PEER-TO-PEER property lenders have lent out almost £5bn to date, exclusive new research from Peer2Peer Finance News has revealed. Among the 23 P2P property platforms currently operating in the UK, just over £4.865bn in cumulative lending had been reported by August 2022. The largest lenders are Assetz Capital, which has loaned £1.5bn to date; and property bridging and development lender Sancus, which has loaned £1bn. Assetz Capital has returned more than £200m to investors in interest payments alone, since it was established in“Assetz2012. continues to play a significant and indeed growing contribution to the UK small- and medium-sized (SME) housebuilder sector,” said Andrew Charnley, managing director of Assetz“OurCapital.success to date and what underpins our future ambitions, is our deep knowledge of the UK market, the depth of experience which our colleagues have and the close working relationships with both our customers and wider stakeholders.“Whilstthe next 12 to 18 months will certainly provide challenges, Assetz will continue to provide high levels of support and funding to the sector in order to ensure that regional housebuilders are able to not only meet demand for new housing but also support the communities in which they work and sustain a wide range of trades. In so doing, we directly contribute to UK Plc.”
P2P property lending nears £5bn
1016 talksDerekSourced’sPratttoP2PFN 8>> >> 4
next 12 Anothermonths.three platforms are hot on their heels. Invest & Fund has lent out £196m to date, while Downing Crowd has arranged £182m of debt facilities.Overthe past 10 years, alternative property lenders have helped thousands of hasloanbooklenderfourthandimprovements,billionsandhousebuilders,SMElandlordshomeownerscarryoutofpoundsworthofrenovationsnewbuilds.CrowdProperty–thelargestpropertywithacumulativeof£241.7m–estimatedthat
Folk2Folk has a total loanbook value of just over £500m, with more than half of this - £275m - going to fund UK loanbookdoubleandAustralianexpandingCrowdPropertymodeareKuflinkCrowdProperty,loanbookpassedplatformsproperties.Fourpropertyhaverecentlythe£200mmilestone:SoMo,andCapitalRise.Thesefourplatformsallinscale-upatpresent,withrecentlyintothemarket,Kuflinkaimingtothesizeofitswithinthe
ISSUE 73 | SEPTEMBER 2022 MITIGATING RISK Innovative insurance products THE ALLURE OF BRICKS AND MORTAR How property came to dominate P2P >>>>
lending
and
21
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The nominations
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,
Finance
For more information on awards categories and table sales, please email Peer2Peer Finance News’ sales and marketing manager Tehmeena Khan at tehmeena@p2pfinancenews.co.uk .
Tuesday 6
Peer2Peer News is holding the inaugural Peer2Peer Awards on December 2022 at the prestigious Hurlingham Club in London. awards recognise the most influential peer-to-peer platforms, as well as the best professional services firms technology providers supporting the sector. deadline has been extended to September to ensure that everyone has a sufficient opportunity to apply for the awards after the summer period.
Finance
Meanwhile, firms including AxiaFunder and Assetz Capital have made a number of senior hires to help drive the growth of their business.Withthe sector going from strength to strength, it’s the perfect time to recognise its achievements at the inaugural Peer2Peer Finance Awards on Tuesday 6 December 2022.
It’s hard to read the news these days without coming away significantly depressed about the state of the nation.
And so far, the industry appears to be relatively sanguine about the upcoming turn in the cycle.
But I’m pleased to say that news on the peer-to-peer lending sector is far more upbeat this summer.
We’ve extended the nominations deadline until 21 September, so make sure to apply by that date to be in with a chance of getting shortlisted.Alldetails are on our website under the ‘Awards’ section, or you can email sales and marketing manager Tehmeena Khan at tehmeena@ p2pfinancenews.co.uk for more information.
SUZIE NEUWIRTH EDITOR-IN-CHIEF
03EDITOR’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 Kathrynsuzie@p2pfinancenews.co.ukGaw Contributing Editor Marckathryn@p2pfinancenews.co.ukShoffman Senior Reporter marc@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. 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.
Two major platforms – Assetz Capital and CapitalRise – unveiled new funding lines last month, showing that institutions are doing their due diligence and giving their stamp of approval despite the uncertain macroeconomic climate.
The Money Platform recently reported lower-than-forecast default rates for the 12 months to 31 January 2022 and has lowered its guidance for defaults over the following 12 months.
Soaring inflation, rate hikes, strikes, hosepipe bans and an imminent recession – Brits can’t catch a break.
Then on 1 August, the City watchdog separately confirmed new rules on the marketing of highrisk investments, which includes P2P lending under its Februaryisedrequiredment2022.mentedcustomers,forawarnings.andwillaincentivesbePlatformsdefinition.willnolongerabletoofferinvestorsuchas‘referfriendbonuses’andneedtouseclearermoreprominentriskTheFCAhasdesignedbespokeriskwarningP2Pfirmstodisplaytotobeimpleby1DecemberAllhigh-riskinvestproviderswillalsobetoofferpersonalriskwarningsfrom12023.
