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investors, stopped allowing withdrawals, cut interest rates, introduced lender fees or even had regulatory permissions withdrawn, we have been able to continue funding quality projects which are ready to proceed, with naturally tighter criteria.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. Continue reading

Estateguru Launches Equity Crowdfunding Round on Seedrs to Raise 2M

Baltic property lending platform Estateguru* has just launched a round on Seedrs* to raise up to 2 million EUR in new funding at a pre-money valuation of 28.8M EUR . Estateguru was launched in Estonia 6 years ago and has since expanded into the Latvian, Lithuanian, Finnish, Portugeese and German markets. Using the platform 47,000 investors have funded over 1,400 loans with a volume of 202 million EUR for an average return of 11.8% (as per Estateguru statistics page). All loans are secured by mortgages. Estateguru says that so far all recoveries of defaults have returned 100% of the capital and just the length of discovery varied sometimes taking months, sometimes taking years.

Estateguru plans to use the raised capital to further develop the product, especially improving features for institutional investors. Estateguru* can build on the experiences it made in a two-year relationship with German Varengold bank which has provided a credit line to finance loans. A second goal is to expand into further markets. In a recent investor webinar CEO Marek Pärtel named UK as a potential market, stating Estateguru already holds the required licenses since last year. Furthermore Estateguru will implement integration with payment provider Lemonway.

Pärtel said in the webinar that Estateguru has doubled in size every year in the past and expects the fast growth to continue in the future.

UK Property Platform Kuflink Opens To Investors in Europe (100 GBP Cashback)

British p2p property platform Kuflink* has been in operation since 2016.  Previously accepting only UK residents as investors, the platform announced that they have enhanced their KYC/AML procedures and are now open to investors from anywhere in Europe. Interested investors can use a free UK bank account from Transferwise* Borderless or Revolut* (Smartphone required). And in exchanging money to GBP new TransferGo clients* can get a 10 GBP bonus when exchanging/sending at least 150 GBP.

Kuflink* offers short term property loans (usually 3 to 12 month), secured by a legal charge. They run a very generous 100 GBP cashback offer available by signing up through this this link*. Note that the landing page says 50 GBP, but I have negotiated with Kuflink that clients referred by P2P-Banking get 100 GBP (doubling normal cashback). VERY IMPORTANT: Read T&C and strictly follow them. E.g. the minimum investment of 500 GBP must be reached within 24 hours of first investment. While it is possible to spread your investment over several loans, be sure that you are in line with the T&C terms.
You can find more cashback deals on this page.

Kuflink loans
Screenshot: Available Kuflink loans (selection).

Every loan offer comes with detailed information, including a valuation report. Since the start in 2016, Kuflink has originated more than 20 million GBP in loan volume.

Kuflink* does not charge investors any fees. Interest is paid on the first day of each month (for manual investing). There is an autoinvest option, but conditions are less interesting than on manual investing. Two features Kuflink lacks are a secondary market and a detailed statistic page (there is some information in the FAQ).

In April I published an interview with the Kuflink CEO.

 

 

Interview with Yann Murciano, CEO of Blend Network

What is Blend Network about?

Blend Network is an online property lending marketplace that focuses on lending to established property developers in high-growth areas across the UK but outside London. Since its official launch in January 2018, Blend Network has already lend £1.5 million GBP to 6 projects across Northern Ireland, Scotland and Norfolk with an average fixed return of 12.2% p.a. Lenders can join for free and manage their loans through a user-friendly dashboard. Borrowers are double-vetted by both Blend Network and a sponsor before being listed on the Blend Network platform. In addition, Blend Network loans are only made against security to help ensure the protection of lender money in the default scenario.

What are the three main advantages for investors?

