Three biggest overperformers and one underperformer in peer-to-peer lending

17-Jun-2019

The collapse of Lendy is an example of a P2P lending site that closes after failing to provide enough information to investors or third-party analysts. Investors find far greater rewards among transparent investments – and there are many of those in this asset class.

Independent analysis by 4thWay of peer-to-peer lending sites with a record lasting more than four years and that consistently provide monthly data, highlights three biggest outperforming platforms and one underperformer since 2014, compared to similar P2P or bank lending.  

Landbay

With just three residential buy-to-let mortgages that have missed one payment each before getting back on track, out of more than 1,000 mortgages, Landbay's record in BTL lending is superior to the typical high-street bank or building society.

As it pays 3.54%, the bulk of the rewards are being passed to individual lenders, earned from these super-low risk borrowers. It is no surprise that Landbay has been outperforming high-street banks. Landbay has a great deal of professional skill and very tight lending standards:

Landbay vital statistics

Over £300m lent.

Maximum loan size to property valuation (LTV) 80% - better than all the major high-street banks.

Average LTV: 72% - highly suitable for these kinds of mortgages.

Average rent: 190% of the monthly mortgage payment.

Over 90% of mortgages are to experienced and professional landlords.

Reserve fund: 0.6% of outstanding mortgages - modest but useful.

Type of lending: residential BTL.

Typical risk of this type of bank lending: very low.

P2P bad debts: none.

Interest rate: 3.54% after expected bad debts.

Available in an IFISA. Mandatory auto-lend with some auto-diversification.

Proplend

Proplend, a residential and commercial property lending platform, still has a clean record. While a couple of loans are outstanding longer than intended, the borrowers are meeting monthly payments until they refinance or sell their underlying properties.

Even Nationwide, a consistent building society with higher-than average standards, shows a 3% rate of non-performing loans for its similar loans.

Proplend would have to fall down dramatically for it to become a poor performer.

Paying over 7% interest on most of its loans, the reward has been very good for Proplend lenders.

Shame that Proplend’s loans are few-and-far between with a minimum investment of £1,000 per loan.

Proplend vital statistics

£65m lent.

Maximum loan size to property valuation (LTV) 75% and investors can choose to limit to 50% - lower than all high-street banks.

Average LTV  60% - highly suitable for these kinds of mortgages and loans.

Minimum rent on rental properties usually 110% of the monthly mortgage payment.

Type of lending: residential and commercial rented properties up to five years; some development lending; a mix of senior and junior debt (junior means other lenders get repaid first if the borrower’s property has to be forcibly sold to repay the loans).

Typical risk of this type of bank lending: low to moderate for shorter-term rental properties; moderate to high for developments and junior debt.

P2P bad debts: none.

Interest rate: 7.32% to 9.43% after expected bad debts (7.32%-12.13% before bad debts).

Available in an IFISA. Optional auto-lend on loans under 50% LTV, with minimal auto-diversification.

CrowdProperty

So many development loans and a perfect record with no troublesome loans. This does happen in some other development lending businesses, but only the best of the best achieves it. You need serious knowledge, a commitment to standards and an appreciation for numbers. Not to mention lots of development experience and a patient temperament.

8% is an excellent rate to have earned when your investment is being managed under these circumstances.

CrowdProperty vital statistics

£35m lent.

Maximum loan size to property valuation (LTV) 70% and investors can choose to limit to 50% - lower than all high-street banks.

Average LTV  61% (against starting value of property) - very low for these kinds of loans.

Type of lending: property development lending.

Typical risk of this type of bank lending: moderate to high.

P2P bad debts: none.

Interest rate: 8% after expected bad debts (7.32%-12.13% before bad debts).

Available in an IFISA. Optional auto-lend with some auto-diversification.

Rebuildingsociety – the underperformer

Most underperformers are not transparent enough to provide regular data to analysts, but, to its credit, Rebuildingsociety does. This is our underperformer.

A quarter of Rebuildingsociety’s loans have defaulted and no bad debt has been recovered. This underperforms similar business lending by a long margin.

To put this in perspective, Rebuildingsociety’s default rate has been approaching that of payday lenders that charge interest and fees of around 1,000% APR to borrowers.

If Rebuildingsociety were a bank charging the same interest rates, we would have expected single-digit default rates and some recoveries by now.

If an investor had lent evenly in most Rebuildingsociety loans, the average rate on those loans will have been 16.9%. After bad debts, as much as 7/10ths of the interest earned will have been eaten by the bad debts - and there hasn’t even been a recession. Results are very unevenly spread between winners and losers. For lenders who have lent in fewer loans, the risk of making significant losses has been very high.

Rebuildingsociety had no previous experience in lending, but it has recently hired its first former banker. Maybe he will turn things around for the platform.

Rebuildingsociety vital statistics

£15m lent.

Type of lending: unsecured small business lending to sub-prime.

Typical risk of this type of bank lending: moderate to high.

P2P bad debts: none.

Interest rates: estimate an average 5% after heavy losses.

Available in an IFISA. Optional auto-lend with limited auto-diversification.

Neil Faulkner, co-founder and managing director of 4thWay comments: “Each of the three outperformers above won’t provide enough diversification on their own, but combine the three and you’re well on your way to a diversified property lending portfolio. Now just add some other types of lending and you have an excellent strategy to contain risks in almost any economic conditions.

“The underperformer shows us that sometimes there can be too many bad loans and not enough expertise to be confident of high returns in P2P lending and P2P IFISAs.”