Peer2Peer Finance News June 2021 by Alternative Credit Investor

>> 7

OPPORTUNITIES IN OZ

P2P firms are eyeing the Australian market

HOW TRANSPARENT IS THE P2P SECTOR?

>> 18

P2PFN investigates

Shojin’s Jatin Ondhia on profits, property and the pandemic >> 16

ISSUE 57 | JUNE 2021

36H Group in preliminary talks for P2P databank THE 36H Group is in preliminary discussions about creating a databank for the peer-to-peer lending sector and wider alternative lending space. Under regulations introduced in December 2019, the whole P2P sector reports data quarterly to the Financial Conduct Authority (FCA) but the FCA does not publish this. The now-defunct Peer-to-Peer Finance Association originally mandated its members to publish loanbook data but its successor trade body, the 36H Group, did not. Mike Carter, head of platform lending at the 36H Group, said he

wants to fix the issue of a lack of publicly available data in this space and is talking to stakeholders about a possible databank showing the loan volumes lent through the sector to demonstrate its worth.

He said that 36H Group members are happy to provide data for a confidential central database, but he hasn’t yet discussed it more widely and is just trying to see who could run it.

“What I’ve found over the course of the last 15 months in the role of Innovate Finance and the 36H Group is unsurprisingly everyone wants to get some content for P2P and the wider alternative lending sector,” Carter said. “Various stakeholders want to understand the contribution of the alternative lending sector to the small- and mediumsized enterprise financing market but the data is not there to support that. “And people want to know the relevance and size of the sector and trends such as whether it’s >> 4 growing, but the

FCA mulls tougher rules for P2P property platforms THE CITY watchdog has hinted at tougher rules for the peer-to-peer property development lending sector, due to alleged similarities with speculative illiquid securities (SISs). The Financial Conduct Authority (FCA) has published proposals to

strengthen its financial promotion rules for high-risk investments, including P2P lending. One part of its discussion paper specifically mentioned property. “Where a P2P agreement has similar features to a SIS (for example where it is a loan

to a property developer) there is the possibility for arbitrage,” the FCA said. “In other words, a property developer could still seek retail investment through a P2P platform instead of issuing a mini bond, and this P2P agreement could still be mass marketed.”

The regulator is seeking views on whether the mass marketing ban should be extended to P2P agreements which share features with SISs. To read more on this topic and the industry’s response, go to our property feature on page 10.

It has never been more important to keep up to date with the latest peer-to-peer lending news. These are extraordinary times and our team is working hard to keep you informed about how the UK’s P2P sector is responding and what new trends are starting to emerge. If you want to be the first to learn about the latest developments in the world of P2P, please purchase a subscription today. We offer a range of subscription options, starting at just £1.95 a week. Please go to www.p2pfinancenews.co.uk/subscribe to buy a subscription today, so that you can enjoy unlimited digital access to P2PFN, with the option of a monthly print magazine. For more information on subscriptions, including overseas queries, please email tehmeena@p2pfinancenews.co.uk.

EDITOR’S LETTER

Published by Royal Crescent Publishing

Green Park House, 15 Stratton St, Mayfair, London W1J 8LQ info@royalcrescentpublishing.co.uk EDITORIAL Suzie Neuwirth Editor-in-Chief suzie@p2pfinancenews.co.uk Kathryn Gaw Contributing Editor kathryn@p2pfinancenews.co.uk Marc Shoffman Senior Reporter marc@p2pfinancenews.co.uk Michael Lloyd Senior Reporter michael@p2pfinancenews.co.uk PRODUCTION Tim Parker Art Director COMMERCIAL Tehmeena Khan Sales and Marketing Manager tehmeena@p2pfinancenews.co.uk SUBSCRIPTIONS AND DISTRIBUTION tehmeena@p2pfinancenews.co.uk Find our website at www.p2pfinancenews.co.uk Printed by 4-Print Limited ©No part of this publication may be reproduced without written permission from the publishers. Peer2Peer Finance News has been prepared solely for informational purposes, and is not a solicitation of an offer to buy or sell any peer-to-peer finance product, or any other security, product, service or investment. This publication does not purport to contain all relevant information which you may need to take into account before making a decision on any finance or investment matter. The opinions expressed in this publication do not constitute investment advice and independent advice should be sought where appropriate. Neither the information in this publication, nor any opinion contained in this publication constitutes a solicitation or offer to provide any investment advice or service.

s the peer-to-peer lending industry transparent? That’s a question we asked some of our investor readers, the industry and ourselves last month. As our feature on transparency (page 18) shows, the majority of investors deemed the sector “slightly” transparent, while our interviews with platform bosses compounded the suggestion that there is room for improvement. Luckily, it appears that improvement may be on the way thanks to a potential P2P databank. Peer2Peer Finance News has exclusively revealed that industry trade body the 36H Group is in preliminary talks about a data resource for the P2P sector (see front page), including total loan volumes to demonstrate its worth. In my opinion this would be a great idea. As the industry grows and evolves, I appreciate it might not be reasonable to expect platforms to publish their full loanbooks like they did in the P2PFA days, but a greater insight into total lending volumes, numbers of customers and growth in different segments of the market would be incredibly useful for all stakeholders. It’s one thing talking about the success of the sector in qualitative terms, but it’s far more valuable to have the statistics to back it up.

SUZIE NEUWIRTH EDITOR-IN-CHIEF

We hope you’re enjoying the latest edition of Peer2Peer Finance News! We have now moved to a paid-for subscription model. If you would like to continue reading the magazine, please go to www.p2pfinancenews. co.uk/subscribe/ to find out about subscription options.