  1. Access to niche markets: While most P2P property lenders focus in the London market due to its convenience, we focus in less crowded markets outside London that are outperforming not only the London market but also the average UK market. We have done loans in Northern Ireland where according to the recent RICS UK Residential Market Survey Report the outlook is considerably more positive than in some other UK regions, with prices rising, a growing number of potential new buyers active in the market, robust demand and overall stronger sentiment. Similarly, according to the latest UK House Price Index data, Scotland was the only UK region where average year-on-year house prices in 2017 where higher than in 2016 (In England, Wales and Northern Ireland the pace of price growth moderated, although more significantly in England).
  1. High returns: Our focus in high-growth, high-yield pockets of the UK property market outside London enables us to return up to 15% return p.a. – right at the top-end of the P2P lending marketplace. Our average return for the 6 loans since launch is 12.2%, significantly above the average of around 8% return across other P2P property platforms according to our own calculations.
  1. Strong due diligence and credit risk assessment: We pride ourselves by the strength of our due diligence process. Borrowers are double-vetted by both Blend Network’s Credit Committee and a sponsor before being listed on the Blend Network platform. Our Credit Committee is chaired by senior banker Charles Lamplugh who has 35 years of experience successfully winning and running corporate relationships for Lloyds Banking Group. In addition, Blend Network loans are only made against first charge on the security as well as personal guarantee from the developer.

What are the three main advantages for borrowers?

  1. Access to finance: Most property lenders pulled out in places such as Northern Ireland after the 2008 financial crisis and many haven’t gone back yet, but paradoxically Northern Ireland is one of the fastest growing UK property markets. For small developers in those markets, getting access to finance is simply not easy. Small and Medium Enterprise (SME) developers have the flexibility and the desire to build on brownfield sites, to redevelop derelict buildings and to maximise the potential of property which may no longer be viable for commercial use. Figures from the Federation of Master Builders (FMB) House Builders Survey 2017 suggest that a shortage of available small sites, combined with a lack of finance, top the list of barriers facing SME house builders.
  2. We bring knowledge and understanding of developers’ true requirements: We operate in areas where the constrained nature of most mainstream lenders has led to many opportunities for small developers being delayed, frustrated or lost. In contrast, we pride ourselves for our understanding of the true requirements in the development process. As one borrower put it ‘It was very refreshing to work with a company that understood the process well so could recognise the opportunities available and thus able to finance accordingly.’
  3. No exit fee for early repayments: If our borrowers are able to complete their project before the maturity, great! They can repay the loan with no exit fee. It’s a win-win.

What ROI can investors expect?

Between 8% and 15% fixed return p.a. Our average since launch is 12.2% fixed return p.a.

Yann MurcianoIs the technical platform self-developed?

The platform was developed for us, we own it.

How is the company financed? Is it profitable?

The company has been self-financed so far. It is profitable but we have just decided to take the whole team on an offsite to Miami, so we spent all our profit! J J

What were the main challenges when launching your platform?

Frankly, our main challenge so far has been trying to explain why the returns are so good! In today’s markets, there are not many investments that offer an average of 12% return p.a. with no volatility. One might think it is too good to be true. It is not. The simple answer is that the UK housing crisis and lack of available homes is at its worst since the 1970s, and small developers with tight access to funding are willing to pay a premium to get funding for redevelopment projects and bridge loans. This is why we can pay up to 15% return p.a.

Do you plan to offer an IFISA?

We will assess this later in the year and decide whether we want to implement an IFISA for the next financial year.

Is Blend Network open to international investors?

Yes, it is. Our current lenders on the platform include a range of nationalities across Western Europe, the Middle East and Far East Asia.

Which marketing channels do you use to attract investors and borrowers?

The platform has already attracted a string of high-profile lenders among the high net worth bankers and hedge fund managers of Yann’s circle of personal connections. These have lent nearly 1.5M GBP since the platform launched and the proposal is attracting significant ‘word of the mouth’ attention among current lenders. In addition, we have prepared a 2-year strategic marketing plan highlighting the relevance of branding, social media, PR but most importantly word of the mouth by current lenders who are more than happy to recommend the product.

What factors do you see impacting the British property market in the near future?

We see Brexit as a key challenge (or in our case opportunity) for the UK property market in the next 2-5 years. The UK property market is a 2-speed market, with on the one hand the London market and on the other hand the rest of the UK market. We believe the London market is set to undergo a further correction due to being directly exposed to a number of sectors hit with Brexit: the financial sector and the global elite’s appetite towards prime London property ownership after Brexit. On the other hand, the rest of the UK suffers from an endemic housing crisis and lack of available homes: after decades of failure to build the homes the country needs, public concern about housing is the highest it has been for 40 years according to several heavyweight reports into Britain’s housing crisis.

Where do you see Blend Network in 3 years?

