Landbay is a marketplace lender focused on prime residential mortgages.
We direct-match investors’ funds to loans using the resource and capital efficiency of peer-to-peer. Lending with us is quick and simple and provides direct, online access to an asset class that was previously only available to a select few.
It's been two years since we first raised investment on Seedrs - we're now the UK's fastest growing peer-to-peer platform* and have the team, relationships and infrastructure in place to evolve into a leading online mortgage lender.
*2015 growth rates via the Liberum Altfi Volume Index UK
This Seedrs fundraise is part of a wider current funding – an additional six-figure investment has been committed by FTSE 250 constituent Zoopla Property Group plc, via a Convertible Equity at a 15% discount, as part of a long-term strategic partnership deal.
We’re building a challenger brand on the back of three clear objectives:
1. To be the UK’s most innovative mortgage lender.
2. To offer the lowest risk investment option in peer-to-peer, thereby building trust and brand equity over time.
3. To develop an investment eco-system where people with savings fund the mortgages of a new generation of property owners, helping them move up the property ladder, build prosperity, and in time, unlock asset wealth in order to repeat the cycle.
We offer mortgage borrowers a responsive alternative to the banks, while offering retail investors a higher rate of return than they would receive from traditional, FSCS-backed savings products. Our investments become ISA eligible from April 2016.
For institutional investors (such as pension funds) we unlock access to mortgage assets at higher yields than those offered by traditional mortgage-backed securities – one of the world’s biggest asset classes. We achieve this by providing direct flow, minus the significant costs of formal securitisation.
We believe that the regulatory and technology framework that we are developing will, in time, crystallise a speed and pricing advantage over incumbent lenders within the niches we target. These incumbents, predominantly banks and building societies, are subject to significant capital adequacy requirements and remain tied to legacy infrastructure – think old technology and expensive branch networks.
We aim to exploit this opportunity by:
- Complementing broker-sourced mortgages with those originated directly via strategic partnerships;
- Utilising technology to streamline the mortgage application, approval and conveyancing process;
- Dynamically matching mortgages to both retail and institutional investors, reducing our cost of funds as our database grows and at the same time disintermediating traditional capital markets by selling our loans direct to the ultimate end buyer.
Substantial accomplishments to date
The UK’s fastest growing P2P lender with loan book growth of over 1,000% in 2015 (Altfi).
63 mortgages totalling £9.4M were completed in Q4, 2015.
Pipeline stood at 178 mortgages (£30.2M) as at 31/12/15 - with committed funding in place.
Agreed to a long term partnership with Zoopla Property Group plc to promote our products and services.
The company has also made a convertible equity investment.
Distribution agreements in place with some of the UK’s largest specialist mortgage brokers. Direct channels offer additional opportunities to originate online.
Replaced Aldermore Bank as the major funder of Keystone Buy to Let Mortgages. These mortgages are now transferred into an AA rated Senior Bank Warehouse via one of our funding partners (who also provides the Junior Note).
£40M Mortgage Distribution Agreement held for 2016.
MOU signed (and formal DD underway) with a UK investment fund who wish to deploy £10M - £20M per quarter.
The nature of our mortgages and their correlation with our investments mean that both sides of our ledger – invest and borrow – are relevant at all stages of our customers' financial lifecycle.
Examples of this symmetry include:
First Time Buyers –
Invest = save for a first home deposit.
Borrow = secure a first mortgage.
Core Demographic –
Invest = build a retirement nest egg.
Borrow = move up the property ladder / build a property portfolio.
Invest = earn stable monthly income.
Borrow = release equity from their home to enjoy retirement.
MONETISING OUR MORTGAGES
Landbay charges borrowers a fee at the time of funds being drawn down, typically 2.00% of the loan amount (based on our current mortgage offering). In addition we take a margin between the Lender and Borrower rate, currently 0.94% on a blended basis.
As our loan book grows we will build significant annuity income in the business (as the trail margin we receive layers up month-on-month). We see this as a major point-of-difference within P2P where most platforms have churning, short term loans and are therefore more reliant on writing new business to offset amortisation.
NEW REVENUE OPPORTUNITIES
New Mortgage Products.
We are exploring a number of new mortgage products to attack underserved niches within the broader UK mortgage market.
New services, including Landbay Legal (conveyancing), Protect (life, home/contents and landlord insurance) and Move (moving/switching services), will be launched in 2016 and will enable us to further monetise higher margin products, such as BTL lending; and supplement new and lower margin mortgage products, such as residential home loans.
Our framework can be applied to other forms of investment, including direct ownership. Landbay is uniquely placed to offer 'leveraged syndicates' in partnership with existing property companies. However, we do not envisage looking at this opportunity for some time.
Use of proceeds
We intend to use the proceeds of this funding round for general working capital purposes as we continue to grow the business. Our expenses will roughly break down as follows:
Technology - 50%
Marketing & Brand Development - 25%
General Operating Expenses - 25%
This fundraise will enable us to evolve our mortgage / ancillary product offering and continue to scale our loan book, both of which are considered likely to enhance our value proposition.
There are currently 3 outstanding convertible equity agreements, totalling £904,900, which will convert at a 15% discount if the Company raises the £1 million target. This includes the strategic partnership convertible mentioned above. The other two instruments relate to convertible equity campaigns previously run by Landbay on Seedrs. The conversion of these instruments to equity has not been factored into the headline valuation/equity on offer.