P2P investors may see fewer products due to new rules
cont. from page 1 its loans have helped to fund £557m worth of properties, and created more than 2,500 homes. These calculations suggest that the P2P property market has contributed far in excess of £5bn towards the UK economy, helping to get essential funding to the property sector even during the turmoil of the Covid-19 lockdown era. And the sector is showing no signs of slowing down. Last month, both CapitalRise and Assetz Capital announced that they had secured new funding lines, enabling them to scale up their lending further.
CrowdProperty, Assetz Capital, EasyMoney and SoMo have all reported new lending records in recent months, while Shojin and Kuflink are among those platforms expanding into new areas, both geographically and sectorally. This suggests that P2P property lenders are ready to meet the challenges of the housing crisis and ramp up their lending even further, while delivering market-beating returns to investors. For more on P2P property lending, go to page 16.
PEER-TO-PEER investors can expect transparencyadditionalasaresult of new regulations, but some stakeholders warn there may be reduced product choice over the next year. On 27 July, the Financial Conduct Authority (FCA) unveiled its long-awaited Consumer Duty, which aims to improve how regu lated firms – including P2P lending platforms – serve customers.TheConsumer Duty mandates firms to provide more clarity on their products and services, rather than burying key information in lengthy terms and conditions.
Mark Turner, managing director in Kroll’s financial services compliance and risk practice, said this could raise the bar when it comes to the level of service that P2P platforms provide, but warned it may also mean fewer products on the “Theremarket.arestill, arguably, some areas where there is scope for interpretationsdifferentofthe new rules, particularly in the context of turnexpectationtherepermitted,customersaassessmentsappropriateness–whetherwarningbutallowingtoproceedisorwhetherisagreaterforfirmstoawayclients,”hetold
Peer2Peer Finance News.
“At the very least, the FCA will expect firms to justify their policies and individual decisions in the context of the requirements of the Consumer Duty. “On the one hand, retail investors should see more information, starker risk warnings and more protection from some of the more questionable practices that still exist in pockets, but on the other hand they could well see less product choice.”
However, Bruce Davis, managing director of Abundance and director of the UK newouthardinvestbeforefriction'asentrantsasthetheysectorthetermswecomingwillearlyAssociation,Crowdfundingsaiditwastoototellifthenewrulesimpactproductchoice.“Thereisalotofchangethroughwhichstillneedtoassess,inofhowitwillaffecttypeoffirmsintheandwhatproductsoffer,”hesaid.“Idefinitelythinkthatstricterruleswillactadisincentivetonewtothemarketthelevelof'positivenowrequiredcustomerscanwillmakelifeveryforthosestartinginthemarketwithaoffer.”
Firms will be required to test and show that their communications are clear and that consumers are receiving good outcomes. It will apply to existing products and services from 31 July 2023 and be extended to cover products and services in ‘closed books’ from 31 July 2024.
NEWS04
05NEWS
Daniel Rajkumar, chief executive Rebuildingsociety,of told Peer2Peer Finance News that he was “pleased” with the new rules.
platforms.forAR/principalmoreregulatornewARsRebuildingsociety’stemporarilyAuthorityARtorcloselymonths,withinrepresentativesboardingisREBUILDINGSOCIETYreadytostartonnewappointed(ARs)thecomingafterworkingwiththeregulaonnewrulesforthespace.TheFinancialConduct(FCA)hadbannedfromdoinganylendingwhilethecarriedoutresearchintothestructurepeer-to-peerlending
SECURED peer-to-peer loans are increasingly popular with investors, as an additional way to mitigate risk in their P2P portfolio.Security gives investors extra confidence when backing P2P loans. If a borrower defaults on a loan, technically the underlying asset could be sold and an investor will be repaid assuming there is a buyer and the full amount can be recovered.Property is the most common asset used as security by a number of property, business and consumer lenders.
“The new rules give us comfort that the standards will be high for all AR and principal firms.”
Assetz Capital takes a security charge on the property of a business for its secured small- and medium-sized enterprise term loans, while Folk2Folk will also take a security on property orArchOverland. may take fixed or floating charges over a company or a legal guarantee on its secured loanMeanwhile,products. there are P2P
Why security matters for investors
toThesecars,suchunlockLendingUnboltedplatformspawnbrokingsuchasorHNWthatletborrowerscashfromassetsasjewellery,classicartorfinewine.assetscanbesoldrepayalenderifa
This research led to the publication of new, stricter rules for ARs and principals, which came into effect last month.
