Interview with Mike Bristow, CEO of CrowdProperty – The Current State of P2P Lending in the UK

What is CrowdProperty about?

CrowdProperty was set up in 2013 because we personally felt the pain of raising finance for our property projects through decades of investing in, and developing, property ourselves. The three founders have 75 years’ experience of property investing and developing between us, meaning exceptional expertise in exactly the asset class we’re lending against). So, we set ourselves the challenge of building the best SME property development lender in the market, serving the customer needs we intimately knew better.

Traditional sources of finance have failed quality property professionals looking to undertake quality property projects for years. Large housebuilders feel this pain less but there are a finite number of large sites in this country to develop. Therefore, SME housebuilders are critically important but housing output from this segment fell from one third of UK output in 2008 to just 10% by 2017.

As a country, we need to unlock the power of entrepreneurial SME developers. Whilst Government initiatives around planning and taxation help, by far the biggest barrier is funding, according to 42% of respondents from our SME developer survey last year (which was the largest ever undertaken amongst this community).

This is exactly where our deep expertise lies, where our focus has always been, and where there’s greatest pain in the market. Having now built the best lender in the market, as property finance by property experts, we work in partnership with borrowers by adding value throughout their projects, and therefore deliver a better deal for all – our borrowers, our lenders, the under-supplied housing market and spend in the UK economy.

This is all crucial for CrowdProperty lenders: quality property professionals with quality property projects want to work with CrowdProperty, which has driven £3.8bn of direct project applications. From these, we have expertly curated £100,000,000 of lending – i.e. less than 3% conversion rate – across over 240 loans and 170 projects. This is testament to our tough criteria, rigorous due diligence and knowledge that a long-term lending business is only built through quality and track record, which is at the heart of all that we do.

As others have temporarily closed to retail investors, stopped allowing withdrawals, cut interest rates, introduced lender fees or even had regulatory permissions withdrawn, we have been able to continue funding quality projects which are ready to proceed, with naturally tighter criteria. We have further step-changed our reputation in the market on the borrower-side and direct applications are now c.£200,000,000 per month, with an ever-increasing quality mix.

We believe in data transparency to best inform investor decision making (illustrated by our award-winning statistics page and independent performance verification by Brismo). Resourcing our business strongly with a team of 32 and having a non-London base gives us considerable fixed cost advantage, savings from which we’re able to invest in expertise and further development of our in-house developed proprietary technology platform.

Our proposition is underpinned by an in-house developed proprietary technology platform for efficiencies of underwriting, data analytics, workflows, payments, funding, monitoring and reporting, coupled with decades of SME property development expertise for effectiveness. We have leading third party data, raw data feeds and internal analytics benefiting from nearly £4bn of applications. Property Director Andrew Hall has over 35 years’ experience as a qualified RICS surveyor, through multiple cycles, and is the leading expert in the team that validates deals that go to the investment committee. We have developed a rigorous due diligence process through decades of hands-on expertise in exactly the asset class being lent against.
CrowdProperty is directly authorised and regulated by the FCA and an HMRC approved ISA manager.

If an investor would have invested the same amount into every CrowdProperty loan since 2018, what yield would he have achieved by now?

An XIRR of 8.15% (since launch it is 8.74%)**. We’ve now paid back £50,000,000 in capital and interest to lenders with an average rate of return of 8.74% p.a. and a perfect, 100% capital and interest payback track record.
CrowdProperty also provides a tax-wrapper for UK-based investors lending through the CrowdProperty Innovative Finance ISA, SSAS pensions and SIPP pensions, all of which are very popular and significantly enhance effective returns due to the tax shields.

CrowdProperty loans are secured by a first charge. An important factor is appropriateness of the price set during valuation. How certain are you that valuations are in line with the market?

Indeed, all CrowdProperty loans are first-charge secured on the property assets, meaning that not only are CrowdProperty loans first in line to be paid back, but also CrowdProperty is able to be in control of any recoveries action, which is often overlooked in importance.

