Risks

Lending as any other form of investment is not free from risks. The following list of risks does not necessarily outline all possible risks involved. Prospective lenders should read the Credit Peers’ Terms and Conditions and the Lender Terms in its entirety and consult with their own advisers before deciding whether to lend. If you are unsure about any aspect of the information provided, you should seek advice from an independent financial adviser.

Lending to real estate investors can lead to a loss of your capital and there is a risk that a borrower you lend to may default. You should not lend more money than you can afford to lose. If you are unsure about any aspect of the information provided, you should seek advice from an independent financial adviser.

Any lending you carry out through Credit Peers will be illiquid. There is currently no secondary market for the loans you take part in, although they are transferable if you are able to find a willing transferee. Even for a successful loan that is being repaid on time by the borrower, the underlying principal debt you have lent will not be accessible to you until the loan is repaid. In particular, if you are over the age of 60 at the time of lending you should consider the effect this illiquidity could have on your lifestyle.

Lending through Credit Peers is not covered by the Financial Services Compensation Scheme.

Lending to real estate investors should be done as part of a diversified portfolio. This means that you should invest small amounts in multiple asset classes as opposed to a large amount in one or a few. You should also invest only a small proportion of your investable capital in this asset class, with the majority of your investable capital invested in safer, more liquid assets. You are able to further diversify by lending to multiple borrowers on the Credit Peers platform as opposed to just one.

Credit Peers does not give investment advice or provide analysis or recommendations regarding investment opportunities. Investments can only be made by members of Credit Peers on the basis of information provided. Credit Peers takes no responsibility for this information or for any recommendations, opinions or predictions.

Past performance is not a reliable indicator of future results. You should not rely on any past performance as a guarantee of future investment performance.

Companies may provide forward-looking statements with respect to future results. Forward-looking statement are not guarantees of future results or performance and many different factors could cause actual results to be different from those that may be expressed or implied by such forward-looking statements. As such, forecasts are not a reliable indicator of future performance.

Whilst making a loan secured against a property is generally understood to be less risky than becoming the (partial) owner of the respective property, it is important to understand that all real estate, as an asset class, has risk attached to it. And as the real estate market has economic cycles and is exposed to wider macro-economic factors, historic results cannot predict future results.
Overall economic conditions have a significant influence on international, national and regional real estate markets. The cyclical nature of the real estate industry means that it is sensitive to economic conditions both nationally, and more locally. Such conditions can include consumer confidence, employment, income, and some others that are considered below. These factors can influence the ability of borrowers to pay the agreed interest, and ultimately to repay their loans.
  • Market cycles: The cyclical nature of real estate markets can provide for a mismatch between supply and demand that ultimately affects prices. This cyclical market risk is inherent in the property investment market, as well in the tenancy market. As the development of the wider economy can affect real estate markets, the cycles are not predicable. Temporary imbalances can make it difficult for a borrower to meet their obligations under a loan agreement.
  • Location: Given the fixed location of real estate, properties will be affected by the condition, composition and the quality of its immediate surroundings or trade area. Connectivity to ancillary uses as part of a larger urban system also exposes real estate to changes affecting commuting and transit patterns. These conditions change over time and are difficult to predict with great accuracy. Whilst these changes can often be positive, negative changes can inhibit the ability of a borrower to meet their obligations under a loan agreement.
  • Vacancies: Occasionally, unexpected vacancies can occur when deriving income from renting out space in a property. If a vacancy occurs on a large space or persists for a long period of time, a borrower might find it difficult to make their payments under a loan agreement from the cash flow generated by the property.
  • Tenants: Sometimes tenants fail to meet their obligations to their landlord. In such an unfortunate event, the owner of a property might find it difficult to make the payments under a loan agreement from the cash flow generated by the property. A tenant can also file for bankruptcy, which means that a lease agreement might get terminated. In the case of a tenant bankruptcy the landlord often finds himself unable to recover losses incurred so far from the tenant.
  • Competition: As with other parts of the economy, participants in real estate markets face competition. Credit Peers’ borrowers face this competition when buying, managing, developing and selling real estate on both the supply and demand sides, which can affect their business results and ultimately their ability to make the payments under a loan agreement.
  • Environment: In recent decades environmental risk has played an ever bigger role in real estate investment markets. Whilst environmental due diligence is common, and contractual language and insurances can be in place to mitigate the economic risks from environmental liabilities, they can never be guaranteed not to have an impact on the business results, and ultimately a borrower’s ability to make the payments under a loan agreement.
  • Key personnel: A borrower might be dependent on the expertise, experience or business acumen and/or contacts of one or more key personnel members, including management and experts. Should key personnel leave a borrower’s company or become incapable of meeting their contractual obligations, a borrower may be adversely affected.
  • Tax: Real estate investments are often subject to complex tax rules. Even if tax professionals are consulted, investors can make miscalculations, regarding their specific tax situation. Tax rules can also change during the course of an investment. Consequently, an adverse tax situation can have an effect on the business outcome, and may affect the ability of a borrower to meet their obligations under a loan agreement.
  • Legal: Changes to the applicable building codes and requirements may require expensive retrofit, for example when public health, safety and welfare is involved. Changes in zoning areas and designations may adversely affect the allowed type of use, or the intensity of use, and thereby materially affect the value of a property. In the case of an existing building, changes in zoning may make it a non-conforming use property, subject to future risk.
  • Accounting: Changes in the national and/or international regulations applicable to the accounting principles for UK Generally Accepted Accounting Guidelines (UK GAAP), or to the International Financial Reporting Standards (IFRS)) regarding real estate investments, could adversely affect the business results of a borrower.
  • Development risk: Real estate developments are particularly risky as they usually mean that a singular and one-off product is developed from scratch. Such developments, as well as being potentially affected by the other above mentioned risks, can be additionally prone to foul weather, poor quality of works, default of suppliers, as well as legal and regulatory challenges. Any one of these risks can adversely affect a borrower’s ability to make their payments under a loan agreement.

Credit Peers may from time to time also provide lending opportunities where the loan might not be denominated in GBP. We will clearly mark those opportunities. Lenders should note that while we will undertake to hedge all currency risk for their and the borrower’s benefit, variations/fluctuations in market and currency can affect the repayment of the principal amount of the loan and of any interest.

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