“Many of the proposed changes were synergistic with practices we already had thanks to an independent review undertaken by RSM at the start of 2021 which took us significantly beyond the compliance requirements at the time,” he said. “For a period, we had a voluntary requirements notice (VREQ) in place while we worked to improve the firm’s risk management framework. I’m pleased that our cooperation with the regulator means that the VREQ was lifted in July, and we are in a position to onboard new ARs in the comingRajkumarmonths.”revealed that he played an active role in the creation of the new AR rules. For instance, he asked for a reduction in advance notice, and the proposed 60 days has now been reduced to 30 days. He also suggested that principal firms should take an interest and oversight of any non-regulated finan cial services, and the FCA acted on this suggestion.
borrower defaults.
Rebuildingsociety reopens to ARs
“With these new rules, I believe there is a good opportunity for collaboration between new market entrants and existing, established firms,” Rajkumar added.
A platform will often arrange an independent valuation of the asset and it may be taken into storage for the duration of the “Withloan.an unsecured loan, if the borrower's business takes a nose-dive and they can't repay the loan, lenders will lose out big time,” Ben Shaw, chief executive of HNW Lending, said. “It’s the same in the case of an unsecured loan to an individual where the costs of pursuing the individual through bankruptcy are likely to outweigh the funds“Securedrecovered.loans have the second reassuring layer of collateral.“Ofcourse, you will first chase the borrower and try to get repaid. However, if that fails then you take the security and sell it.
“Assuming that it sells for something close to what it has been valued at, lenders are unlikely to lose their capital and will probably get paid their interest in fullP2Ptoo.”analysis firm 4th Way suggests investors should favour charges taken over specific assets – that then can’t be sold without a permissionplatform’s–rather than fixed or floating charges that are based on what finances the business has available.
4. Regular insights from and access to new markets
2. The chance to co-develop professional industry standards
EuroCrowd represents the entirety of the crowdfunding sector of Europe – from retail lenders to platform chiefs. Its members include crowdfunding platforms, as well as other relevant market stakeholders such as lawyers, research institutes, regional governments and financial professionals.“Ourkeyaim is to establish a professional, competitive market under best practices and in alignment with European and national policy in order to scale crowdfunding operations,” explains Oliver Gajda, executive director of EuroCrowd.Thenetwork has been influential in the establishment of Europe’s first ever joined-up crowdfunding regulations, the European Crowdfunding Service Providers Regulation (ECSPR). But what are the benefits of membership?
Next up is the Crowdfunding Convention, which is in its 11th iteration this year. It will be taking place in Brussels on 9 and 10 November.Thenetwork also runs smaller topical webinars and local events for members. The next will be on 21 September in Frankfurt – this will focus on introducing the ECSPR and upcoming crypto asset regulation.
3. The ability to participate in policy making at a European level There are not many industry bodies which have the ear of the EC, but EuroCrowd has a long track record of working closely with legislators and regulators to bring about national and continental change. Members are encouraged to speak up about any issues that are affecting them, and these concerns can then be escalated to the most appropriate place.
JOINT VENTURE06
Five reasons to join EuroCrowd THE EUROPEAN Crowdfunding Network – or EuroCrowd – is taking on new members, and there has never been a better time to join.
With new regulations being rolled out across Europe and a growing need for access to affordable finance, crowdfunding is on the radar of every investor, borrower and business owner on the continent.
1. The opportunity to connect and exchange with peers EuroCrowd runs two pan-European events each year for its members. This year, the CrowdCamp was held in Bilbao, Spain, and brought together hundreds of crowdfunding and peer-to-peer lending experts to discuss the challenges and opportunities of the sector.
Over the past nine years, EuroCrowd has been working closely with the European Commission (EC) to develop and codify regulations for the crowdfunding and P2P lending sector.EuroCrowd was heavily involved in the creation of the ECSPR, welcoming input from its members and bringing this feedback to the EC.
EuroCrowd has a wide network of members who regularly meet to share insights and develop ideas. The ability to learn from other businesses’ experiences is invaluable for start-up and scaleup businesses. Furthermore, with members from all across Europe, EuroCrowd members have unparalleled access to potential new markets via partnerships or other collaborations.
5. Access to new financial markets and legislators All EuroCrowd members are welcome to contribute to relevant policy work and join in events, workshops and other activities. This includes engaging with European and national policy makers and conduct authorities, as well as connecting with politician and lobbyists on the key issues facing the sector.