NEWS

cont. from page 1 data just isn’t there. “It’s something I’m looking into to see if we can fix it. We are thinking how we can bring the data together to have a single coherent source of not just P2P but the wider alternative finance market. “It needs a central point and that’s something I’m talking to various parties about seeing whether we can crack that nut.” Carter said the primary data point would be loan volumes written within

the last 12 months, followed by the current stock of loans, what volumes were written in 2021 and what are outstanding. He added that returns and default rates would likely not be provided as returns are available on platforms’ websites and he doubts lenders would want to volunteer default rates as these are often confidential information. “In an ideal world we would have data for the whole alternative lending

sector and slice it into P2P consumer, business and property and different stakeholders,” Carter said. “That’s the target and I don’t know yet where we’ll get. My feeling is loan volume data would really help stakeholders to get a good feeling of the P2P sector and wider alternative lending sector. “A number of alternative lenders have been involved in the coronavirus business interruption loan scheme

and recovery loan scheme and stakeholders need numbers to demonstrate the importance of the sector. “Additional benefits would be when lenders are looking for institutional funding because institutional funders want to know the relevance and size of the market. “And if you’re a retail investor I think it’s always useful to have a picture of whether the platform is growing and how fast.”

Sancus Lending Group targets live loanbook of £500m FOLLOWING its rebrand from GLI Finance, Sancus Lending Group is boosting its bridging capabilities in the UK and Ireland to help meet its target of increasing its live loanbook to £500m over the next three years. The group specialises in property bridging and development financing from £500,000 to more than £10m throughout the UK, Ireland, Jersey, Guernsey, Gibraltar and the Isle of Man with a niche in dealing with more complex lending proposals. Andrew Whelan, (pictured) chief executive of Sancus Lending Group, said the group’s live loanbook is currently in excess of £200m.

He said the group is simplifying its corporate structure following the completion of the rebrand last month. The group will now be streamlined into four main areas: origination; co-funding or loan management; finance; and operations, with a bigger focus on property finance. Whelan said the group is expanding its bridge finance capabilities and is

looking to grow its team in the UK and Ireland. “We have a strong niche there and we’re looking to push on for it,” he told Peer2Peer Finance News. “And in the offshore areas, such as Guernsey and the Isle of Man, we are focusing on those two core areas but we also have our niche product of ‘the bridge to somewhere’. “With ‘the bridge to somewhere’, we can lend

to a very wealthy family office that needs liquidity to make an acquisition and take some security on the property and repayment on disposal of another asset that’s unrelated. “It’s not a classic bridge with the sale of the property, it could be a sale of a business. We know we’re comfortable and we can operate with greater flexibility and innovation. “In the offshore world we could be backing a trust company to make an acquisition of another, there’s a smaller population and we understand our markets and the borrowers more intimately. In the UK and Ireland you need to find your one niche and for us that’s bridging and development.”

NEWS

IFISAs in limbo as platforms delay reopening retail accounts THREE of the UK’s largest Innovative Finance ISA (IFISA) providers are still closed to retail investors, almost a year and a half after the Covid-19 pandemic sparked widespread uncertainty in the lending market. At the beginning of the pandemic, four of the UK’s largest IFISA providers – Zopa, Funding Circle, LendingCrowd and RateSetter – temporarily closed to new IFISA investors. RateSetter

went on to be acquired by Metro Bank, while the other three platforms are yet to reopen to retail investors. A LendingCrowd representative told Peer2Peer Finance News that it had no new loans coming into the retail market and it was encouraging lenders with cash in their accounts to transfer their money to interest-bearing accounts instead. LendingCrowd added that its credit committee

evaluates the situation every month and will update investors as soon as it decides to reopen. Meanwhile, a Zopa spokesperson said that it is “continuing to keep the situation regarding IFISAs under review” but does not have any specific announcements at present. Similarly, it is understood that Funding Circle is monitoring the situation closely but does not believe that the time is right to open up to retail investors again.

Funding Circle and LendingCrowd were among the clutch of alternative lenders that were authorised to take part in the governmentbacked Covid-19 loan schemes last year and both are believed to have applied to its successor, the recovery loan scheme. These governmentbacked loan schemes do not permit retail investment, with all funding coming from institutional investors instead.

ESG trend presents opportunities for P2P THE GROWING demand for investments fulfilling environmental, social and corporate governance (ESG) criteria could benefit peer-to-peer lending platforms, industry stakeholders believe. According to recent figures from the Investment Association, ESG investments quadrupled in 2020, while a separate study by OnePlanetCapital found that the ESG market is set to double in 2021. However, many P2P platforms already offer ESG-style investments and are in prime position to attract ESG funds. Abundance has been promoting its environmentally and

socially-friendly products since it was founded in 2009, while Ethex has been offering sustainable bond investments since 2017. Folk2Folk recently pointed out that its investors have used their money to support their environmental concerns

by investing in renewable energy projects. “Change begets change and this trend is likely to accelerate,” said a Folk2Folk spokesperson.” Imagine if all investors invested with purpose as well as for profit. A shift along these lines could make a dramatic difference.”

Meanwhile, property lenders such as Relendex, CrowdProperty and Assetz Capital have been championing sustainable methods of construction and the creation of affordable housing. Assetz Exchange – the sister company of Assetz Capital – has opted to focus on funding building developments which do some social good. However, Assetz Capital’s chief executive Stuart Law told Peer2Peer Finance News that “we’re not doing it because we want the ESG label.” “We're not putting that label on it because it just happens to be what we want to do,” he added.

