Borrowing 01566788667
Lending 01566 788667
Menu

Risks and things you should know.

Before investing in a FOLK2FOLK business loan it’s important to familiarise yourself with our General Terms & Conditions. With all investments, there are a number of risks you should be aware of so we’d like to draw your attention to a few things including risk and how we manage it. If there’s anything you don’t understand, or if you have any questions regarding your Folk2Folk investment, please contact us.

  • General peer to peer lending risks
  • IFISA specific risks
  • How we manage risk

General peer to peer lending risks

Your capital is at risk.

Peer to peer lending is not covered by the Financial Services Compensation Scheme (FSCS). What do we mean by this?

This means compensation is not available from the FSCS if a peer to peer lending platform cannot meet its liabilities in respect of its products. Lenders do not have recourse to the FSCS for the failure of Borrowers to meet loan interest payments or loan capital repayment.

Risk of failure of FOLK2FOLK

We’re authorised and regulated by the Financial Conduct Authority (FCA) which requires us to maintain a certain level of regulatory capital. This means that there should always be sufficient capital for an orderly wind-down of the company.

If FOLK2FOLK Limited were to stop operating, although there’d be no new loans, the existing loans would be passed to a standby servicing company that would ensure the continuation of administration of existing loans until maturity or until Borrowers repaid.

Our Interest rate

Our loan interest rates are fixed and set out in the loan documentation applicable to your loan. This means that the interest rate you receive won’t increase or decrease if market interest rates change. Under normal circumstances, your loan investment will provide you with 6.5% p.a. interest paid monthly in equal instalments.

However, if your Borrower is unable to meet monthly payments temporarily, you will not receive your interest payments until they start paying again. Therefore, this investment may not be suitable if you rely upon the monthly income.The missed interest payments will still be due to you and will rise to a higher interest rate (see General Terms & Conditions) but they will be delayed.

Timings

There are no guarantees as to how long it will take to be matched to a loan. It depends upon demand from our Borrowers.

Once in a loan, your Borrower may repay the loan earlier than the anticipated end date. If this happens you can choose to go back on the Lender waiting list.

Loan Defaults

If your Borrower goes into default and there is also an extreme downturn in the property market, there’s a risk of delay in selling the property, against which the loan is secured, to repay your loan.

You should be aware that if a loan falls into arrears or defaults there’s a risk the Borrower may not pay interest (in full or part) and may not be able to repay your capital in full when due. The outstanding amount will be deferred until the loan status has been repaired or (if required) enforcement action concluded with the security being sold.

FOLK2FOLK has had very few defaults since we started in 2013 – however past performance is not a reliable indicator of future results. Read more about our defaults record and how we handle defaults.

Accessing Your Money

FOLK2FOLK loans are illiquid assets which means you cannot exit them quickly. You should be prepared to hold your loan investment until maturity. As a Lender, you have the right to offer your loans for sale via our secondary market ‘MarketPlace’ after six months, but we cannot guarantee a sale. Fees apply.

If your investment loan were to fall into arrears or default you cannot offer your loan for sale on MarketPlace. You will need to wait for the loan situation to be repaired or the defaulted loan recovered.

There is no right to cancel your investment in a loan since it is an agreement secured on land.

Tax

Tax treatment depends upon your individual circumstances and may be subject to change in future. Interest payments are paid over to Lenders on a gross basis and it is the Lender’s responsibility to report and pay any tax due.

Spreading your risk

If you have sufficient funds, you can diversify your risk exposure by spreading your money over a number of loans, rather than concentrating them in one. The minimum amount that can be invested into a single loan is £20,000.

We don’t give advice

It’s your responsibility to assess whether lending via FOLK2FOLK is suitable for you, with particular regard to your individual risk appetite and personal financial circumstances. We’re not able to advise you on the appropriateness or suitability of any loan. We recommend you take advice from an independent financial advisor if you’re in any doubt as to whether investing in a peer to peer loan is right for you.

IFISA

General

Innovative Finance ISAs (IFISAs) are not the same as cash ISAs. The risk of investing in a peer to peer loan is higher and there’s no guarantee that your capital or interest will be repaid.

You can invest your annual ISA allowance of £20,000 in tax year 2018/19. Once a new tax year starts you will have a new allowance to invest. The date we receive your funds is the date on which your ISA subscription starts.

Interest

Interest is paid to you tax-free monthly to your specified bank account. Interest earned on the IFISA can’t be accrued inside the IFISA so the investment amount at the end of the term will remain at £20,000. Bank interest is not payable, and loan interest is only payable if your funds are invested in a loan.

Your overall return will be reduced by the fee involved. Learn more.

IFISA Timings

Timing to start earning tax-free interest is dependent upon eligible loans being available and there are no guarantees as to how long it’ll take to be matched to a loan. There’s a possibility funds won’t be matched in that tax year, in which case your funds will still retain their tax-free status within the IFISA wrapper but no interest will have been earned.

IFISA Fees

The Annual Administration Fee is for the creation and administration of the IFISA wrapper and is payable from the time the IFISA wrapper is created, prior to being matched to a loan and interest being earned.

How we manage risk

Secured loans

All loans are secured against UK based land or property. We do not offer unsecured lending which is more risky than secured lending.

Max 60% Loan to Value

We only lend up to a maximum of 60% of the value of the security.

‘Forced sale valuation’

The valuation we use is not an open market valuation, but a valuation based on the assumption that contracts for sale are exchanged within a 60-day period. This type of valuation typically gives a lower value than an open market value.

Professional Indemnity Insurance

We carry Professional Indemnity Insurance. As part of our processes, we take advice from external solicitors and valuers to assess the proposed security property and we check these professionals have Professional Indemnity Insurance.

We’re choosy but fair about Borrowers

We take an holistic view of Borrowers, businesses and the security property and turn down those that don’t meet our criteria.