Simple Crowdfunding sees rising demand for loans
AN INVESTOR has revealed how he ditched his financial adviser and switched to “less emotionally and spread betting in 2008 and made money by purchasing banking stocks at a cheap price after they crashed. He begun seeking a more certain return so began investing with then-P2P decadeRateSetterplatformaroundaago,whichhe said was “transparent and had a good RateSetterwasMyersreputation.”saidthissuccessfuluntilwassold to Metro Bank in 2020. He began looking elsewhere and used P2P analysis and ratings website 4th Way to find the best place for his P2P investments.“Kuflinkcame out well and they had a good cashback deal,” he added. “I also have money with HNWMyersLending.”hasinvested more than £300,000, helped by an inheritance from his mother, in P2P loans. He invests using both manual and auto-invest products and holds a number of Innovative Finance ISAs to enjoy tax-free returns. This is alongside his own teacher’s pension, stocks and shares ISAs and investments in art. “P2P lending offers less work on my part and it is less random; with stocks and shares you have to maintain an eye on your portfolio and have to make decisions about when to pull in and out,” he“Stocksaid.
wouldunlikelydifferentinvestorbutaredealingbutbedraininginvestingmarketisemotionallyasyouhavetoasneutralasyoucanthatisnoteasywhenwithmoney.”HerecognisesthatthereriskswithP2Plendingsaidthataslongasanisdiversifiedacrossloansthenitisthateverythinggobust.
Investor dumps adviser for ‘less emotionally draining’ P2P
ISA is still growing as well.” Poonwassie said this trend is something she has seen on the platform and from investors calling up to ask when the next loans will go putMarchresumedSimplelive.CrowdfundingP2Plendinginthisyear,havingitsactivitiesonpause to undertake a review of the business. Poonwassie said that the platform is busy with develop er enquiries and she expects activity to speed up further after the summer, with a range of residential and commer cial property opportunities.investment
SIMPLE Crowdfunding has reported increased demand for peer-topeer loans over equity investments, which its managing director attributed to challenging economic conditions. The platform offers both equity and debt investment opportunities, but Atuksha Poonwassie said that more investors are interested in loans at the moment as they offer regular, fixed income. “We’re in an unsure market and people want more certainty,” she told Peer2Peer Finance News “Our Innovative Finance
NEWS 07
stockaIthattheproductsseerealisingmymewasfinancialfinancialofdecidingloansbeenBrighton,57,traditionalandwithafterpeer-to-peerdraining”lendingbecomingunhappythelevelofreturnsservicefromfinance.SimonMyers,ateacherfromsaidhehasinvestinginP2Pfor10yearsaftertotakecontrolhismoneyandfortunes.“InitiallyIhadaadviserwhosupposedlyhelpingwithwhattodowithsavings,”hesaid.“ThatledmetoIonlygottohimonceayear,theweren’talwaysbestthingformeandmademewonderifcandothisonmyown.”Myerssaidhewentoncoupleofcoursesonmarketinvesting
MS: Why did you join Sourced? DP: Sourced is purely focused on property. The issues affecting small- and model,Sourcedhousebuildersmedium-sizedarewellknown.hasauniquebusinessthefranchiseispartof the wider Sourced Capital empire. We are only lending to people we know
DEREK PRATT IS ONE of the most experienced executives within the peer-to-peer lending sector, having moved from banking to help build Assetz Capital from scratch as regional relationship director back inHe2015.joined
08 PROFILE
Sourcing opportunities
The whole alternative finance sector was growing at the time –it was a way of finding solutions for people. P2P done correctly is something that undoubtedly helps the borrowers and provides opportunities for investors, so everyone wins. Furthermore, there is none of the bureaucracy or protocol that you get with banking.
Industry veteran Derek Pratt gives his views on peer-to-peer lending and the role that Sourced Capital plays in the sector
P2P property lender Sourced Capital last year as commercial director, helping the brand become directly authorised. Pratt explains to Marc Shoffman why P2P lending still excites him and what Sourced offers investors and borrowers. Marc Shoffman (MS): What attracted you to P2P lending? Derek Pratt (DP): I started my career in 1985, in banking. I worked in asset finance, commercial finance and business development. I was in a hybrid role between credit and relationship managers. There were very rigid polices and guidelines in regard to what an acceptable deal looks like and lots of worries about the cost of capital. P2P didn’t have these sorts of issues. Assetz was fairly young, I was one of the first few people in a relationship role and joined at ground level. They wanted to press the button and grow, it was P2P done properly. It was transparent, trustworthy and honest with no-one wondering if there is a hidden agenda.
09PROFILE who are property professionals. I wanted to personally influence its growth story.
DP: We became directly authorised in February this year. Since we launched, we have written £32.4m of loans and repaid £16.2m of capital. Interest is paid on exit and £2.8m has been paid so far.
MS: What role does Sourced play in the P2P lending space?
MS: Are you worried about a property market downturn?
