Investors have generally done well with these loans, taking their chances with the odd bad debt and taking home returns of between 4 and 20 per cent.

But the essence of peer-to-peer lending (P2P) is much more than that. At its heart, it’s bringing together borrowers and lenders, for the benefit of both.

And now P2P is on the rise as a way to fund business growth, property purchases, and new builds that don’t fit bank criteria.

P2P property funding

For investors, property is always an attractive asset class, and a P2P platform allows you to fund all or part of a local property purchase, small construction project, or renovation.

Where unsecured P2P loans, offered by some P2P platforms, tend to average around NZ$6000, a secured P2P loan against a property will be much larger.

This makes it an attractive option for investors wanting a steady income stream over several years, says Marcus Morrison, CEO and director of peer-to-peer platform Zagga NZ and Executive Director of Zagga Australia.

“Our average loan size is about $500,000,” he says.

Established in 2015, Zagga has lent NZ$60 million here and another AU$500 million in Australia – last year its local lending book grew by 34 per cent.

“Every loan is secured by a property, whether that’s bare land or a block of flats,” he says.

“We take a registered mortgage over the property, typically a first mortgage the same as a bank, which gives our investors confidence that if anything goes wrong, they have some degree of control over the outcome.”

The minimum investment amount with Zagga is NZ$1000, up to the full amount of the loan, and they’re not pooled: your money is allocated specifically to the loan you’ve chosen to fund.

All the information – plus the story

Not all property projects are equal – sometimes what you think might be a no-brainer for a bank won’t actually meet their lending criteria.

Small business owners, anyone with lumpy income, older homebuyers: all can fall outside the bank’s narrow criteria.

But for investors on Zagga, where the average loan-to-value ratio is around 55 per cent, the loan structure can seem well worth the return.

When you invest on a platform like Zagga, you get almost all the information a bank would typically get about the lender’s situation and finances.

In addition, each prospective borrower on a P2P platform explains how they would use the money, so you get to understand their story.

“Take someone who wants to buy a house, but they’re 65, so the bank isn’t interested,” says Morrison.

“This might be a person who’s never defaulted on a loan in their life. They’ve got enough income to service the debt and a big deposit. The loan is secured by the house.

“I know plenty of our investors would weigh up that risk and say, ‘Why wouldn’t I get involved?’.”

Returns vary depending on the individual loan

Zagga pays monthly distributions, and investor returns vary according to the individual loan.

They range from 5.44 per cent to 12.79 per cent; borrower fees range from 0.90 per cent to 1.95 per cent, deducted monthly from repayments.

Riskier loans tend to attract higher returns, although all borrowers are credit-checked to ensure the default rate is low, with no investor ever having lost any principal.

If you’re considering becoming a P2P investor, or borrower, it’s essential that you understand precisely what you’re signing up for.

“We have a real mix of investors, from those who are just learning about it, through to sophisticated investors,” says Morrison.

“There’s comprehensive information about investing, which is all aimed at the first-timers because you absolutely need to understand the risks.”

Bridging the gap between investors and borrowers

Morrison says he’d never advocate throwing all your savings into P2P lending. Instead, it’s a relatively low-risk way to secure returns above 5 per cent on a portion of your money.

And helping other Kiwis into homes, or to build new homes, can be a personally satisfying way to grow your wealth.

“Investors read the stories and it does sometimes make them feel good about where their money is going,” Morrison says.

“And from my own perspective, I feel good that we’re able to bridge the gap between investors and borrowers, in a way that’s secured against a tangible asset.”

Zagga welcomes inquiries from new investors. To hear more about secured investing through Zagga, visit www.zagga.co.nz/investing