on ownership and titles. Additionally, the value of assets is confirmed by third-party professionals, stored in a secure location, or, in the case of property, have a legal charge brought against them. In the event of a default, for pawn loans, the asset is sold at auction; for bridging loans, a receiver is appointed (interest continues to accrue until the asset is sold).
It’s true that FundingSecure offers great rates of return and these have been confirmed by investors, but there’s very little detail on the website on how the product works, and it would appear that the firm is slow to take action against defaulters.
Despite taking a lot of care with due diligence and background checks, it’s hard to ignore the fact that these are highly risky loans given to borrowers who haven’t been able to secure credit elsewhere for one reason or another. Confirmed losses are low, but many outstanding loans have been rolled over into new ones, making it difficult to assess what percentage of loans might default. Certainly, more transparency is needed here.
This really is one for those who are have the time to keep a close eye on their investment and have other investment funds diversified elsewhere.
Updated: Wednesday, November 28th, 2018