One in five UK Investors are considering debt investment as an attractive option to receive high and regular returns over the year. However, out of those, 44% are focusing on short-term investments due to political and economic uncertainty caused by Brexit.
At least, that is what a survey, commissioned by FJP Investment, among more than 950 UK investors has found. In it, a 9% of investors surveyed said that they currently held some form of debt investment, 20% are considering this investment type within the 2019/20 financial year – this figure rises to 34% among investors aged under 35. The question here is, why investors are moving to debt investment in a moment of great instability?
The answer is found in the survey and it is a mix between investment strategies and supporting the country’s economy. As found in the survey, three in ten (30%) see the main strength of debt investment as its ability to deliver regular, fixed returns. Currently, the low 0.75% base interest rate makes debt investment an attractive option for the money they have in savings. That’s why 44% of them said debt investments appeal to them as they can provide short-and medium-term returns at a time when they are reluctant to make long-term investments due to the political and economic uncertainty caused by Brexit.
Jamie Johnson, CEO and Founder of FJP Investment, commented on the results: “Debt investment presents many benefits, particularly amidst low interest rates and Brexit uncertainty, as our research shows. It can provide regular returns over several years, which will attract those keen to make their money work harder without committing to long-term investments.
On the other hand, two fifths (40%) of investors see debt investment as a positive way of supporting UK businesses in need of capital but who are unable to turn to institutional lenders.
“At the same time, debt investment – and specifically peer-to-peer lending – is playing an important role in decentralising and democratising the loan market. It is enabling organisations to access capital from new sources if traditional lenders are not available or appropriate for them,” added Johnson.
Talking about investor sentiment, the survey found that 35% said they think debt investments are simpler than other asset classes because there are no complicated exit strategies to contend with.
However, FJP Investment’s research revealed that investors’ main concern regarding debt investments is the ability of the borrower to repay the loan. Two thirds (67%) of respondents said they are wary about this type of investment because of fears the recipient of the capital would default on their repayments.
“Debt investment has become more popular over recent years, yet many investors remain wary of it”, continued Jamie Johnson. “Such concerns are perpetuated by investment providers not conducting thorough due diligence of potential borrowers to ensure the risk of defaulting is as low as possible.”