DP: The only borrowers we lend to are Sourced franchisees so we know who our borrowers are. We won’t get into rate wars. All our loans go out on the same terms to borrowers and we offer flexibility around structure to help make the deal work. Our size is a blessing. We are big enough to do deals but small enough to assess each on its merits. The advantages for investors are that we only do secured property deals. Everything has maximum capital exposure of 70 per cent gross development value (GDV). Investors get a fully transparent platform with full reports and surveys and updates throughout theOurprocess.target interest rates are typically 10 to 12 per cent, based on how much the borrower pays. We operate it as pound in and pound out. We make money out of fees. There is no benefit in doing suboptimal deals for us. It is not about chasing the number of loans but the right quality. The majority of our fees are paid on exit, so we are invested in developments being successful. The exit could be a sale of a unit or refinance and the term is typically 12 to 18 months.
MS: How do you think the costof-living crisis will impact the platform’s users?
DP: There is no doubt that costs are increasing. There is a huge amount of money out there from an investment point of view though.Asabusiness, we are looking to support those looking for investment and the inflationary pressures are significant and go hand in glove with some of the elements of the cost-of-living crisis. If that means people’s savings are being eroded then they will consider their options, that is why we have seen 100 per cent growth in investor numbers since February. We are selective in terms of who our investors are. We don’t do restricted. We only deal with high-net-worth, sophisticated and corporate investors and we don’t go out there and say P2P is the answer for everyone.
MS: What are your views on current and future FCA DP:regulations?
MS: Are there plans for new products in the future?
DP: Clearly, we are aware of that risk. A big part of what we do is linked to the GDV. We know the transaction inside out, we know who the borrower is and track the progress throughout. We don’t just release all funds at once and retain money related to development costs so we are always managing risks. Our loan to GDV only goes up to 70 per cent, so we are not on high valuations, if there were crashes it has to be a significant correction before our capital is exposed. There is also an independent valuation at the outset and we have first charge security. We won’t say we are immune but protecting investors is a massive part of what we do. The platform isn’t putting on land bridges that are speculative on planning permission, everything will have planning permission and intrinsic value. We don’t do much in the speculative world where there have been large losses We can mitigate a lot of the risks of a downturn and have a 100 per cent repayment track record and no legacy problems.
MS: How has the loanbook performed this year?
The FCA’s position is difficult. It has to address that there have been high-profile failures in the sector.Our opinion is aligned to the FCA’s objectives of having transparent and clear information and making sure investors are protected.Wherethe FCA has a challenge is in doing that in a diverse sector. Using a one-size-fits-all approach to regulation for consumers isn’t possible. It needs to be regulated in a way that different platforms represent different risks. I hope the FCA continues to engage with the sector and hopefully will be sensible in its future approach.
DP: We are not moving away from what we do. It is sensible to be good at what you know and know what you are good at. The platform will introduce an auto-invest product at some point, subject to the Financial Conduct Authority’s (FCA’s) view and investor demand.
Hannah Gannage-Stewart reports PEER-TO-PEER LENDING platforms are experts in profiling risk, but as we hurtle towards recession it is possible that, even with the best due diligence processes in place, the number of defaults will rise. As a result, insurers working in the P2P finance sector are assessing the viability of new insurance products that could take some of the heat out of the loomingPersonaldownturn.guarantee insurance and credit insurance are already used to a limited degree by lenders but, in the main, P2P firms say they rely on careful portfolio management and due diligence, alongside professional indemnity and professional negligence insurance.
The firm does not currently offer personal guarantee insurance, but it can see an increasing benefit to having a wider range of insurance policiesRichardavailable.Austwick, team leader at Protean Risk, said products like personal guarantee insurance for
From here to Couldindemnitynewinsuranceproductshelpshore up P2P
As managing director Todd Davison explains, it can be stressful for directors to sign a personal guarantee. “They've set up an incorporated company to effectively benefit from limited personal liability and by having a personal guarantee, it kind of lifts that veil incorporation,” he says.
However, in July, Purbeck Personal Guarantee Insurance reported a 125 per cent year-onyear increase in personal guaranteebacked finance agreements during the second quarter of the year. Clearly more borrowers are putting their personal assets on the line. As loan agreements are increasingly contingent on a degree of personal liability in the case of the business defaulting, is it worth lenders encouraging the use of personal guarantee insurance?
10 INSURANCE
lending as we head into a recession?
Purbeck is currently the UK’s only provider of personal guarantee insurance, which insures the majority of the risk to the business owners or directors’ personal assets in case of a default.
The latest iteration of the recovery loan scheme encourages accredited lenders to request a personal guarantee, unlike previous versions of the scheme, which will likely increase the appetite for this kind of Insuranceprotection.broker Protean Risk works with around 60 to 70 per cent of the P2P and crowdfunding platforms in the UK and has done so for the past seven years.