JOINT VENTURE

Strong fundamentals for post-pandemic growth Invest & Fund’s chairman Robert Burgess explains how his company is exiting the pandemic in a particularly fortunate position, with an expanded team and a proven business model

NVEST & FUND’S FOCUS on deep credit evaluation and specialised staff has helped the property lending platform to grow, despite a global pandemic and an economic downturn. In fact, the peer-to-peer platform is exiting the pandemic relatively unscathed, with no investor losses, a newly-expanded team of industry experts and volumes growing solidly. According to Invest & Fund’s chairman Robert Burgess, the company’s success is down to its rigorous credit analysis and evaluation process. “Credit risk is part of our DNA,” says Burgess. “We only employ very, very experienced credit risk managers who have deep credit origination and credit risk experience, all of whom are passionate about Invest & Fund.” The company has been on a hiring spree recently to support its ambitious growth plans, expanding its origination team by one third. Two new business development managers have been appointed – one covering the North West and one covering the South East. Both have more than 20 years’ experience in their fields. Matthew Thorbes has been appointed finance director of the firm, while former Financial Services Authority executive Sarah Leech White has been named head of compliance. The firm has also recruited a new chief operating officer, who is

joining later in the year and will be announced shortly. Because of its strict credit assessment process and emphasis on hiring only the most experienced staff, the platform has not seen any distressed cases, and no impact on lender yields. “We’re coming out of this period in very good shape,” says Burgess. “What we started to do was whilst others were still facing challenges with some of the problem loans they had, we were able to start releasing that brake earlier and just testing the water with the sector, so we’ve come out of the pandemic in a great place. “We had a near record first quarter, and the second quarter of the year will be stronger again. And it’s all down to the strong client focus and effective credit management, from first enquiry through to the exit of every scheme.” The platform is already starting to see lending volumes pick up as certainty returns to the market, and investors search for opportunities to gain a return on their savings and

investments. “In the early days of the pandemic there was so much uncertainty, we did take a slightly more conservative risk approach but we saw new lending last year and every single developer got funding exactly on time, as you’d expect,” says Burgess. “And all of those things just gave confidence to the market – both borrowers and lenders. We’ve got that credibility of how we managed through an extreme stress cycle where some much bigger and more established businesses have struggled. And that’s down to the fact that we have such specialisms at hand with so much experience who collectively have been responsible for tens of billions of pounds of lending through all points in the cycle.” As the vaccine rollout continues and lockdowns start to ease across the UK, Burgess predicts only good things for the UK’s property industry. He points out that the UK is in dire need of more homes, and there is cross-party political support for housebuilding over the next 10 years. This has created a “halo effect” for the property lending sector, which robust companies can use to their benefit. “I see us going from strength to strength,” says Burgess. “We have a proven model and a great reputation within the sector. And now it’s all about safe growth. So from our perspective we are taking our foot off the brake, maintaining the quality of credit, and just continuing to grow.”

NEWS

UK platforms spot opportunities Down Under UK-BASED peer-to-peer lending platforms are increasingly eyeing the Australian market, as demand for alternative lending products soars in the country. Last month, UK property lender CrowdProperty launched in Australia and P2P business lender Crowd2Fund opened an office there in 2018. CrowdProperty chief executive Mike Bristow told Peer2Peer Finance News that the Australian P2P lending market shares some similar characteristics with the UK market in terms of bank attitudes, prices, and a lack of centricity for borrowers and lenders.

“Those are the things that our business was built to solve,” he said. “What we also observed is the Australian marketplace lending sector being a number of years behind the UK, and therefore we can say ‘look at what we’ve achieved – we have built an incredible platform and leadership in the UK in just

seven years. We can do the same thing in Australia in a shorter period of time'.” Australia’s P2P lending market is small but showing signs of growth. In November 2020, Plenti – formerly known as RateSetter Australia – became the first Australian fintech to originate more than AUS$1bn (£550m)

of loans. Soon after, Australian P2P lending platform SocietyOne said that it had passed its AUS$1bn lending milestone and announced its launch into the secured loan market. “There is a lot of upside for alternative lenders and marketplace lenders in that market,” added Bristow. “Because it’s a relatively small sector at the moment, there are the corresponding pains associated with raising finance from traditional sources such as banks and more nimble fintech alternative lenders can provide that service better, easier and quicker.”

P2P lending sector goes on hiring spree PEER-TO-PEER lending platforms have been on a recruitment drive over the past year, ramping up hiring plans as they expand their teams in anticipation of new business. Property lender Invest & Fund has increased its head count by a third in recent months, hiring two new business development managers, a new finance director and head of compliance. Meanwhile, CrowdProperty entered the March 2020 lockdown with 28 employees, but

now has 42 members of staff on its payroll. Business lender Rebuildingsociety has recently made some new appointments to its board, while also announcing a new Kickstarter scheme to hire 10 young people over the summer to “help the business pursue a strategy of growth”. The largest P2P firms – Funding Circle, Assetz Capital and Zopa – have also been building up their workforce in recent months. Funding Circle has been

actively seeking to expand its engineering team, as well as hiring in newlycreated roles such as ‘head of new products covering small- and medium-sized enterprise lending’. Assetz Capital recently launched a new bridging product and has been hiring bridging specialists to fill these positions, while Zopa has been refocusing its customer acquisition strategy by creating new roles in its partnerships division, to “convince potential partner brands of the value of embedding

Zopa’s lending products within their customer experiences”. The hiring spree reflects a busy time for the alternative lending sector. The economic downturn has created a need for non-bank lending services. The wind-down of the government’s lending schemes is also expected to create new opportunities for business lenders and property lenders across the UK, while consumer lending has also been on the rise.

The home of peer-to-peer lending. Earn up to 4.1% p.a. target interest tax-free with our IFISA. Capital at Risk This tax year (2020/21) you can invest up to £20,000 into an ISA, protecting your income from tax, both now and in the future. Our Innovative Finance ISA (IFISA) is an investment that gives you the opportunity to lend to UK businesses, whilst earning fairer rates of interest tax-free.

