Landbay is launching a peer-to-peer lending platform initially focussed on the Buy-to-Let sector. The borrowers are expected to be current or prospective landlords in England & Wales. The lenders will be any UK resident with £100 or more to lend.
Property finance is an area in which we have seen banks reducing their exposure, having been forced to strengthen their capital positions by the regulatory authorities.
At the same time, savers in the UK are getting historically low rates of interest. At present even alternative investment offers from platforms such as Zopa or Ratesetter only offer gross 3-year returns of around 4%.
Landbay intends to offer owners of property a quick and highly competitive form of finance while offering lenders a significantly higher rate of interest than they would receive from traditional savings product. All lending would be secured against property, with each deal split into 3 risk bands based on sensible Loan-to-Value ratios (LTV). This would enable lenders to diversify lending across different properties, at gearing levels that they are comfortable with.
In addition Landbay plans to manage an “Income Protection Fund” that would ensure that for individuals lending in the lowest risk-band would enjoy an additional layer of protection for their savings.
As Landbay’s membership grows and the platform matures we plan to become more than just a facilitator of Buy-to-Let finance.
We expect to evolve into an ecosystem that will help landlords raise both equity and development capital, helping them maximise potential yields before they go on to rent properties out.
We plan to allow some lenders on our platform to get involved with earlier stage real estate investments that earn higher returns (albeit at a higher level of risk). It would also give us greater control over deal flow by nurturing relationships with developers/renovators, who will then refinance developed, tenanted properties via our main platform.
We would call this part of the business Landbay Projects, and it will not only broaden the scope of Landbay’s “core” peer-to-peer offer but enable the business to generate significantly higher margins than would be possible through a typical P2P business. .
Substantial accomplishments to date
We have developed our peer-to-peer lending business model in line with specialist legal and regulatory advice on alternative finance from Keystone Law.
Front-end platform built (dev. landbay.co.uk );
Appointed CTO, who will oversee development of our back-end engine;
Engaged a specialist property funds management company to provide consultancy services and to act as Security Trustee;
They will also manage our loans should we cease to trade (proposed FCA P2P requirement);
Engaged an international accountancy firm to audit all client money in line with best practice;
Engaged a major UK property consultancy to conduct peer-review of all valuations. This review is also planned to include an auction estimate value;
Bespoke loan and security documentation under way;
Applied for a Consumer Credit Licence, in line with FCA advice.
Landbay will charge borrowers a fee at the time of funds being drawn down and when interest is paid. Landbay does not intend to charge lenders a fee at this stage.
Use of proceeds
Further technology development (back-end) £25,000
Small marketing budget (predominantly Refer-a-Friend & Google ads) £12,000
Permanent office space following launch £10,000.
The initial target market of borrowers are owners of property in England & Wales who are looking to borrow £100,000 - £1 million on a Buy-to-Let basis, with fixed-rate terms of 3-5 years.
The target market of lenders is anyone who has at least £100 to lend. As all individual loans are split into 3 risk bands, we believe that the lower risk portions of each deal (ie A+ & A bands) will be an attractive option for many retail lenders/savers as they are planned to yield annual returns of 4-5%.
The higher risk portion of each deal (ie B) is expected to yield annual returns of 7-9% and is therefore more likely to attract sophisticated investors or those with significant assets.
Landbay Projects plans to offer levels of risk & return that are more akin to equity/mezzanine finance. Accordingly, each Landbay deal would present investors with the opportunity to match their funds in line with risk/return parameters that meet their particular lending requirements.
We believe this significantly increases the appeal of our offering and the potential size of our lender catchment. People are increasingly becoming accustomed to lending on P2P platforms, and as the sector becomes regulated and the rates available on other platforms drop, we believe that a significant opportunity exists for new entrants with straightforward yet differentiated product offerings.
Characteristics of target market
Banks have been reducing their level of lending to the property sector, outside of traditional owner-occupied residential mortgages.
The founders have discussed their product offering with a number of brokers in the market and we do not envisage any difficulty in sourcing lending opportunities.
The market for lenders is competitive as individuals with savings have a wide variety of options.
A large number of peer-to-peer lenders exist in the UK - Zopa, Ratesetter and Funding Circle are the largest of these. The sector is growing quickly and will be regulated by the FCA from April 2014. Landbay expects to be FCA compliant when it launches in Q1 2014.
Landbay will also be competing with other savings and investment products by traditional players.
Our initial launch will be via the founders' extended networks. We are confident that this will allow us to fund a couple of small deals in Q1, 2014. Following that we will attempt to raise additional capital that will be used to further market and promote the site.
We are aware of a number of institutional players that are in the process of launching funds to invest, on a platform-agnostic basis, across P2P sites in the UK. We expect many of these will require a 12 month track record before they lend on sites, but this may well provide Landbay with a further revenue boost in 2015.
Landbay is building a comprehensive technology platform that will automate much of the lending process. This system will include the management of the loan auctions, lender portfolios/reporting, loan and scurity documentation as well as day-to-day loan administration.
Many smaller P2P sites have not yet made this technology investment, and thus limit lending to individuals with a minimum of, say, £5,000. We believe that this is a too big a hurdle in order to seriously scale a P2P platform over the long-term.
Our website and its back-end technology should enable Landbay to efficiently manage large numbers of small lenders, some of whom will evolve into big lenders over time. We believe that many P2P lenders like to stick their toe in the water before they commit significant savings to a particular platform.
Landbay would allow anyone to lend with as little as £100. Landbay plans to offer a strong risk-adjusted rate of return that will compare favourably with other P2P offers.