11INSURANCE
“Often negative economic conditions bring an increased level of innovation so this shouldn’t be a reason to stop trying to develop a product,” he adds.
borrowers can offer lenders a useful USP in a volatile market, but he noted that the product has to work from both sides.
One P2P lending platform boss, who chose to remain anonymous, told Peer2Peer Finance News: “One of the issues with the product was the need to rely on the business owner/guarantor notifying the insurer of a number of notifiable events as they happened, which are very often overlooked by the guarantors who also in some cases do not want to make the disclosures for fear of notifying the lender that they might be in difficulty.
From the insurer’s perspective, he said they would be considering: “the performance of their loanbook and if/how platforms are planning for increased default rates in the next 12 months with the economic outlook.”
In other words, if the maths can be worked out as much in the insurer’s favour as the lender’s, why not innovate and create a product that will help defend platforms from increased risk?
12 INSURANCE
“We did have some guarantors and business owners that were very diligent in their use of the product and did make notifications to the insurer as per the policy, however they tended to be the lower risk borrowers.”RoyWarren, managing director at Folk2Folk, said he had recently been pitched credit insurance by one of “ Negative economic conditions bring an increased level of innovation”
Lenders have had mixed experiences with personal guarantee insurance to date, with some finding that the policies are expensive and onerous to manage.
“ Look for the problem before it arrives on your doorstep”
“It’s like many other insurances that businesses just don't think about when they either start up or start to grow or develop,” she says. “It just should fall in with a pack of insurance that you should always consider protecting your business against.
The platform has withdrawn from this kind of lending now, which it attributed to the government-backed loan schemes absorbing the best opportunities in the small- and medium-sized enterprise lending market.
Overall, it is hard to fit this kind of cover neatly into the P2P lending model, although some commercial property-backed lenders suggest there may be a role for it in mitigating the risk of major suppliers going under and jeopardising large projects backed by P2P
Warren said the perennial methods of mitigating risk remain key in any economic context. “The important thing is to keep on top of your underwriting, and careful portfolio management,” he says. “Make sure that you're monitoring and controlling the loans as they’re progressing during their life. I’m always a firm believer in keeping ahead of the wave. Look for the problem before it arrives on yourOnedoorstep.”lenderthat made good use of credit insurance in the past and proves a use case for the product with P2P lending, is ArchOver.
“For instance, a business would have £100,000 owed to them by their clients that would have insurance against each of those clients,” explains Charlotte Marsh, managing director at ArchOver. “And then we would provide a loan to value against that accounts receivable value at any one time.”
“You insure your stock, you insure other aspects of your business, with cyber attacking and all that kind of stuff, credit insurance is just one part of that pack of insurance that you use dealing with a client you've never dealt with before. Why would you not insure against the loss of that if they default against paying yourSwingsinvoice?”inthe economy often inspire change and innovation, whether it’s a pivot, as in the case of ArchOver, or the introduction of new ways to mitigate risk. Therefore, forecasting the likely impact of this downturn will be key to lenders making the right choices when the need for change arises.
INSURANCE
13 the larger insurers, suggesting that insurers and brokers recognise an increased need for cover in the market and are looking to develop products with that in mind. Credit insurance is a niche product, which is designed to cover defaults on large invoices.
However,lending.asWarren highlights, “the expectation of increased defaults is pushing the premium up straightaway”, so while there may be a hypothetical appetite for increased cover, he echoed Austwick’s observation that it will require a careful balance to come up with a product that is costeffective enough to make it worth investingUltimately,in.
The business has been funding P2P loans since ArchOver’s2014.early loans were secured against a business’s balance sheet and used a credit insurance wrapper around the accounts receivable to protect against defaults on that revenue.
ArchOver no longer uses credit insurance, but Marsh would not rule it out in future if the business model required it.
The platform is also working on improving the broker experience, by introducing automated valuations which can significantly speed up the decision-making process. These valuations can be completed in as little as 30 seconds, and are much cheaper than getting a full valuation.
In anticipation of this rapid scaleup, Kuflink has entered into talks with some institutional investors, and Auger hints that a new funding agreement may be announced in the coming
15JOINT VENTURE
The second charge secured loans are intended for consumers rather than developers. The average loan size is expected to be around £35,000.
According to the platform’s recently-appointed head of products, the property lender plans to introduce second charge secured loans within the next few months, and it is currently beta testing buyto-let mortgages. So far, the response has been “very, very good,” says to Paul Auger, Kuflink’s head of products.
“Second charge secured loans is one of the things that we're looking at, as well as buy-to-let mortgages.”
Kuflink plans to double its loanbook by next year
This means taking advantage of new opportunities in the market and filling any funding gaps in the property lending space.
KUFLINK AIMS TO DOUBLE its loanbook by next year as it scales rapidly with a series of new hires, upcoming product launches, and newly streamlined processes.
