A peer to peer lending platform for secured residential Buy-to-Let mortgages.
Landbay is an exciting new peer-to-peer finance option for the UK’s frustrated savers and investors who have long struggled to secure low risk returns at rates above inflation, whether from cash accounts, savings accounts, bonds or other traditional financial products.
For borrowers seeking a buy to let mortgage, Landbay aims to offer very competitive rates and a faster, more rational application process than banks and building societies.
With a minimum investment of just £100 Landbay is opening the door for a much wider cross section of the British public to enjoy attractive, low risk returns from the UK’s favourite and best known investment asset – residential property.
Since 2008 and the Global Financial Crisis, banks have reduced their exposure to property finance, 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, if in fact they are earning any interest at all. 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).
Along with our automated bidding process this would enable lenders to diversify lending across different kinds of properties in different regions, at gearing levels that they are comfortable with.
To provide lenders with the comfort that their money is advanced at the required LTVs, Landbay is developing a unique 2-step process in which all valuations of properties, carried out by one of Landbay’s approved partners, are then peer-reviewed. This is conducted by a major UK property consultancy.
In addition Landbay operates a "Protection Fund” so that individuals lending in the lowest risk-band enjoy an additional layer of protection for their savings.
As Landbay’s membership grows and the platform matures we will look to widen our product offer further in to the B2L sector, as well as leveraging our P2P lender base to introduce new investment products.
Other areas we are looking at include: leveraged crowdfunded property investments, equity release and project and renovation finance.
Substantial accomplishments to date
Granted interim permission to operate a P2P platform by the FCA until 2016.
Front-end platform built and now live at www.landbay.co.uk and comprehensive back-end loan and funds management system built.
Built a partnership with a leading specialist BTL/Commercial Mortgage Brokers. Landbay appeared as a major feature in their quarterly magazine that is distributed to landlords.
Appointed Advisory Board consisting of James Alexander (Co-Founder & ex UK CEO of ZOPA), Andy Oldham (Managing Director of Quidco) and Julian Sutton (Experienced Financial Services Professional) and Tony Ward (ex CEO of The Mortgage Trust)
Engaged a specialist property funds management company to act as Security Trustee and to manage our loan book should Landbay cease to trade (FCA P2P requirement) Appointed Panel managers to conduct and oversee all our valuations.
First mortgage in principle sent out relating to a mortgage of £175,000. We anticipate drawing this loan down in April/May 2014.
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 Design & Development in order to add increased functionality to site £20,000
Marketing & PR £30,000
Working Capital £10,000
The initial target market of borrowers are owners of property in England, Wales and Northern Ireland who are looking to borrow £100,000 - £500,000 on a Buy-to-Let basis, with fixed-rate terms of 3 years.
The target market of lenders is any UK resident 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+ Risk Band) will be an attractive option for many retail savers, yielding returns of circa 4%. This will be the safest lending proposition with a maximum of 60% LTV and the protection fund as an extra barrier against losses.
The higher risk portion of each deal (ie C) is expected to yield annual returns of 7-9% and is therefore more likely to attract sophisticated investors or those with significant assets.
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 now that the sector is regulated and the rates available on other platforms drop, we believe that a significant opportunity exists for new entrants with straightforward and secure yet differentiated product offerings.
Characteristics of target market
The B2L market has largely been occupied by building societies and specialist B2L lenders, all with fairly similar offerings. As such the criteria and requirements for securing B2L mortgages tend to be rather rigid. By splitting each loan into risk bands this will enable us to price risk effectively and tailor the mortgage to the individual needs of the borrower, taking a holistic and rational approach to underwriting.
The size of the BTL market in 2013 was £21billion.
P2P lending in the UK recently passed the £1bn mark. A large number of platforms exist in the UK - Zopa, Ratesetter and Funding Circle are the largest of these. Within Property P2P, LendInvest & Wellesley both launched in 2013 and have made strong starts. These focus on development/bridging/commercial finance. By operating exclusively in BTL mortgages on residential property, Landbay is offering a lower risk proposition that is simpler to understand, more automated and more scalable.
We have raised some money from the founders’ networks and current shareholders that will allow us to fund a number of mortgages. One application is underway and funds are in place. Our full public launch, supported by a PR and media push, will be in May and some of the capital raised in this round will be used to publicise the site over the coming months.
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.
The P2P sector is still rapidly growing and 2013 saw almost £500 million of loans arranged. Furthermore, in the most recent Budget the government announced plans to include peer-to-peer lending within an ISA wrapper and it is anticipated that this will take effect in 2015. This will have a significant positive effect on the sector.
Landbay has built 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 security 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 as many P2P lenders like to stick their toe in the water before they commit significant savings to a particular platform. Landbay’s key competitive differentiator is its simplicity, control and ease of use. Lenders choose the rates they want to lend at and the risk level they want to take (3 distinctly different categories based on loan to value) and the rest is fully automated. Landbay’s offer is very much a simple and safe ‘savings’ proposition for lenders – many other sites require you to keep logging in and bidding on separate auctions etc.
This – along with the enormous size of this market – should allow Landbay to scale in a way that other ‘similar’ P2P platforms have not yet managed to achieve.