If you haven’t heard of Lendy, perhaps you will have heard of Saving Stream, as they changed their name recently. Perhaps this change was forced, because as time has gone on, my experiences at this platform have become less about saving and more to do with speculative investments.
My brief review simply covers my own opinions and experiences here: your mileage may vary. I have a long position in this platform.
Lendy’s operating model is fairly simple on paper: it provides loans which are backed by property, with a LTV (loan to value) not exceeding 70%. The variety of properties is large; I have seen both residential and commercial property, also singular small houses to vast developments containing hundreds of flats.
The purposes of the loan vary as well; in some cases a borrower may just be seeking funds or bridging finance, in other cases the borrower needs development finance to take advantage of an opportunity.
The need to go to the crowd isn’t that wholesome, as we come to find out. The interest rates charged to borrowers by Lendy are much higher than that of mainstream lenders; therefore in most cases the borrowers are of poorer quality. Some may have chequered histories, or some may be seeking a larger loan than a bank is willing to give. In some cases both may be true.
However, taking a first charge upon a property represents a supposed safe haven for lenders – after all, this is pretty much what happens when you sign a mortgage. With property values resilient and the market being liquid, the exit route if things go wrong is fairly clearly marked. On top of this all, Lendy purports to run a discretionary ‘Provision Fund’ which can (but not will) compensate lenders against bad debt.
Signing up to the site is easy and there will be a variety of loans ready for your perusal.
It has to be said that between 2015 and 2016, Lendy was my go-to P2P platform. Their loans were filled incredibly quickly, and often the secondary market would be empty, making it easy to sell a loan should you wish to.
They also offered pre-funding on their loans – which meant you could pledge an amount and it would be accepted, after which you had 48 hours to repay. These two factors saw an arbitrage of sorts, where investors could hoover up as big a chunk they could manage of a loan, sit on a couple of days interest and then sell it later on. On large amounts, this soon added up.
Another good factor was that interest payments were timely and reliable. The rate of interest was fixed at 12% whatever the opportunity, and this was paid without fail on all loans. It was entirely possible to forecast what your interest would be at the end of the month.
This all changed starting in 2017 when a series of changes commenced, each of which being of detriment to lenders.
The first was that the contracts changed. Before, Lendy were an intermediate company in that you would lend the money to them, and they would lend out the money. Therefore, if a loan went wrong, Lendy would be in theory accountable. The change to write the contract between borrower and lender was pretty standard in P2P terms but means the new loans were on more unfavourable terms.
Secondly, the form of interest changed. Previously, it was paid on every loan, but this switched to being only being payable if the borrower had paid this up front. In the case of late loans, in theory interest is meant to still accrue, but in reality this is just paper money until it is received. This had the effect of gradually cutting the amount you receive at the end of the month.
Thirdly, the type of loans changed. The interest rate was allowed to vary, to allow for a bigger variety of projects. But this only offered investors projects at a smaller interest rate, and to this date there have been no projects at a large interest rate. Loans based on Gross Development Value ‘GDV’ became common, and this allowed for colossal amounts to be borrowed, because the limit was still set at 70%
Fourthly, customer service appeared to take a nose-dive. The firm previously liked engaging with customers, but the sheer popularity of the platform and their relative position led to a certain arrogance being introduced. A supposed Head of Communications was introduced, but has achieved very little.
Late loans, Bad Debts
These bad factors have compounded some of the problems at Lendy and as such a typical lender in 2018 who has been in it for the long run will face:
- Tied up capital: Approximately a third of the entire loan-book is either late or defaulted. The money assigned to these loans does not bear interest now, but only on completion of the deal, whenever that is. Some property recovery deals are incredibly slow-moving due to their complexity and reluctance of the platform to crystallise losses. Waiting over one year isn’t uncommon.
Because distressed loans are suspended for sale on the secondary market, there is no way out for lenders, you will be stuck until the issue is resolved.
- Lacklustre management: One of the problems with the P2P lending is that because the platform do not lend their own money, there may be less motivation to expedite things. A key example of this is the scale of the current losses; whilst they are still pending legal action, the boast that ‘no lender has lost capital’ can still be true. If we are to use an analogy, it would be like a man dropping a £10 into a very big hole without the tools to retrieve it, and claiming he hasn’t lost the £10 because he can still see it.
In retrospect some of the decisions Lendy have taken have been poor, borne out by some real stinkers of results. Properties that have had a valuation of £4m being sold for £2m, for instance. Valuations have become untrustworthy. That is even before the cases of savvy borrowers taking lenders for a ride. In at least one case a loan was secured on a piece of land whose value has plummeted because of issues that really should have been picked up before.
- Haircuts and more haircuts: With an increasing amount of loans being late and clogged up, Lendy seem keen to shift them and bring some money back into the system. They have recently installed a voting system on how to deal with these problem properties, which to my mind is only a way to get tacit approval to close these loans early. The so-called Provision Fund is laughable: the last estimate put its value at around £2m, dwarfed by the amount the repayments will be short.
Would I still invest in Lendy in 2018?
This is actually a fairly good question, considering that in reality it has been a poor run for a while now. Because of the size of my position, this has been my biggest earner in terms of interest, and because I have diversified myself across many properties my risk is spread and I still expect to be up, although the promised interest rate will be more like 6% than the 12% claimed.
Going forward it seems that there will be improvements made. I think Lendy know that without this, lenders will quickly move to other providers, many of whom do a better job on their property loans.
Some of the positive sides is that there is now decent availability of loans, and it’s easier to get a decent, diversified exposure. The quality of loans should also increase, if only a little. One thing that has become apparent is that there is little investor appetite for the multi-million pound development loans, and therefore these should appear less.
Another factor is platform stability. Although past performance is no guide of the future, Lendy are one of few platforms that are profitable and their investor base makes them more sustainable than other smaller platforms, who cannot bring bigger loans to the table as they cannot fill them.
Whether the good days will appear again is doubtful, but it is clear there will always be a market for these type of loans; the question being whether the platform can stay on top of them.
Pure Passive Investor. Always looking for ways to make money (but not myself) work harder.