Unbolted loan performance

Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2mins to learn more.

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

You could lose the money you invest

Many peer-to-peer (P2P) loans are made to borrowers who can’t borrow money from traditional lenders such as banks. These borrowers have a higher risk of not paying you back.
Advertised rates of return aren’t guaranteed. If a borrower doesn’t pay you back as agreed, you could earn less money than expected. A higher advertised rate of return means a higher risk of losing your money.
These investments can be held in an Innovative Finance ISA (IFISA). An IFISA does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential gains from your investment will be tax free.

You are unlikely to get your money back quickly

Some P2P loans last for several years. You should be prepared to wait for your money to be returned even if the borrower repays on time.
Some platforms may give you the opportunity to sell your investment early through a ‘secondary market’, but there is no guarantee you will be able to find someone willing to buy.
Even if your agreement is advertised as affording early access to your money, you will only get your money early if someone else wants to buy your loan(s). If no one wants to buy, it could take longer to get your money back.

Don’t put all your eggs in one basket

Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.
A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

The P2P platform could fail

If the platform fails, it may be impossible for you to collect money on your loan. It could take years to get your money back, or you may not get it back at all. Even if the platform has plans in place to prevent this, they may not work in a disorderly failure.

You are unlikely to be protected if something goes wrong

The Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover investments in P2P loans. You may be able to claim if you received regulated advice to invest in P2P, and the adviser has since failed. Try the FSCS investment protection checker here.
Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.

For further information about peer-to-peer lending (loan-based crowdfunding), visit the FCA’s website here.

Remember that your capital is at risk with no FSCS protection. Past performance is not a guarantee of future returns and we cannot guarantee that the security on the loan will cover full capital and interest.

Outcomes Statement

Dec 1 2019-Nov 31 2020	Expected Default Rate	Actual Default Rate
Consumer Loans against Gold	5.00%	3.55%
Non-Gold Consumer Loans	10.00%	3.54%
HNW and Business Loans	5.00%	0.00%

Dec 1 2020-Nov 31 2021	Expected Default Rate	Actual Default Rate
Consumer Loans against Gold	5.00%	13.84%
Non-Gold Consumer Loans, HNW and Business Loans	5.00%	1.81%

Dec 1 2021-Nov 31 2022	Expected Default Rate	Actual Default Rate
Consumers Loans against Gold	8.75%	12.16%
Non-Gold Consumer Loans, HNW and Business Loans	8.75%	2.65%

Dec 1 2022-Nov 31 2023	Expected Default Rate	Actual Default Rate
Consumers Loans against Gold	10.00%	6.72%
Non-Gold Consumer Loans, HNW and Business Loans	10.00%	12.66%

Dec 1 2023-Nov 31 2024	Expected Default Rate	Actual Default Rate
Consumers Loans against Gold	10.00%	1.92%
Non-Gold Consumer Loans, HNW and Business Loans	10.00%	14.96%

Commentary on Outcomes Statement

The expected default rate is the rate of default that we expect to see in our loan book based on historical data, default trends and the different loan types that we originate. Please note that all our loans are backed by assets that are pledged and sold upon default and higher default rates do not directly translate into loss of principal or interest. More detailed and granular loan performance data since inception is published at our Loan Performance page. If you are an existing lender, we also publish custom reports for each lender’s portfolio with loan-by-loan reporting of principal and interest losses on their specific portfolio which we provide in your Loan Portfolio page as well as taxable interest income and capital loss split calculations on a monthly and tax-year frequency on your Tax Statement page.

Default rates are sensitive to the price movements in the assets pledged against the loan as well as the macroeconomic environment. For example, gold loan default rates are dependent on the price movements of gold and we adopt a conservative approach to estimating default rates on gold loans through the cycle even if recent default rates have been low due to rising gold prices (after an earlier period of elevated defaults when gold prices were lower). The inverse was true for other assets (such as watches and contemporary art) where rising prices immediately after Covid led to lower default rates and the subsequent correction has led to an increase in default rates. Default rates also fell across the board during Covid as loans were repaid at an unusually high rate and the expected default rates have been revised upwards as actual default rates have increased post Covid.

The Actual Default Rate is computed as Loan Amount Defaulted in Period/Loan Amount Resolved in Period (expressed as a percentage) separately for Gold Loans and all other Loans ( i.e. Non-Gold Consumer Loans, HNW and Business Loans). Loan Amount Resolved in Period is defined as the sum of Loan Amount Defaulted in the Period and Loan Amount Repaid in the Period. Loans are deemed to be defaulted if they are 90 days over due or if security is enforced anytime prior to that.