Fairer growth for all. 0800 470 0430 assetzcapital.co.uk/invest As with most forms of investment, peer-to-peer lending carries a degree of risk to your capital; in this case, if the borrower is unable to repay their loan. At Assetz Capital, we seek to reduce this risk to our investors by taking asset security on every loan. Investment Account target interest rates should be considered along with the relevant Investment Account expected defaults & losses information. Past performance does not guarantee future performance. Investment in peer-to-peer loans is not protected by the Financial Services Compensation Scheme. We recommend that prospective lenders read the Key Investor Information pages before investing. Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority (Reg No: 724996). ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.

JOINT VENTURE

Buy to let is dead; long live buy to let Peter Read, managing director of Assetz Exchange, and Stuart Law (pictured), chief executive of Assetz Capital and chairman of Assetz Exchange, introduce a new concept for buy-to-let property investment

“M

ANY PEOPLE think that the buy-to-let market is finished following all the recent tax changes”, says Stuart Law, chief executive of Assetz Capital. “But it’s just evolving.” Law is referring to the peerto-peer lending platform’s sister company Assetz Exchange, which is breathing new life into buy-to-let investing with purpose. Like Assetz Capital, Assetz Exchange is a regulated P2P platform which specialises in property-backed lending. However, there are several differences. On the borrower side, while Assetz Capital lends to third party developers and companies, Assetz Exchange leaves control of properties directly with the investors. Law describes Assetz Exchange as being like a stock exchange for property, where people can buy and sell an interest in a property at a premium or discount as property prices fall or rise, without the usual property transaction costs. But the platform’s primary objective is to offer longer-term, inflating income for investors, while fulfilling a great social need. “Our investors benefit from capital gains and losses as well as inflation-beating income, and they can choose to reinvest the income each year, the same as the stock market investor would reinvest dividends and get better returns in the long term,” explains Law. “At the most simple level, our aim

is to enable investors to be able to put together a diversified property portfolio easily and cheaply,” says Peter Read, managing director of Assetz Exchange. Listed properties often enjoy long-term rental income since they are social or supported living homes rented to charities or other organisations on longer-term leases, and often with local or central government income covering the rents. With other properties, it’s the government-supported serviced plot and custom build housing sector funding the supply of building plots for custom designed eco-homes. This would make Assetz Exchange a prime candidate for ESG investors, but Law says that there is more to it than that.

“It’s fashionable to use that label nowadays, but this is much deeper than a label and goes to the heart of what Assetz is all about,” he says. “Over the last two decades the group’s investors have delivered £2bn plus of funding into undersupplied residential property markets, providing much needed housing. We’re addressing huge holes in the market and we're doing it because our investors love a great investment that also addresses a market need.” In this way, Assetz Exchange represents the buy-to-let investment of the future. Whereas traditional buy-to-let investors have been squeezed by regulations and taxation over the past few years, Assetz Exchange allows anyone to invest in rental properties, without the hassle or taxes of owning whole properties. The platform also has its own Innovative Finance ISA (IFISA), which means that each investment can be more tax efficient. “Buy to let has had a good run over the last few decades, and delivered huge amounts of new housing stock,” adds Law. “But taxes are growing on that and it's time to move on to address more current housing challenges and also see higher yields. “We fully expect to see people moving over to Assetz Exchange, because while buy to let may be dead, long live buy to let in its new, more purposeful form.”

RESIDENTIAL DEVELOPMENT FINANCE

Rolling with the punches The prospect of additional regulation in the P2P residential development finance sector is a challenge that platforms are ready to take on. Michael Lloyd reports

EER-TO-PEER residential development finance platforms are used to fighting. This is a sector which has been forced to defend its reputation in the wake of some high-profile platform collapses, to adapt to a once-in-a-lifetime pandemic, and to survive an economic downturn. Now, residential development lenders are facing the threat of additional regulation.

Following feedback to its call for input on consumer investments, the Financial Conduct Authority (FCA) published proposals to strengthen its financial promotion rules for high-risk investments, including P2P lending. And one part of its discussion paper specifically mentioned P2P property. The FCA noted similarities between P2P agreements – using the example of a property

development loan – and speculative illiquid securities (SISs) and raised the question of whether this should impact the marketing of such products to retail investors. “Where a P2P agreement has similar features to a SIS (for example where it is a loan to a property developer) there is the possibility for arbitrage,” the FCA said. “In other words, a property developer could still seek retail

RESIDENTIAL DEVELOPMENT FINANCE

investment through a P2P platform instead of issuing a mini bond, and this P2P agreement could still be mass marketed. “We are seeking views on whether (and why) you think the existing requirements for P2P platforms are adequate to protect retail investors from the risks of P2P agreements which share features with SISs. Or should the mass marketing ban be extended to P2P agreements which have the relevant features of a SIS, and if so, what evidence of harm to

minimum investments of £100 or less. This suggests that a huge proportion of P2P platforms in this space are open to investment from restricted investors and thus could be eligible for the FCA’s proposed marketing ban. David Turner, co-founder and director of property lender Invest & Fund, welcomes the FCA’s decision to explore tightening rules in the sector as long as this is not a “kneejerk reaction”.

“ It is key that any proposals are not overkill,

are not knee-jerk, are not ‘blanket’ and deal only with proportionately addressing any specific isolated marketing weaknesses consumers is there? We also want to hear about the potential impact of any change in this area, in particular how many consumers and P2P agreements might be affected, and what this change would cost firms and borrowers.” One platform head says that on first reading, it looks like the City regulator is “posing a risk to property development” investment. This could well be the case given how many P2P residential development platforms are open to restricted investors. New research from Peer2Peer Finance News has found that out of the 19 P2P platforms that conduct residential development finance (or a form of this such as development top-up or exit finance), more than two thirds have minimum investments of £1,000 or lower and within this, seven (38.9 per cent) require

”

“Invest & Fund welcomes the FCA’s decision to explore the tightening of rules on financial promotions relating to P2P lending, amongst other products, as this only enhances the standing of the sector,” he says. "However, it is key that any proposals are not overkill, are not knee-jerk, are not ‘blanket’ and deal only with proportionately addressing any specific isolated marketing weaknesses, rather than unnecessarily stifling access to highquality asset-backed investments from what is a growing and increasingly important alternative to the banks. “The continued development of our sector is dependent upon broadening and deepening the lender base, but this needs to be done in a safe and suitable manner, with appropriate protection for retail participants rather than blanket bans.”

