Alternative Investments UK 2026 — Crypto, Gold, REITs, Bonds and MorePeer-to-Peer Lending Guide UK — Rates, Risks, and Platforms
How peer-to-peer lending works in the UK, what returns to expect, the risks involved, platform comparisons, and the tax treatment of P2P interest.
Peer-to-peer lending offers higher returns than savings accounts — but with added risk that your capital isn’t protected. Here’s how it works in the UK, which platforms to consider, and what to watch out for.
How P2P Lending Works
| Step | What happens |
|---|
| 1 | You deposit money on a P2P platform |
| 2 | The platform assesses borrowers and assigns risk ratings |
| 3 | Your money is lent to borrowers (individuals or businesses) |
| 4 | Borrowers repay the loan plus interest over time |
| 5 | You receive interest payments (monthly or at maturity) |
| 6 | The platform takes a fee from the borrower |
Your money is typically spread across many different loans to reduce the impact of any single default.
P2P Returns vs Savings Accounts
| Product | Typical return | Capital at risk? | FSCS protected? |
|---|
| Easy access savings | 3%–5% | No | Yes (up to £85,000) |
| Fixed rate bond | 4%–5% | No | Yes (up to £85,000) |
| Cash ISA | 3%–5% | No | Yes (up to £85,000) |
| P2P lending | 4%–10% | Yes | No |
| Platform | Focus | Typical returns | IFISA available | Min investment |
|---|
| Kuflink | Property-backed loans | 5%–7.5% | Yes | £100 |
| CrowdProperty | Property development | 6%–8% | Yes | £500 |
| Assetz Exchange | Property-backed | 4%–6% | Yes | £1 |
| Lendwise | Professional and postgraduate loans | 4%–6% | Yes | £10 |
| Folk2Folk | Secured business/property loans | 5%–7.5% | Yes | £20,000 |
Note: The P2P market has consolidated significantly. Zopa, Funding Circle (retail), and RateSetter have closed their P2P platforms to new retail investors.
Types of P2P Lending
| Type | What you’re lending for | Typical return | Risk level |
|---|
| Consumer loans | Personal loans to individuals | 4%–7% | Medium |
| Business loans | Lending to small businesses | 5%–10% | Medium–high |
| Property (bridging) | Short-term property financing | 5%–8% | Medium |
| Property (development) | Funding building projects | 6%–10% | Higher |
| Invoice finance | Advancing money against unpaid invoices | 4%–7% | Medium |
Risks of P2P Lending
| Risk | Detail |
|---|
| Borrower default | Borrowers may not repay — you could lose some or all capital |
| No FSCS protection | Unlike bank savings, P2P isn’t covered by the £85,000 guarantee |
| Platform failure | If the platform goes bust, recovering your money can be slow and uncertain |
| Illiquidity | Your money is locked into loan terms — early exit may not be possible or may come at a cost |
| Economic downturns | Defaults increase during recessions |
| Interest rate risk | Better savings rates may make P2P less attractive relative to its risk |
| Protection | How it works |
|---|
| Provision funds | Some platforms set aside a reserve to cover defaults (not guaranteed) |
| Credit scoring | Borrowers are assessed before being listed |
| Diversification | Your money is spread across many loans |
| Security / collateral | Property-backed loans are secured against physical assets |
| Wind-down plans | FCA requires platforms to have plans for an orderly closure |
Tax on P2P Lending
| Situation | Tax treatment |
|---|
| Interest earned outside ISA | Taxed as savings income — counts towards your PSA |
| Interest earned in an IFISA | Tax-free |
| Losses from defaults (outside ISA) | Can be offset against P2P interest using the peer-to-peer loss relief |
| Losses from defaults (inside IFISA) | No tax relief — losses reduce your tax-free return |
Innovative Finance ISA (IFISA)
| Feature | Detail |
|---|
| Annual allowance | Part of the £20,000 ISA allowance |
| Tax-free interest | Yes — all interest earned is tax-free |
| FSCS protection | No |
| Capital at risk | Yes |
| Transfer from Cash ISA | Possible on some platforms |
How to Get Started
- Assess your risk tolerance — P2P should only be a portion of your savings, not your emergency fund
- Research platforms — check FCA authorisation, track record, default rates, and how loans are secured
- Consider an IFISA — if you’re going to do P2P, doing it tax-free makes sense
- Diversify — spread across multiple platforms and loan types
- Start small — test with a small amount before committing more
- Understand the lock-in — know how long your money is tied up
P2P vs Other Investments
| Factor | P2P Lending | Savings Account | Stocks & Shares ISA | Bonds/Gilts |
|---|
| Return | 4%–10% | 3%–5% | 5%–10% (long-term average) | 3%–5% |
| Capital at risk | Yes | No | Yes | Low (if held to maturity) |
| FSCS protected | No | Yes | Up to £85k (platform) | Some |
| Liquidity | Low–medium | High | High | Medium |
| Volatility | Low (returns predictable if no defaults) | None | High | Low–medium |
| Tax-free option | IFISA | Cash ISA | S&S ISA | ISA/SIPP |
Summary
| Factor | Detail |
|---|
| Returns | Higher than savings — typically 4%–10% |
| Risk | Medium to high — capital is at risk |
| FSCS | Not protected |
| Tax | Counts towards PSA, or use an IFISA for tax-free |
| Best for | Experienced investors diversifying beyond mainstream options |
| Not for | Your emergency fund or money you can’t afford to lose |
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