Our first charge security exposure averages provide a strong risk / reward proposition considering the returns offered by CrowdProperty:

  • Loan to value (LTV, or initial funds release relative to RICS-assessed market value) of 59.7% (55.9% in the 2020 cohort)
  • Loan to gross development value (LTGDV) 53.6% (excluding interest) and 58.5% (including interest)

The key factor is clearly the assessment of ‘V’ (value) in the above – both current value and end-product value – plus sensitivities of this critical data point to security and stability of the project. The ‘V’ is what we scrutinise most in the numbers, especially at the moment. We appoint societal-bound RICS surveyors with a long list of appointment criteria to conduct valuations on each and every project. This report is talked through with the surveyor and then validated with both leading internal and leading third-party data sets, used as inputs to our in-house expert-led analysis of the property asset in question, with a particular focus around understanding the nuances of the property, project and local market. In parallel, we are assessing the borrower and team in terms of not only their capabilities / experience but also their ambitions, motivations and commitment to this project and their professional property journey. Furthermore, project costings are internally validated by our expert team, supported by benchmark costings and a very detailed baseline Independent Monitoring Surveyor report and through the projects themselves, drawdowns are only ever made in arrears to project progress as formally assessed by the IMS.

CrowdProperty is entirely focused on funding quality property projects being undertaken by quality property professionals serving domestic under-supplied demand in liquid markets throughout the UK at mainstream, affordable price points, where there is enduring demand.

Are property prices going up or down? What factors do currently impact the UK market and where do investors find good (free?) market data to monitor the trend?

It’s been well documented over the past few months that UK property prices are rising, pushing house prices to a record high – the average price for property in UK stood at £315,150 in October 2020. This is being driven by Government stimulus such as the short-term reduction in property purchase stamp duty, but is also set in the context of relatively low growth in the last 3-5 years, real pricing levels that are the same as many points through the last 15 years and historically low transaction levels, resulting in pent up demand for those looking to get onto the property ladder and those wishing to move up / trade down.

michael bristow crowdpropertyWe run extensive resilience analyses on both the market and our existing book at very granular levels, running both historical and theoretical scenarios. It’s helpful to reflect back on most recent shocks to the market (which are albeit driven by different macro-economic situations) and understand how trends preceding, during and after those compare to the current situation.
We look at the market in a deconstructed way, influenced by what we have seen in the past. Firstly, we think about whether there is a correction waiting to happen given recent growth. Next, we think about the outlook for supply and demand. Thirdly, we carefully watch all activity indicators and finally we ensure that our focus, lending criteria and security are appropriate to uphold the high-quality lending we offer.

We believe that this shock will not lead to the correction of excessive growth that has been long-awaited. Examining he Nationwide House Price Index since 1975, one can see that both 89/90 and 07/08 experienced long periods of housing market growth before economic shocks drove double-digit percentage declines, taking years to recover. At first glance, one might think the signs are here again.

But this is where it is also important to examine real (inflation adjusted) as well as nominal growth – i.e. taking the effects of inflation out of the nominal (unadjusted for inflation) data. Real (RPI adjusted) growth shows a very different story to the nominal picture – average real values today are 16% below the 2007 peak, have been pretty much flat since early 2015 and are currently at the same real value as in 2010 and 2005. This is a very different context to the extended periods of high growth in values that led into the 89/90 and 08/09 market falls.

The balance of supply and demand for housing is again very different to 08/09. Back then, many needed to sell (including banks who adopted wholesale repossess and sell policies) and very few could buy (given the protracted state of the debt markets which was the underlying shock) or were prepared to buy (due to long-term prospects of the debt markets holding back recovery).
Whilst the UK’s Job Retention Scheme has undoubtedly helped many households, as that is unwound, there is clearly significant uncertainty around job security and personal finances, and dwindling demand could be expected.