Turner adds that while the FCA sees similarities between P2P loans and non-readily realisable securities, investors in Invest & Fund have seen liquidity in the platform’s secondary market. Mike Bristow, chief executive of CrowdProperty, says his platform is formulating its response along with some others and highlights the security within his investors’ loans. “It’s for the whole industry to reply,” he says. “Our property development loans are first charge secured against UK property assets at modest loan-tovalue levels. Security is the critical element of safety. “That’s different to unsecured consumer or small- and mediumsized enterprise (SME) lending. The safety is the first charge security and the underwriting processes.” Jatin Ondhia, chief executive of Shojin Property Partners, says he understands why the FCA might want to block restricted investors from high-risk investments, although these same investors can still go to Bitcoin or other unregulated investments. “Once the industry behaves, they can start opening it up,” he says. “But if I’m a sensible restricted investor, why should I not be allowed to put some money into real estate but can invest into Bitcoin? “While the FCA is clamping down within the regulated space, it is a shame that they don't look at the unregulated space where many unscrupulous firms are raising money privately from investors without carrying out appropriate due diligence on their projects nor checking investor suitability. These investment issuers are rampant on social media, yet they fly below the FCA's radar as they are not regulated.”

RESIDENTIAL DEVELOPMENT FINANCE

Additional regulation could be another blow to P2P residential development finance, after platforms faced the challenges of Covid-19. The pandemic halted some developments, dented supply chains and wreaked havoc with building schedules. But by and large, platforms in this space have adapted and continue on an upward trajectory this year. EasyMoney became profitable in 2020, achieving an operating profit of £57,184 last year and Folk2Folk has said it is on course to achieve a £1m profit for its 2020 financial year. Assetz Capital delivered finance under the coronavirus business interruption loan scheme (CBILS) to SME housebuilders, while LandlordInvest conducted more second charge lending, which generates higher revenues, including second charge lending for CBILS loans. This year, Kuflink reached its £100m lending milestone,

As well as adapting, P2P residential development finance platforms are seeing various opportunities in the market. These include high density residential schemes such as purpose-built student accommodation, private rented schemes, co-living, senior living and commercial to residential conversions. Conversions like this are aided by new rules in England that

“ If I’m a sensible restricted investor, why

should I not be allowed to put some money into real estate but can invest into Bitcoin? CapitalStackers hit £100m in investment and Bristow has said that CrowdProperty is on the right path to meet its £400m lending milestone per year by 2024. Peer2Peer Finance News research has found that the average returns in the P2P residential development finance sector are still healthy and comfortably beating inflation. Out of the 18 platforms in the space that provided data on returns, the average annualised return is a massive 8.89 per cent.

”

require a simpler ‘prior approval’ process instead of a full planning application, while still being subject to high standards. Stuart Law, chief executive of Assetz Capital, says he sees a huge opportunity to fund eco homes, defined as those that have a minimal environmental impact. “I don’t think the big housebuilders will do a special job of eco homes, they’re very cautious because it will cost a lot of money, but SME housebuilders see a lot of

opportunity here, a lot of people want sustainable homes,” he says. “Eco homes are the future and I think we’ll see more and more homes demolished and replaced by eco homes.” The pandemic has even created some new opportunities for P2P platforms. For instance, several property developers have been turning to P2P in the absence of traditional funding lines. Many SME building projects that were mothballed over the last year and a half are now being resurrected. Arya Taware, managing director of FutureBricks, says her platform is now working on a number of projects of this kind where other finance providers appear less interested in their complexity. “These projects are now being resurrected with many in various stages of development, some with much shorter remaining periods before planning lapses and others with very different build costs from 18 months ago,” she says. “These projects really need an indepth understanding of the issues and the ability to work with the developers throughout the build.” As well as spotting opportunities, platforms are planning to launch new products

RESIDENTIAL DEVELOPMENT FINANCE

to support their growth. FutureBricks has been planning its Innovative Finance ISA (IFISA) for the past few months and is readying its launch for the third or fourth quarter this year. Similarly, CapitalStackers is redeveloping its platform and anticipates launching its IFISA near the end of the year. It is also updating its website to make the user journey easier and more enjoyable. “The redevelopment includes a significantly enhanced secondary market to enable loan participations to be traded freely between investors,” says Steve Robson, managing director of CapitalStackers. P2P residential development finance platforms are also working on other innovations.

LandlordInvest is looking at ground-up developments, Folk2Folk is planning to launch a bridging loan product later this year and Kuflink is examining the term loan market. “We’re toying with a few products,” says Narinder Khattoare, chief executive of Kuflink. “We’ve been looking at term loans and may offer them in the foreseeable future. A number of lenders in the bridging space entered into offering term loan buyto-let products and it’s definitely something we’re interested in.” Furthermore, due to the ongoing housing shortage and imbalance of supply and demand combined with the easing of lockdown restrictions and reopening of the economy, platforms are confident

for the future. “There is undoubtedly a pentup demand for property from all sectors of the market, from renters, student accommodations, firsttime buyers, right up to movers and improvers,” says Taware. “We believe that the whole chain of reliance across the property market is starting to show positive signs of movement.” After surviving Covid’s blows, P2P residential development finance platforms have raised concerns about additional regulation in this space. But for now, these platforms are continuing to adapt and innovate, producing inflation-beating returns, preparing for pent-up demand and bracing for the sector’s next challenge, whatever that may be.