At Blend Network we are not trying to reinvent the wheel; we are simply offering an improved product for both lenders and borrowers. While we don’t want to be the only P2P property platform in the market, in 3 years we certainly want to be the best in terms of:

  • Returns – keeping our current position at the top-end of the P2P lending marketplace
  • Customer experience – continuing to enhance the functionalities on our platform to keep delivering top navigational and interface tools that our lenders love using

Access to deals – Continuing to source top deals for our lenders

P2P-Banking thanks Yann Murciano for the interview.

My Housers Experience – Quick Gains by Flipping Investments on Spanish Property Platform

Today I gained another 1,7% after selling an investment that I did held only a few days. I started using the Spanish property platform Housers in the beginning of August. On Housers investments into property in Spain and Italy are listed. Mostly the offered structure is that investors will benefit from rent income from the property and also capital gains achieved, if the property is sold at a higher price at the end of the investment period. The concept will sound familiar to those that are using the British platfrom Property Partner. But there are other offer types too, including fixed interest investments. The minimum investment is 50 Euro and terms range from 12 months to 5 years and longer.

There is a lot of information and statistical data about the properties and the property market in that town and neighborhood. The platform is easy to use. After signup, the investor needs to upload scans to verify identity and to connect a bank account. Deposits can be by bank transfer or credit card. I made a small withdrawal of 0.50 Euro via SEPA transfer to test withdrawal and the money arrived after 2 days in my bank account.

Current bonus: Sign up via this link and get 50 Euro bonus when you invest 50 Euro. Ends today (August 31st)! The bonus can only be invested, not withdrawn.
Additional cashback of 1% on all credit card investments (you see that after you select a property to invest into. Ends today (August 31st).

Housers has a secondary market. Only properties in the “Saving” category can be traded – with the “MP” logo style mark. Sellers can set a premium (or) a discount. When I started in the beginning of August I had 50 Euro invested in the Monec property (pictured right) and wanted to try out selling. So I listed that at 1.74% premium and was astonished that it sold quickly. I had exited that investment only 8 days after making the bid. Granted the absolute profit was not spectacular: 78 Cents (50.87 Euro sales price minus 0.09 Euro sales fee – Housers charges 10% of profits), but it was 1.56% profit in 8 days. Mathematically that is an (X)IRR of 102%, but of course one can not calculate it that way as a reinvestment without breaks will not be possible and not every time a buyer will snap the part that quickly.

Nevertheless I got curious, if I could scale that somewhat and employ a strategy of flipping, that is investing and then selling fast at a premium. I invested in more parts of an Italian property opportunity (“Breda” in Milan). Yesterday the secondary market for this opportunity opened, and today I sold the first 100 Euro part for a 1.89% premium. I have listed the next 100 Euro part for 1.99% premium now.

There are three main factors for selling in my view:

  • Premium (typically buyer will buy the part currently listed at the lowest premium)
  • Part size: only full parts can be bought. I would expect it to get harder the larger the part is (but the seller can list part of his total holding, as long as it is at least the 50 Euro minimum)
  • availability of other offers, especially on the primary market

I have yet to experience a time where there are no offers on the Housers primary market. It will be interesting to see how that effects demand on the secondary market.

The majority of investors is from Spain, but Housers says there is large demand from investors from Latin America, too. I like the platform interface, it is easy to use. The UI is available in Spanish, English and Italian language.

Another property investment platform in the Eurozone offering a bonus is Estateguru. If you register via this link, you get 0.5% cashback on all investments in the first 90 days. Investments on Estateguru are into secured loans, not equity.


One of the property investments listed on Housers in the past

Assetz Capital Launches Property Secured Investment Account

P2P Lending marketplace Assetz Capital today announced the launch of another account type. The Property Secured Investment Account (PSIA) is marketed as a way to invest exclusively in property backed loans with automatic diversification intended to help investors spread their risk across a diverse range of lending. Every single loan considered for this account is automatically selected or rejected upon the basis of the level of property security that it offers. The loans automatically selected for investment by this account are only those that have no expected loss in the case of that loan defaulting in the future, even after any estimated recovery costs.

The target rate for the Assetz PSIA account is 5.5%. (Interest is quoted gross at the target rate, although actual returns could be lower)