Whilst first-time buyers have been the driving force of the housing market for the last decade, Zoopla’s latest House Price Index suggests that homeowners are becoming increasingly active in the market. This makes sense as “equity-rich homeowners seek more space and a change in location”, while first-time buyers are being impacted by restricted mortgage availability, tighter lending criteria and growing economic uncertainty. Whilst 95% LTV high street owner-occupier mortgages aren’t back yet, in its analysis of the Prime Minister’s speech, Rightmove suggests that the government could be looking to tackle this by bringing back 95% mortgages as part of the effort to “turn generation rent into generation buy”.

On the supply-side, whilst unfortunately there will be many more probate listings this year, there will be a greater decrease in construction completions in 2020, which has been under-supplying the market for decades (part of the reason that CrowdProperty exists). As demand continues to outweigh supply, the market is seeing a 2.6% annual growth rate in UK house prices despite the economic backdrop according to Zoopla. Indeed, Nottingham and Manchester are recording annual house price growth of c. 4% alongside Leeds, Edinburgh, Leicester, Liverpool, Cardiff, and Sheffield. Rightmove’s data shows that searches across September increased 53% on average across the ten biggest cities, but there has also been an uplift in demand for smaller communities as buyers seek out larger spaces – analysts named nine areas where searches have doubled across Surrey, Somerset, Gloucestershire, Berkshire, Dorset, Kent and Suffolk which all have a population of under 11,000.

According to Richard Donnell, Director of Research and Insight at Zoopla, the outlook for the housing market at the start of next year is set to be very busy due to the lag between sales being agreed and completion. Howard Archer, EY ITEM Club’s Chief Economic Advisor, notes that “some temporary support in the first quarter will likely come from buyers looking to take advantage of the Stamp Duty threshold increase before it ends on 31 March”.
Both commentators also agree that continuing Brexit negotiations, the end of the furlough scheme and the prospect of rising unemployment are factors which will impact the months ahead. Despite this, the EY ITEM Club expects “housing market activity to gradually improve over the second half of 2021, allowing prices to stabilise and then start to firm as the labour market improves and the UK’s economic recovery continues. Very low borrowing costs should also help with the Bank of England unlikely to lift interest rates from 0.10% during 2021”.
There is a great deal of uncertainty and we are very mindful to ensure strong security cover as we continue to fund quality property projects being undertaken by quality property professionals serving domestic under-supplied demand in liquid markets throughout the UK at mainstream, affordable price points, where there is enduring demand, with the supply we are funding very small relative to that market liquidity.

There are a number of free sources such as Zoopla and Rightmove that regularly report on this activity and offer levels of geographic granularity that are helpful to those wishing to sense check market trends. The Nationwide house price index shows national trends on both nominal and real bases. We provide a monthly roundup of the latest industry news and views in our State of the Market articles on our blog.

2020 has been a challenging year so far for many platforms. What’s your overall view of the British p2p lending market?

As in any high growth emerging sector, a lot of participants enter, and all will not survive. Whilst some would have fallen away anyway – either through an inability to make the economics work, insufficient capability, insufficient resourcing or being unable to reach sustainable scale, COVID-19 will accelerate the fallout. We hope that amongst those weaker platforms, wind down plans are thorough and the underlying loanbooks are not going to cause losses to retail lenders, further compromising the reputation of the overall sector.

Over the last decade, the platform lending industry (regulated in the UK as the 36H industry) has built highly effective distribution and underwriting / credit management infrastructure to lend to consumers and small businesses, with the latter also including the residential housebuilding industry. More efficient matching of the supply and demand of capital has led to a better deal for lenders and borrowers alike – the sector can fundamentally deliver value and has a bright future ahead. A lender is only a lender if it gets the money back: the adaption of the famous quote ‘revenue for vanity, profit for sanity’ for this sector is ‘lending for vanity, paybacks for sanity’- paybacks are the fundamentals and that takes deep asset class expertise, not just whizzy tech. This sector is a classic example where ‘tech’ can overpower the ‘fin’ but shouldn’t – we deploy technology for efficiency and expertise for effectiveness and this is even more important in the complex world of property development. Due diligence on platforms, their expertise, resourcing, track records and transparency is as important as due diligence into the loans themselves. Due to structural advantages, the sector will continue to grow in market share of lending globally, but there will be a significant shakeout.