P2P RESIDENTIAL DEVELOPMENT PLATFORMS Platform name

Average returns p.a.

Minimum investment

IFISA

Assetz Capital

7.4 per cent*

£1

Yes

Blend

10 per cent*

£1,000

CapitalRise

9.5 per cent

£1,000

Yes

CapitalStackers

12.5 per cent

£5,000

N/A

£20,000

CrowdProperty

8.4 per cent

£500

Yes

Crowdstacker

six per cent

£100

Yes

EasyMoney

5.8 per cent*

£100

Yes

Folk2Folk

6.5 per cent

£20,000

Yes

Cogress

FutureBricks

9 per cent*

£500

Invest & Fund

seven per cent

£2,500

Yes

JustUs

8.29 per cent

£100

Yes

Kuflink

seven per cent

£100

Yes

LandlordInvest

11.3 per cent

£100

Yes

Loanpad

3.5 per cent*

£10

Yes

19 per cent

£5,000

Yes

eight per cent

£1,000

Yes

SoMo

11.5 per cent

£5,000

Sourced

9.5 per cent*

£250

Yes

Shojin Property Partners Simple Crowdfunding

* denotes where an average value was calculated from a range of account offerings

PROMOTED CONTENT

What do investors want to see and hear from a P2P lending platform?

There are a number of ways that platforms should communicate with their investors, as Kuflink chief executive Narinder Khattoare explains…

HE PRIMARY requirements for any would-be investor are: what are the likely returns? How safe is my money? And what term is my money tied up for? However, while the basics might be easy to articulate and transmit, every investment company needs to make sure that they are not just communicating the obvious but are also talking about other areas which might not occur to investors before they commit. Transparency - This has so much to do with the culture of the company offering investment opportunities and is key for any investor wanting to make an informed decision as to whether to invest. Either on their website or in written material, a business should lay out all the facts and not shy away from dealing with the negatives as well as all the positives in their proposition. For example, in the peer-to-peer lending sector, transparency demands that they should be able to show the performance of their loanbooks, the default rates, how the money is spread across different types of assets, their location and, in the event of a default, the robustness of the recovery process. Regular communication – We all want to communicate good news, but the best investment companies must be seen to be consistent. It’s all well and good

to keep reporting things that are positive, but investors need to know what is going on a regular basis. Most will appreciate that not all businesses will be performing optimally all of the time, particularly through a pandemic, but now is not the time to shy away. Investors don’t want to be left in the dark. Regular contact can be presented in different ways. It can comprise emails on performance, videos of senior management and emails to investors outlining the ‘state of the nation’ and where they are as a business, as well as predictions for the next 12 to 24 months. As a case in point, if there is an issue like negative press,

it is important that it is met head on. As you will know, there was a measure of negative press coverage around our 2019 audited accounts which came to light recently. However, we were open and transparent with our investors via email about what happened and what will happen going forward in order to give further clarity and reassurance. We have talked personally to our bigger investors and others who have been concerned. Overall, the response from our investors was very positive and demonstrates the importance of being upfront. As a P2P lending platform, we are here for the long term as we further enhance our systems and internal processes. In conclusion, the value of good communication helps businesses like ours to be properly accountable to investors and bridges the gap that can tend to widen when contact is irregular and impersonal. It is always good to communicate with investors about where the business is going – while some will want to be on that journey for the long term and some only for the short term, it is key to let them know your plan so they can have confidence knowing where they stand. Lastly, good communication provides a strong incentive for repeat business and the chance that investors will recommend us to others.

PROFILE

Raising the roof

Jatin Ondhia, chief executive of Shojin Property Partners, talks to Kathryn Gaw about profitability, international expansion, and a new fundraising round…

OT MANY PEER-TOpeer lending platforms can say that they reached profitability for the first time during a global downturn. But Shojin Property Partners likes to do things a bit differently. In a candid interview with Kathryn Gaw, Shojin’s chief executive Jatin Ondhia reveals how Covid has impacted the business, and why Shojin has moved up plans for a Series A fundraising. Kathryn Gaw: How has Shojin weathered the pandemic? Jatin Ondhia: As with all the other platforms, it was a bit of a shock and the market came to a grinding halt, but we were in a very good position going into it. We had some very good projects underway and they were only mildly impacted by Covid in terms of delays on individual projects. Most of our projects tend to be in the development space, and construction was able to go on, albeit in a more socially distanced manner. By the summer, I would say it had almost rebounded completely and the appetite for investment in our space picked up very quickly. KG: You turned a profit last year for the first time – what does this mean for the future of your business? JO: We’ve always been in a very different part of the market to most of the online platforms. Our expertise and focus have

always been in the real estate development space, so when we started the business, we were doing our own developments and effectively funding them with a number of investors. Then we launched it as a model where we fund other developers, and then we launched it as an online platform after becoming Financial Conduct Authority regulated. Now because of that, we’re in a more profitable part of the market compared to a lot of others. I think the biggest downside to a business like ours is the time lag, which means that if we launch a project

today, because of the way we try and align ourselves with investors, we don’t really make any money on it until the project finishes, which could be 18 or 24 months on. There is always this period when we are covering our overheads, managing the projects, and keeping an eye on everything, but we don’t actually get compensated for quite a while. So for us, reaching profitability was brilliant because we were starting to see profits coming in from previous projects and it just helped to prove the model. Most importantly, unlike a lot of tech and fintech start-ups, we

