Landbay is a marketplace lender that provides finance to the UK’s Private Rented Sector. We direct-match investors’ money to mortgages using the resource and capital efficiency of peer-to-peer.
• For borrowers, we aim to provide the fastest turnaround of any Buy-to-Let lender at pricing that can compete head-on with banks.
• For investors, we provide the opportunity to invest in an ISA secured by an asset that people understand.
In the second half of 2016, we tweaked our loan funding model in order to transition from interim permissions to secure FCA authorisation to operate a peer-to-peer lending platform. While we restructured our processes, we used this time to rebuild our platform, strengthen our team, and develop new relationships.
This culminated in agreeing new institutional loan funding (on more favourable terms), launching our Property-Backed ISA and kicking off a new partnership with Arlingclose that will see us manage loans to accredited landlords on behalf of Local Authorities.
We believe we now have the funding and capacity to lend significant volumes each year from a diversified funding base.
We believe the framework we have developed has structural advantages over incumbent lenders.
We are using technology to deliver mortgages seamlessly, aiming to remove a significant pain point.
We intend to diversify into adjacent business lines to build on our core proposition. Using the data we collect and linking more products to our platform, we want to streamline the property investment process for the benefit of investors and tenants.
Later this year, we plan to launch ‘point-of-sale’ financing via developers, estate agents, and property portals using our 'MortgageAPI' - for the first time, sellers will be able to package BTL properties online inclusive of leverage.
To enhance this proposition, we are working on a suite of related services including rental analysis, tax/accounting, conveyancing, insurance, lettings & management, and furniture/appliances, all driven by the data we collect upfront.
By bringing this together on one platform, we believe that we can reduce barriers to entry and control the asset, using the mortgage as our gateway.
Substantial accomplishments to date
• Authorised by the FCA to operate a P2P lending platform (1 of 3 P2PFA members as at 1/3/17 to our knowledge).
• £200M rolling securitisation programme in final stages of agreement with global fund manager (to be supported by bank warehousing). The fund is intending to invest c.£550k.
• Approved by HMRC as an ISA Manager (and launched our ISA).
• Launched Local Authority Accredited Landlord Lending Programme with Arlingclose, enabling Local Authorities to support ethical landlords with competitively priced mortgages (that they fund).
• Expanded team, including a Head of Intermediaries, underwriters, tech, customer support.
• After Zoopla's strategic investment in 2016, we are one of two partners for their Invest Channel, giving us direct access to their millions of users.
• Launched our new micro-services platform (developed in-house).
We intend to launch 'Turnkey' later this year, our leveraged investment wrapper. In this we plan to:
• Pre-qualify investors, offering an approved investment budget.
• Integrate with property listings, and provide tools to help our investors assess/quote deals at the point-of-sale.
• Streamline the investment process in conjunction with key partnerships that we are working on, including EY, Tide, MyHomeMove, Kasko, and John Lewis.
• Let and manage the property.
Our goal is to professionalise the amateur landlord, helping them structure their investments efficiently and manage them passively/remotely.
Turnkey gives us scope to target the entire £40.6B pa* Buy to Let mortgage market (*source: CML).
Landbay charges borrowers a fee at the time of funds being drawn down, typically 1.75% - 2.00% of the loan amount. In addition we take an ongoing platform fee (the difference between the Lender and Borrower rate) ranging from 0.45% - 1.00% pa.
As our loan book grows, we expect to build significant annuity income in the business (as the platform fee we receive layers up month-on-month). We see this as a point-of-difference within P2P as most platforms have churning, short term loans.
On average, 80% of gross profit from each loan is generated by the ongoing platform fee.
We believe that there is an opportunity to earn revenue from non-finance products and services from every borrower that goes 'turnkey'.
Furthermore, our aim is for each component of our turnkey service to be sold independently (or without a mortgage on a management-only basis).
By offering an end-to-end solution, we see further monetisation opportunities, including FX (expat and foreign investors), utilities, etc.
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 are anticipated to break down as follows (approx):
• Technology - 50%.
• Marketing & Brand Development - 25%.
• General Operating Expenses - 25%.
This fundraise will enable us to build out our mortgage origination capability and distribution technology (inc. Turnkey). This, in turn, should help us accelerate lending growth through 2017.
Our pre-money valuation reflects the share capital of the company on a fully diluted basis. This includes options/warrants not yet exercised, as follows:
a) EMI options granted to employees.
b) Warrants granted to Zoopla Property Group PLC in 2016, entitling them to subscribe for up to 24,150 shares. The Zoopla warrants are subject to vesting in line with agreed performance metrics as part of its strategic partnership with Landbay.
c) We intend to grant warrants to our Fund Manager (with whom we are finalising our agreement), entitling them to subscribe for 1,550 shares, immediately after close of this round. We also intend to grant them additional warrants, entitling them to subscribe for up to 21,000 shares at £91.30 per share, subject to meeting key performance metrics.
Our core market are professional landlords borrowing £50,000 - £1,000,000 against tenanted residential UK property.