Investor liquidity has been higher than ever at CrowdProperty, bucking the trend of all investment classes and the alternative finance sector, as retail and professional investors look for the yield, quality, and security that CrowdProperty has proven over many years. As such, we’ve set most of our funding records since lockdown – funding 60 projects since then, each in an average of less than one minute on the platform, with three in as little as 12 seconds. All this is also attracting more institutional sources of capital, which will be one driver of further growth (and providing the comfort for many investors that we’ve gone through months of institutional-grade due diligence many times), with those institutions only looking to work with the proven, highest quality players.

example project
Example project by Crowdproperty in Somerset

The Ratesetter sale to Metro Bank has been viewed as a fire sale by some. What’s your take on that?

Ratesetter is a major player in alternative finance and has a proven origination engine at huge scale. We wouldn’t like to comment about the Metro Bank deal as we don’t know all the details. They are a fellow founding member of the Innovate Finance 36H Group and we very much value their perspectives on the sector and their experiences growing a globally significant direct lending business.

Assetz Capital, another platform that lends secured on property, saw the liquidity on its ‘Access Account’ products diminish and had to cut interest rates. What’s your view on products promising increased liquidity, while the underlying asset is tied for months/years?

Assetz Capital is also a member of the Innovate Finance 36H Group, and also adds considerable richness to that body. We won’t discuss their model and will look at the various models out there in the market with reference to our own.

CrowdProperty for years operated purely a ‘SelfSelect’ model where lenders would choose to invest in specific loans as they launched on the CrowdProperty platform. One major segmentation of our lender base was between those who actively selected from loans we offered versus those who invested in every loan listed, knowing they had undergone our strict due diligence, in order to achieve diversification. As loans started filling in minutes if not seconds, we introduced AutoInvest with a range of settings, allowing the latter segment to more easily spread their funds automatically into loans listed (and be in specific loans), whilst allowing SelfSelect investors good capacity to also invest. All lenders have a specific portfolio of loans and get the interest rates associated with each of those loans with redemption at the end of those loans – very true to the ethos of peer-to-peer lending and quite different to access account based propositions.

CrowdProperty does not have a secondary market. CrowdProperty loans are on average 13 months long and from our extensive and frequent research, investors tell us that this is a timeframe they often think about for such investments as it means utilisation over a meaningful period of time but not locked into a 3-5 year commitment like many business loans for example. Placing such customer research at the heart of developing the CrowdProperty proposition, the development of a secondary market was relatively low down in their wishes from CrowdProperty.

There are, however, many other factors to consider with secondary markets which are underestimated by many. Firstly, it can give a misleading impression of liquidity, with liquidity poor on many secondary market propositions. There are also issues around information asymmetry, policies around loan trading availability, pricing and fees being charged. The practice of a secondary market is far more complex than the theory and we expect this to be an area of scrutiny by the FCA for these very reasons. This expectation of liquidity around ‘access accounts’ is also an issue, especially in light of liquidity challenges experienced by many in this current climate.

We believe that transparency is critically important in this sector and we surpassed the requirements in the operating principles of the P2P Finance Association which outlined requirements of their leading platform members well before further requirements were introduced by the FCA. Our award-winning statistics page goes through all the data mentioned above, plus we feel that it is critically important for you to know and be clearly presented with the average borrower interest rate (implying the risk you are being exposed to given it’s a fairly efficient borrower-side market) and lender interest rates (implying the proportion of reward for that risk you are receiving). Our lifetime average contract borrower rate is 9.99% and contract lender rate is 7.98%, i.e. we take just c.2%pts interest spread – let’s just say that it’s fascinating unpicking this spread for other property platforms and across the various models, if the data to be able to do so is available at all.

Compared to previous years and as a result of the COVID crisis it seems that investor sentiment towards p2p lending has turned a lot more sceptical. Are there more questions regarding security from new CrowdProperty investors than previously?