PROFILE

didn’t want to be in a position when we were running losses for a very long time. I’m quite a traditionalist when it comes to business views and I want the business to be able to show it can be profitable and to do so as quickly as possible, so I think we proved that and as a result, we should be in a much better position going forward as well. KG: Is the company on track to remain profitable in the future? JO: Yes, I think so. A lot of it remains to be seen. We believe we should be profitable this year, albeit it might be lower than last year, simply because of some of the delays caused by Covid and some of the projects that are finishing may not finish until the next financial year. KG: Are you planning any new fundraising activities soon? JO: Yes. It’s funny you ask that because last year we were due to go to market with our Series A around April, and we had been working with PwC preparing for this. As soon as lockdown hit, everything froze and the whole plan had to be shelved for a while. Towards the end of last year, we used the future fund to raise £1.7m and we were planning to go back to our Series A in 18 months’ time. However, the market conditions are perfect right now for us to go to market earlier. We’re planning to go to market with our Series A sometime over the next few weeks. KG: What is your outlook on the P2P property sector? JO: A lot of P2P property platforms found it hard to monetise their models or couldn’t scale in the right way. The last year caused a bit of a flush-out, and several platforms

have fallen by the wayside – some of them because of clear management issues, but some of them because they couldn’t get the scale in time and couldn’t fund further growth. I think what’s going to happen is P2P lenders are going to turn more to the institutional space, simply because it is easier and cheaper for those platforms to get institutional funding. So investors that may have done pure senior funding have already started looking a lot more at the junior space, so things like mezzanine and equity, because there you can still get the returns with a fairly well-contained level of risk. One of the biggest things that is happening and I think will continue to happen is that you will start seeing much more collaboration across platforms and possibly even a bit of merger activity, so that costs can be shared across various platforms. The underlying cost of technology, compliance, regulation, marketing – all of these things are quite heavy burdens on a lot of individual firms, but if they come together and group that together, it makes it much more manageable. KG: Is Shojin planning any M&A activity? JO: We have been spearheading a plan to collaborate across multiple platforms for quite a while. We want to standardise things like the way various products are described, risk metrics, all the definitions, all those kinds of things, so that investors find it easier to pick projects across various platforms. The idea is to create this association, to pull the different platforms together, then slowly start bringing together various other aspects, like the underlying technology, the marketing, and ultimately create

a supermarketplace, which will have the full range of real estate investment. KG: Where do you think the UK’s property market will be in five years’ time? JO: If you look at residential, the fact is there is a shortage of housing in the UK, so I think the residential market will continue growing. It has to – it’s a supply and demand factor. I’m also expecting to see an increase of quasi-housing schemes like co-living, student accommodation and senior living. I think those kinds of things will bring much more traction in the future, as people move more towards a rental model. KG: Does P2P lending have a place in the UK property market? JO: 100 per cent. What the P2P platforms are doing is opening the market up by enabling individuals everywhere to invest as much as they like, but with the confidence of knowing that the platform has done a good deal of due diligence on that project and is standing by the investor to oversee the project to make sure things are on track. Will this market grow? There is absolutely no doubt. KG: Where do you see Shojin in 10 years’ time? JO: Right now, we are completely UK-focused in terms of our deals, but our investor base is definitely very international. We have a lot of investors in Asia and we have an office in Hong Kong. We’ve got an office in East Africa now and we’re about to open one in India and the Middle East. Primarily, this is for investors coming into the UK market, but this model can be replicated throughout the world.

TRANSPARENCY

Hunting for the truth How transparent is the peer-topeer lending sector – and what does transparency actually mean to the industry’s key players? Michael Lloyd investigates

AST MONTH, WE WERE glued to our TVs as we watched Anti-Corruption Unit 12, better known as AC 12, spend all their time and resources hunting for the truth and catching crooked cops. During the six seasons of the hit BBC Series Line of Duty, the concept of transparency was repeatedly tested, sparking many conversations about what transparency actually means – both in the fictional world of AC-12, and in real life. Line of Duty concluded that while the fictional police force could be transparent, there is plenty of room for improvement. The peer-to-peer

lending sector is no different in that the majority of platforms and investors believe the industry is doing its best to be as transparent as possible, while also occasionally falling short. Recently, Peer2Peer Finance News conducted an exclusive survey of restricted, high-net worth and sophisticated P2P investors, and

found that 70 per cent believe the sector is “slightly” transparent. Almost one fifth (17.5 per cent) of respondents said they believe the sector is “very” transparent. These are rather promising statistics for a relatively young sector which has just been hit by its first economic downturn. “It’s at a reasonable place at

“ Lenders have an ability to assess

platforms to a reasonable degree now and you can see that with the amount of money lent through platforms

”

TRANSPARENCY

Peer2Peer Finance News’ survey included similar feedback, with some investors citing honest information about liquidity as a key indicator of transparency, while another respondent highlighted diversification and how many loans go to the same borrower. “It’s a lot more transparent than some fund sectors but there’s always room for improvement,” says Bradley-Ward. “I think in some P2P platforms you’re just investing in a diversified portfolio across a bunch of loans and you don’t know where each goes to and I think platforms need to be more transparent in what they mean by normal market conditions.” While it appears some improvement is still needed, the majority of platforms believe the P2P sector has become more transparent over the past year, and this can partly

has facilitated by risk category, shown as an Outcomes Statement published annually. However, while these statistics must be reported to the FCA, there is no requirement for platforms to make this information public. Atuksha Poonwassie, cofounder and managing director of P2P property lender Simple Crowdfunding, believes that data transparency in the sector has improved over the past year and that the sector is already in a new era of data transparency. “Over the past year I believe platforms have started providing more information in terms of how they are performing,” she says. “The new rules shine a light on it. Platforms were providing information, but the rules enforced it.” However, Stuart Law, chief