Key niches within this space include lending to SPVs and high-income earning expats; and against HMO's/Multi Freehold Blocks.
We compete with challenger banks like Paragon, One Savings, Shawbrook, and Aldermore. We are one of only a handful of non-bank lenders to our knowledge.
We see significant opportunities for specialist non-bank lenders after recent tax and stamp duty changes that affect both private landlords and the banks that typically fund them. We are finalising an agreement with EY and we believe that this will help position us as an expert in this field.
We differentiate our offer on speed, simplicity, and service.
Our approach has always been to use institutional funding to scale our operation, with our retail / managed money channels growing organically in the background (at a low acquisition cost).
In 2016, we set out to secure improved terms that would enable us to compete more aggressively with the banks in the specialist BTL market. With tax and regulatory changes we see significant headwinds affecting our competitors and we saw an opportunity to take advantage of this in 2017.
We have been working with a third-party fund manager (Junior Note provider) and a major bank providing the senior warehousing facility.
We are only aware of two other UK P2P platforms that have successfully negotiated a third-party loan securitisation programme: Funding Circle and Zopa.
Core target demographic – A/B, London & South East, aged 40 – 60. This group not only makes up a significant proportion of the UK savings market, but are also our core Borrower demographic.
Soon, we hope to be offering two options for these investors to generate secured returns, our current peer-to-peer investments (including our new ISA) and Turnkey Buy to Let.
Characteristics of target market
UK RESIDENTIAL MORTGAGE MARKET
• Outstanding mortgage balances total c.£1.25 Trillion*.
• £245 Billion was lent in 2016*.
UK BUY-TO-LET MORTGAGE MARKET
• Outstanding BTL mortgage balances stood at £229bn at end of 2016*.
• BTL lending totalled £40.6B in 2016*.
(*source: Council of Mortgage Lenders)
Landbay anticipates that the proportion of specialist lending (SPV, expat, HMO, multi-unit) will grow significantly due to regulatory and tax changes.
P2P INVESTMENT MARKET
Cumulative P2P lending in the UK is close to £10 Billion (source: Altfi).
A large number of platforms exist in the UK – Zopa, Funding Circle, and Ratesetter are the largest of these.
Landbay operates at the vanilla end of of the mortgage market (ie prime residential mortgages over full terms). We believe this gives us a lower risk proposition compared to our peers. Importantly, BTL mortgages are a homogeneous asset which will help us scale on the back of institutional funding, whilst building a trusted retail brand organically at low cost.
BRAND & POSITIONING
We want to create a brand that helps people achieve financial well-being through property ownership and investment. Mortgages underpin the housing market... and 'home' is our most important and emotive asset.
We believe we can evolve Landbay into a brand that symbolises financial security.
We are inspired by John Lewis (trusted brand), Zara (data-driven supply chain) and Airbnb (disruptive underlying business model).
With our funding side now well set up, we are transitioning from being a investment-first business to one with a greater focus on selling mortgages. We believe we can innovate heavily in this market, differentiating on speed, simplicity, and service.
Our core focus remains developing close ties with leading / specialist mortgage brokers and networks, achieved through a combination of tech and old fashioned customer service. We have recently hired a Head of Intermediaries who joins having successfully launched and scaled another BTL lender.
At the same time, we will look to exploit direct origination opportunities with Turnkey via our strategic partners.
INSTITUTIONAL INVESTOR ACQUISITION
We will continue to discuss opportunities with aggregators, IFAs, wealth managers, family offices, hedge funds, and banks, with a view to further diversifying our funding over time.
RETAIL INVESTOR ACQUISITION
On the P2P investment side, we believe that credit performance will ultimately win consumer confidence. To date, Landbay borrowers, in aggregate, have not missed a payment (zero arrears/defaults).
We enjoy strong PR with regular coverage by major national press. Over the last year, we have further developed or improved our core digital channels, including PPC, Zoopla, Money Supermarket, and our own Referral Programme.
We expect the introduction of our ISA will lift retail inflows and reduce rates (and will make up a significant proportion of all retail inflows going forward).
Landbay's goal is to build competitive advantages over time by striving towards the following key objectives:
OVERALL BUSINESS MODEL
• A business model with long-term structural advantages over incumbents.
• Diversified funding base.
• A tech-enabled distribution strategy.
• A platform with a tightly controlled product ecosystem, using the mortgage as our gateway and the data we collect upfront as the enabler.
• A simple, streamlined application process.
• The fastest 'bespoke' underwriting on the market (instant DIP, with full offer within 48 hours).
• Back-end processes heavily automated for efficiency.
• Fast-track valuations and conveyancing.
• Old fashioned customer service (brokers/borrowers can discuss deals with an underwriter).
• The best credit performance in peer-to-peer.
• Simple 'one-click' e-commerce experience.
• Transparent with risk.
• Warm brand with strong connection to the 'security of home'.
• ISA expected to grow customer base.
• Buy to Let - zero hassle, with a turnkey 'wrapper' solution.
• Tax-efficient structures.
• Enables groups of friends/family to club together, whilst retaining ultimate control of the property.