Peer-to-peer mortgage platform LendInvest provided the loan to fund the acquisition of two adjoining commercial buildings in Croydon, South London.
The buildings will be turned them into a 110 new residential units.
Christian Faes, co-founder of LendInvest, said: “This is big moment for the bourgeoning p2p industry, which is increasingly becoming a credible mainstream asset class for investors, as well as a source of funding for SMEs.
“This deal is a real shot in the arm for the British alternative finance sector, which is fast emerging as a world leader.”
The loan was provided by over 300 investors offering at least £10,000 and lenders receive their money back within 12 months with a 12% rate of return.
LendInvest completed over £25m worth of loans since being established in May 2013.
Ben Gilbert, an active investor on the LendInvest platform, said: “Given my financial background my assumption is prices reflect risk, so if a deal offers a high interest rate the risks are too high.
“But I’ve become confident there are some good opportunities in the space with LendInvest.”
The Croydon deal will increase the supply of affordable housing in London as they will be priced between £200,000 and £250,000.
The developer in this transaction turned to LendInvest after they couldn’t secure finance in time from traditional lenders.
LendInvest has nearly a thousand investors that are participating in loans with amounts ranging from £10,000 to their largest investor who put in £1.6m.
According to a report into the alternative finance sector £480m was raised through peer-to-peer lending in the UK last year.