“We don’t want to systemise things for the sake of systemisation,” he adds. “We want to systemise it to get a better experience to the borrower and the broker the whole way through the journey from the point of application through the completion of the loan, and after.”
“We're looking at different flavours of asset classes just to give the investors more choice and more control of where they invest their money,” Auger says.
“We’re looking to double our loanbook in size one year from now,” says Auger. “But we want to do that by sustained growth rather than relaxing our criteria.”
“We have recruited additional people and we are changing some of the processes that we adhere to,” says“We'reAuger.also in the process of final testing stages of our internal software system that we are planning on releasing to brokers, to make it easier for them to access our products through a portal.
Earlier this year, Kuflink passed the £200m milestone of total funds invested to date, and the loanbook has grown year on year. Auger hopes that by further investing in the business and attracting new investors, the loanbook will double in size by the end of 2023. By launching new products and improving the customer experience, Kuflink hopes to win more market share and grow its lending to both new and existing borrowers.
“We'remonths.veryclose to signing terms with an institutional lender to give us a wider choice and availability of funds,” he reveals. With new funding lines on the horizon, and a series of new products and services in the process of being rolled out, Kuflink is ready for growth.
P2P property lenders also have much more flexibility around the types of finance they offer. The current cohort of property lenders include bridging lenders, SME housebuilder loans, mezzanine loans, second charge loans, loans for landlords, and specialist lending in sectors such as prime central LondonDuringproperty.theCovid-19 pandemic, P2P property lenders adapted impressively to the new market conditions, arranging virtual site visits, renegotiating borrower terms, and even offering repayment holidays. They have lenders now represent half of all P2P platforms
PROPERTYProperty16
Total number of P2P platforms (August 2022)(Source:FinancePeer2PeerNews) 23 Property Business 8Consumer Green 2 14
Assetz Capital – the largest P2P property lender with a loanbook of more than £1.5bn – has estimated that it has funded more than 3,000 homes to date. Meanwhile, CrowdProperty – the fourth largest lender – reports that its £241.7m of lending has funded £557m worth of properties, and led to the creation of more than 2,500 homes. The impact of P2P property lending is obvious. P2P lending platforms are able to make faster decisions and to deliver funds much more quickly than banks. This is largely due to their use of dedicated software which can automate oncelengthy loan approval processes.
Among the 47 regulated P2P and marketplace lending platforms currently open to retail investors, 23 have a focus on property. By contrast, there are 14 businessfocused lenders, eight consumer lenders and two lenders focused on delivering green energy projects. Between them, those 23 platforms have delivered £4.865bn in funding to date, through loans to small- and medium-sized enterprise (SME) housebuilders, buy-to-let landlords, commercial property developers and refinancing homeowners. That £4.865bn likely translates into many billions of pounds worth of housebuilding activity across the UK over the past decade.
How property platforms came to dominate the P2P sector
Property lending now makes up almost half of all peer-to-peer lending activity in the UK. Kathryn Gaw asks why… IN THE BEGINNING, THERE was consumer lending. Zopa ar rived with a splash in 2005, ready to reform the consumer credit sector even before the global financial crisis added an urgency to this cause. Then business lending rose to prominence, with peer-to-peer lending platforms such as Funding Circle processing billions of pounds in small business loans. But as the UK’s P2P sector has evolved, lending trends have also shifted.Anew data analysis by Peer2Peer Finance News has found that P2P property lending platforms now rep resent almost half of the P2P sector.
17PROPERTY Who
“In contrast, unsecured personal and business lending would always have found it challenging through difficult economic cycles, never mind a pandemic and wars. The bad debts and losses of unsecured P2P has led to the closure of these P2P platforms against property-focused P2P platforms who, in the main, have delivered continual profitable returns in the past and expect to do so in the Furtherfuture.”analysis of property lend ing data also shows that investors have benefitted from consistently good returns, even during the most recent economic downturn.
property lenders? Platform name Total loanbook value* Assetz Capital £1.5bn Sancus £1bn Folk2Folk** £275m CrowdProperty £241.7m SoMo £237m Kuflink £213.6m CapitalRise £206m Invest & Fund £196m Downing Crowd £182m Proplend £163.9m EasyMoney £150m Loanpad £137.6m Relendex £110.7m Blend £46.3m Shojin £45m Sourced Capital £32.4m CapitalStackers £28m JustUs £20.6m Assetz Exchange £18.6m Brickowner £17.5m Crowd with Us £17m LandlordInvest £15m Simple Crowdfunding £11.7m *All figures correct as at 18 August 2022. Data sourced directly from platforms. **This figure reflects only the property portion of Folk2Folk's portfolio
been rewarded with longevity. While several P2P brands were unable to survive the uncertainty of the pandemic, property platforms were largely immune. Industry stakeholders believe this is due to the fact that property loans usually come with security, and alternative lenders tend to work with lower loan-to-value ratios of 50-70 per cent, which means that the property can afford to lose a significant amount of value before the lender’s collateral is eroded.