As discussed above, with all security metric averages below 60% and the insistence of first charge security, we first and foremost ensure that lenders’ capital is very well protected. We have only ever tightened our criteria with experience and have done more so during COVID-19, giving investors comfort that we put security cover as a top priority, whatever the economic outlook. This reassures both existing and new customers that our due diligence, especially around the ‘V’ is rigorous.

We see the large increases in lender registrations and capital inflows into CrowdProperty as a flight to quality – capital flowing towards platforms with long and very successful track records that have built trusted brands and are focused on building very long-term lending businesses.

Is more regulation needed? If so, in what area and why?

CrowdProperty is fully and directly FCA authorised and regulated (rather than by way of Appointed Representative), which we believe is important. As elected members of the Peer-to-Peer Finance Association (we were the only specialist property project member) and founding members of the 36H Group, CrowdProperty has always followed the very highest operating standards and we very much welcomed further FCA requirements in December 2019, implementing the additional stipulations well ahead of the deadline.

As mentioned above, there will be many platforms who cannot make the economics work, have insufficient experience/capability/resourcing for underwriting and monitoring, or are unable to reach sustainable scale, which could threaten the stability of loans through those platforms. We feel that transparency and comparability of data around lending, economics, team experience and business models could be greater and would advocate regulation tightening around those areas. We also believe that platforms should be directly authorised and regulated by the FCA rather than by way of Appointed Representative.

CrowdProperty raised 2 capital rounds from the crowd via Seedrs. How satisfied were you with the Seedrs process?

Two of our funding rounds were through Seedrs. There were many reasons behind this, including brand awareness amongst investors and working with other strong tech businesses. Most importantly, however, it enabled customers on both sides of the marketplace, who are strong advocates, to own part of the business. Each raise has been heavily oversubscribed and extremely quick to fund.

This month Seedrs and Crowdcube announced they will merge. Is this good for the market and especially for startups raising?

This is a really interesting development. These are two strong UK fintech businesses coming together to create one of the world’s largest private equity marketplaces, having facilitated over £2bn of investments between them. Jeff and Darren form a formidable team with true global potential and I’m excited to see how that will play out. Companies seeking funding will benefit from a ‘coming of age’ of the direct equity investing sector that they have individually and will now collectively champion. There is no doubt that their businesses have unlocked a funding channel that is very positive for the UK startup and scaleup ecosystem. I’m sure the synergies will also be partly shared with startups in keeping costs of raising capital at a low level, benefiting many including the wider economy.

Is CrowdProperty as a company profitable?

CrowdProperty is a sustainable platform lending business that is proven through the toughest of economic backdrops – we’ve been profitable since 2019 and profitable each and every month since lockdown began. We have seen strong growth in annual lending of 1,371% through the last 3 years and revenue growth of 1,019% through the last 3 financial years. Whilst profitable and robust, we never rest on our laurels and we are investing in team, systems and processes to build deeper efficiency and effectiveness to support a much larger lending business vision, for which we can already see huge demand.
As a result, the business is multi award winning across the property, finance, investment, technology sectors and business growth / entrepreneurship:


What plans does CrowdProperty have for the next year?

CrowdProperty is the UK’s leading specialist property project online lending platform and the future is very bright. We have built the best property project lender in the UK market and whilst we have an absolute focus on the asset class we have deep expertise in to continue building a world class property project lender, we have plans to deepen our competitive advantage and bring a progressively more valuable proposition to both sides of the marketplace. There are a number of major product launches planned for Q1 2021 which we can’t wait to share.

We’re on a trajectory to continue growing as rapidly as we have done, underpinned by a very scalable, in-house built, proprietary technology platform and scalable capital sources, that will see the business unlock the potential for many more SME property developers in building more homes and spending more in the UK economy. We have a clear strategy that can take us to £400m p.a. by 2024.

Is international expansion on your agenda?

We’re working very hard behind the scenes on several exciting projects but can’t disclose details as they are commercially and competitively sensitive – do watch this space.

P2P-Banking thanks Mike Bristow for the interview.

** This sentence has been updated on Nov. 3rd from an earlier version to clarify meaning of the stated figure.

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