“ I think platforms need to be more

the moment,” says David Turner, co-founder and director of Invest & Fund. “Lenders have an ability to assess platforms to a reasonable degree now and you can see that with the amount of money lent through platforms.” But improvement is clearly still needed, with 12.5 per cent of investors reporting they do not think the sector is transparent at all. David Bradley-Ward, chief executive of Ablrate, believes that this is a particular problem for platforms with access accounts, which do not always tell investors where individual loans go, or what liquidity is available to lenders.

transparent in what they mean by normal market conditions be credited to the regulator. In December 2019, the Financial Conduct Authority (FCA) introduced a raft of new P2P regulations, which included measures to boost transparency. All platforms are now required to publish detailed disclosures relating to how they undertake due diligence, how they characterise risk and price an agreement, what will happen in the event of the platform failing, and ongoing disclosures regarding individual agreements. The rules also mandate for detailed publication of the expected and actual default rate of all P2P agreements the firm

”

executive of Assetz Capital, disagrees and says he does not believe it has improved at all. “Platforms are giving out the same information,” he says. “And there are the complicated issues of the pandemic and trouble comparing data in 2020 to previous years so I’d say transparency in many ways has gotten worse.” Despite making it more difficult to compare to historic data, the Covid-19 pandemic has amplified the need for greater data transparency. “It’s very important to give people the information because there are so many moving parts,” Law adds.

TRANSPARENCY

This is reflected in Peer2Peer Finance News’ survey which revealed that investors are especially interested in the risk management of P2P platforms. It found that 82.5 per cent of investors see information on underwriting processes and risk assessment as an important indicator of transparency, while 77.5 per cent value insight into the management team and corporate governance. Some investors prioritised information about the financial stability of a P2P company as a key indicator, while one respondent called for transparency about the runbook for P2P bankruptcy and loan default management and another wanted to see that the platform’s business plan and profitability milestones are being met. Some platforms are already making these changes. Bradley-Ward says that Ablrate will soon launch a repayment analysis section to show repayments that are made and how many are late, as well as new technology to allow lenders to draw down better levels of data. “There will be more data-driven transparency where lenders can see where their money is going,” he says. Meanwhile, other platforms, such as Simple Crowdfunding, believe that change is continuous. “It’s finding the best way to be able to do that to provide more information,” says Poonwassie.

“It’s a continuous process, not just something you stop and start – you’re always looking for ways to improve information sharing and data transparency.” Jatin Ondhia, chief executive of Shojin Property Partners, which is working on standardised metrics with European counterparts, says that standardised product definitions,

“ It’s a continuous process, not just

something you stop and start – you’re always looking for ways to improve information sharing and data transparency

”

risk metrics, performance reporting and due diligence framework is needed to improve data transparency in the sector. “For the sector to grow, standardisation is vital – without this it will always remain fractionalised,” he says. “Individual investors are the ones that pay for this – as they are unable to reap the benefits of being able to make the best investment choices and profit from true diversification.” Ian Anderson, chief operating officer of ArchOver, agrees, saying it can only benefit the industry but will be difficult in practice. “It can only benefit the industry, and in certain sectors (property lending is a good example) we think

TRANSPARENCY

“ Platforms should

voluntarily publish full loanbook data

”

it could work,” he says. “However, making everyone work from the same play book, sharing investors and combining secondary markets will be difficult to pull off – after all, these are the core elements of any lending business and partly defines their value – sharing these elements may be a step too far for many of them.” Assetz Capital’s Law also agrees that more standardisation is needed in theory but believes that

regulation around data transparency and reporting statistics should be simplified and a standardised default definition is needed from the regulator. “That would help,” he says. “You can’t compare one platform with another on many levels such as platform risk, lending risk and defaults. It’s missing lots of data and is not very clear at all.” Neil Faulkner, managing director and head of research at 4thWay, believes that the FCA should enforce a minimum disclosure about people, processes and results on platforms' websites. “I think more platforms should voluntarily publish full loanbook data,” he says. “I think that platforms should explain lending costs, liquidity and target lending rates more regularly and more clearly in non-legal language, above-and-beyond the legal disclaimers and risk pages that they are already required to do, which are too dry and too fleetingly observed for some investors to properly take in the full implications.” This is backed up by 90 per cent of the investors from Peer2Peer Finance News’ survey who cited loanbook data, borrower rates, default rates and returns as key indicators of transparency that they look for in platforms. However, Mike Bristow, chief executive of CrowdProperty, does not think more regulation is needed, although he believes platforms should provide more data to investors. “Not enough information is displayed from some platforms,” he says. “I think platforms need to start realising that showing data is a good thing and attracts lenders.

People need to think more strategically rather than thinking it’s just about ticking regulatory boxes.” Thinking strategically could be part of the answer as well as collaborating to execute new ideas. At the P2P Investing Summit on 29 April, a virtual event hosted by Peer2Peer Finance News and AngelNews, one P2P lending industry stakeholder called for a borrower register to prevent people from using the same personal guarantee (PG) with multiple lenders. P2P platforms are wholeheartedly behind the idea, but some recognise it will be difficult in practice and should possibly go even further to a portal where lenders only have to undergo ‘know your customer’ and anti-money laundering checks once in order to invest on multiple platforms. “A simple PG register is a good idea, but it is only part of the solution,” says ArchOver’s Anderson. “A register has to offer a lot more than ‘flat data’ such as a simple confirmation of an existing PG. A PG register will only be as successful as the number of lenders prepared to participate, and those participating need to be a wide range of players across all business lending sectors, not just P2P.” We could well be heading into a new era of data transparency with platforms recognising change is needed and are thinking about how to bring this about. Similar to the AC-12 police unit, P2P platforms are committed to improving their transparency, making it easier for investigative investors to spot the clues they publish in order to decide whether or not to invest in them.

Our magazine is read by peer-to-peer lending professionals, investors and more. If you'd like to be included in our directory, please email Tehmeena Khan on tehmeena@p2pfinancenews.co.uk for details and pricing.