These are small institutions that lend when the big banks wont. A sort of "bridging finance fund".
Individuals are encouraged to hand over part of their pension pot or savings, which is pooled with other investors money and loaned to developers and house builders who in return pay 24% interest a year. The mini-bank keeps half the returns and the investors get the remainder.
These schemes are increasing, with £5billion borrowed this way in 2009 and rising at around 25% each year as many banks refuse to lend, even to relatively credit worthy customers.
Mini-banks claim to be safe as they only lend to experienced property developers and builders with loans restricted to 70% of property values.
But……………..
Most of the mini-banks are privately managed and unregulated by the Financial Services Agency. Professional advice is essential as the minimum investment is £20,000.