“Property has been the bedrock of the UK economy for 100 years and will continue to be so,” says Lee Birkett, chief executive and cofounder of JustUs. “It's a simple supply and demand matrix. Property is the biggest lever the government has to control UK Plc's balance sheet and citizens’ net worth so will support the market at nearly all costs.
Over the past few years, P2P property loans have returned average annualised returns of between four and 19 per cent, depending on the platform chosen and the amount of risk assumed. This translates to more than £400m in interest earned. When tax wrappers such as the Innovative Finance ISA are factored in, this represents a significant amount of wealth generated through property lending platforms alone. As property lenders take on a larger share of the alternative lending space, the benefits are myriad. The UK is in the midst of a well-documented housing crisis, with at least 300,000 new homes required each year to keep up with demand. Meanwhile, the rising base rate and soaring cost of living have sent investors searching for yield in the alternative space.
P2P property lending can help to solve both of those problems, by making much-needed funding available to housebuilders, while offering returns that in some cases can even outpace the 10.1 per cent rate of “Propertyinflation.platforms offer assetbacked security and often tend to lend to experienced individuals who have been through cycles,” says Filip Karadaghi, managing director of LandlordInvest.“Thefuturefor property platform lending is very bright, provided that operators do it right and well.” are the largest
Lendwise is the UK’s only peer-to-peer lender that is dedicated to impact investing in education finance. Investors finance education for borrowers at universities and business schools across the UK and globally. Investors define their own risk appetite and use Lendwise’s AutoLend feature to diversify their strategy across a pool of loans, which can be invested in an IFISA wrapper earning average returns of up to nine per cent per annum.
E:T:www.lendwise.com02038907270lenders@lendwise.com
Assetz Exchange is a property investment platform delivering long term stable income for investors, primarily through the purchase and leasing of housing for social good. Regulated by the FCA, it provides the opportunity for investors to create a diversified property portfolio and alternative funding options for the housing sector.
JustUs is an innovative peer-to-peer lender that provides a range of consumer and property-backed loans. It has lent out more than £20m and paid more than £1.4m in interest to lenders to date. Investors can enjoy returns of up to 10.69 per cent, with all products eligible to be held in an Innovative Finance ISA for tax-free earnings.
E:T:www.assetzexchange.co.uk03330119830info@assetzexchange.co.uk
Invest & Fund is an established alternative finance platform that has deployed over £190m on clients' behalf and has repaid over £115m to lenders with zero per cent bad debts written off. Lenders can achieve a diversified, asset-backed portfolio with gross yields averaging from 6.75 per cent per annum with an option to lend through an ISA or a SIPP for tax-free returns.
Folk2Folk is a profitable UK lending and investment platform. More than half a billion pounds has been invested via the platform with no investor losses to date. Loans are a maximum of five years, secured against land/property at a maximum 60 per cent LTV, with a fixed rate of typically 6.5 per cent, per annum.
E:T:www.folk2folk.com01566773296enquiries@folk2folk.com
Kuflink is an award-winning lender and online investment platform. With over £213m invested through the platform, investors can customise their own portfolio investing in specific loans or in a pool of loans diversified across a number of opportunities. Earn up to 7.44 per cent (compounded) per annum, with an IFISA available.
E:T:www.investandfund.com01424717564lending@investandfund.com
18 INVESTMENTDIRECTORYPLATFORMS
E:T:www.kuflink.com01474334488hello@kuflink.com
E:T:www.justus.co01625750034support@justus.co
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. 19DIRECTORY SERVICE PROVIDERS AND INDUSTRY ORGANISATIONS Q2 creates simple, smart, end-to-end lending experiences that make you an indispensable partner on your customers' financial journeys. Its modular platform gives you the ability to manage lending simply throughout the entire loan lifecycle, from application, onboarding, servicing to collections. The result is a better experience for both borrowers and lenders. E:T:https://eu.q2.com02038232300info@Q2.com The European Crowdfunding Network (EuroCrowd) is an independent, professional business network promoting adequate transparency, regulation and governance in digital finance while offering a combined voice in policy discussion and public opinion building. It executes initiatives aimed at innovating, representing, promoting and protecting the European crowdfunding industry. E:www.eurocrowd.orginfo@eurocrowd.org
27 markets, 1 licence and 1 network. The making of history. We have been working hard to harmonise capital market rules for tradeable securities and loan based crowdfunding… WWW.EUROCROWD.ORG - INSPIRING TOMORROW‘S FINANCEOur members are prepared. Are you? Join us!