In addition, as part of the long term strategic partnership, Zoopla Property Group plc shall be offered a warrant for further equity in the company, exercisable over 4 years, subject to performance metrics. The full terms cannot be disclosed at this stage due to commercial sensitivity, but draft terms have been disclosed to Seedrs. The founders and directors believe the warrant to be in the best interests of the company in the context of the partnership as a whole.
We currently focus on professional investors borrowing £100,000 - £500,000 against tenanted residential UK property.
Key niches within this space include lending to SPV’s and high-income earning expats; and against HMO's / Multi Freehold Blocks. In this space we compete with banks including Paragon and Aldermore.
We see a significant opportunity for specialist lenders after recent announcements on tax and stamp duty changes in Buy to Let.
THE BROADER MORTGAGE MARKET
We are currently exploring a number of new mortgage products to target niches that are underserved by mainstream lenders.
Core target demographic – A/B, South East England, aged 30 – 50. This group not only makes up a significant proportion of the UK savings market, but are also our core Borrower demographic.
It is our ambition to evolve our investment product suite over time so that it’s tailored to the individual personas of our customers, at each stage of their investment lifecycle. This may include products to assist first time buyers in saving their deposit (and roll into a mortgage) at one end – and providing alternatives to annuities for retirees (and equity release) at the other end.
The broader investor market of course includes any UK resident who has at least £100 to lend.
At a wholesale level mortgages are typically pooled and tranched. This involves taking large numbers of homogeneous mortgages, aggregating them and then separating the portfolio into different strips, subordinated by risk.
Tranching by risk opens up the portfolio to many more investors – for example, pension funds and insurers will typically look for a very low risk senior position (Investment Grade), whereas hedge funds will look for higher returns via a subordinated junior position.
We are currently working with a number of major institutional investors on tailoring direct flow agreements based on their specific risk and debt profile appetites.
Characteristics of target market
UK RESIDENTIAL MORTGAGE MARKET
• Outstanding mortgage balances currently total £1.3 Trillion*.
• £214 Billion was lent in 2015*.
UK BUY TO LET MORTGAGE MARKET
• Outstanding BTL mortgage balances stood at £188bn at 31/12/14*.
• BTL has been the fastest growing part of the UK market*.
(*source: Council of Mortgage Lenders)
P2P INVESTMENT MARKET
Cumulative P2P lending in the UK recently passed £5 Billion ( £2.68B in 2015).
A large number of platforms exist in the UK – Zopa, Funding Circle and Ratesetter are the largest of these.
Within real estate P2P, both LendInvest & Wellesley launched in 2013 and have grown rapidly. These platforms focus on short term/bridging loans and development finance.
By operating exclusively at the ‘vanilla’ end of the market (ie prime residential mortgages over standard terms) we believe we offer a low risk proposition and a homogeneous asset – with the infrastructure now in place we have a highly scalable business operating in a very large market.
We aim to create a brand that helps people achieve their personal finance objectives through property ownership. Mortgages underpin the housing market... and 'home' is our most important [and emotive] asset.
As such, we believe we can evolve Landbay into a brand that symbolises financial security.
Investors in Landbay forsake the higher returns on offer within the broader P2P market to invest in what has historically been an exceptionally well performing asset class - prime residential mortgages.
We have recently appointed a Head of Marketing and a Digital Marketing Manager to help us position Landbay as a premium investment option within the alternative investment market. The key to this will be to highlight the performance of our underlying asset class subtly.
RETAIL INVESTOR ACQUISITION
Since launching we have enjoyed strong PR, having been covered by all major national press. This has driven organic acquisition.
We have also enjoyed success with affiliate networks, including Money Supermarket.
We expect that the introduction of the new Innovative Finance ISA in April will significantly increase retail demand. The ISA market stood at £483 billion at the end of 2014/15 (source: HMRC).
There is a clear opportunity to cross-sell our products across our customer database - the demographic we are targeting for investments are also likely to have (or need) a mortgage. The correlation between our investments and loans is a strong USP within UK peer-to-peer.
We believe we differentiate our offering by providing brokers with fast, responsive and consistent service. In 2016 we will also develop our direct origination capability, in conjunction with our strategic partners.
INSTITUTIONAL INVESTOR ACQUISITION
We have active engagements with two leading corporate advisory firms.
We are also in ongoing discussions with three banks on potential warehouse funding.
We focus on developing strong relationships with a small number of leading mortgage brokers. Providing top level service to brokers is key to ensuring strong loan enquiry. Over the next 12 months we will continue to improve our service levels, largely on the back of enhanced IT infrastructure.
At the same time we will look to exploit direct origination opportunities via our strategic partners.
We currently have three clear USP’s for investors:
We believe we offer the highest quality security in UK P2P – prime mortgages over residential homes. All investments are secured by a registered first charge and personal guarantee, rental income must be significantly higher than the cost of the mortgage and we also provision separately via a discretionary Reserve Fund to offset potential future arrears.
Combined with robust underwriting we believe this positions our offer at the lowest end of the risk spectrum within P2P – a niche that we intend to own.
Note: We have a fully performing loan book with zero defaults/arrears since inception (as submitted to the P2PFA on a quarterly basis in line with the Association's strict Operating Principles).
We pre-fund our loans using institutional money so that investors’ funds can be automatically direct-matched to loan parts within multiple mortgages that match their required term. Diversification across borrower, property type and geography dampens the effect of any one borrower or region having an issue.
3. Simple & Transparent
We have lead the industry in terms of transparency. Our offer is succinct and our platform will become increasingly simple to use.
We were the first P2P platform to publish its full loan book, including the borrower rate; and one of only two platforms to have published the results of an independent stress test to a recognised standard (ours being to Bank of England standard).