Lendy Peer To Peer Lending Review
** Lendy review updated January 13th, 2018 **
After more than two years and despite the rising defaults, I still continue to invest in Lendy’s peer to peer property bridging and development loans. Lendy allows you to invest in property developments without the need for millions of pounds in your bank account. Bridging loans can be high risk so due diligence is recommended to select quality loans.
My December 2017 Investment: Unchanged
My annual rate of return: 11.3% (Net return after bad debt and fees but before tax)
|Est. Annual Returns:||9% - 12%
|Recent Rate Trend:||⬅➡|
|My Risk Rating *:|
|Early Exit:||✓ (Slow due to high selling supply)|
|Loan Types:||Property development and bridging|
|Loan Security:||Property and land|
|Provision Fund:||Yes, balance targeting 2% of loan book|
|Time to Become Invested:||Usually fast but can depend on loan availability|
|Time Needed Managing:||Medium / High|
|Lending Agreements With:||Borrowers|
|Cashback:||New customers receive £50 cashback on the investment of £1000|
|Sign Up:||Sign Up For A Free Account|
* This opinion risk rating factors in types of loans offered, interest rates, platform history, default numbers and my own investing experience. My risk rating explained.
The Lendy Review – What You Need To Know:
- Up to 1% return paid to lenders monthly
- Interest bonuses on late loans
- All loans secured by property / land
- Loan repayment history
- Loan statuses are clearly displayed
- Bonuses offered on late term secondary market pieces
- Lendy collects entire loan term interest from borrower
- Lender pre-funding available for all new loans / don’t need funds in your account
- Pre-funding can be individually set for loans offering between 7%-12%
- Provision fund
- Secondary market for lenders to buy and sell loans
- Easy to use
- High-interest rate property bridging and development loans are risky
- Due diligence and time is needed to identify quality loans
- Increasing number of loans defaulted / past their end date
- Defaulted loans cannot be traded on secondary market
- “Bottom up” investment process means lenders making larger investments may not receive desired allocation
- Loans stop earning interest when you place for sale on secondary market
- Some loans pay lower returns
- All eggs in property basket
- Need funds in account to purchase secondary market loans
Lendy is one of the most popular peer to peer lending sites because of the high returns they pay.
The Lendy website is easy to use and the secondary market remains active for buying while selling is a challenge due to an oversupply of loans for sale. The instant deposit feature means no wait investing and the pre-funding option saves you having to screen watch to catch new loans.
Lendy: My experiences so far….
I have been investing through Lendy since early 2015 and my experiences have been mostly positive. I’ve been able to invest in a variety of loans all paying 1% per month returns and interest payments have always been on time. I always use the pre-funding option for new loans and also use the secondary market. The secondary market rules now require lenders to have funds in their account to buy loans, so selling some loans can take several days. In the past, I sold the oldest loans and reinvested in newer ones because selling older loans reduced risk. In recent times due to an over-supply of secondary market loans, I’ve only purchased loans I’m comfortable holding to maturity.
Recently I’ve seen an increase in defaulted and past due loans. A recent news story in the Telegraph newspaper claimed 25% of Lendy’s loans are past due while Lendy claims that 14% of its loan book is in default. What the Telegraph article fails to address is how does this late loan number compare to the property bridging loan industry overall and what the causes of the late loans are.
Defaults are always a concerning for peer to peer lenders and I choose to believe that Lendy is being transparent regarding the state of its loan book but still I’m keeping a wary eye on this situation. I have also decided to reduce some of my loan positions, keeping only the highest quality loans. I want to see how successful Lendy’s recovery efforts are before I invest further. (On a positive note, a £300k defaulted loan was fully recovered on November 3rd, 2017.)
Several months ago I reached out to a Lendy representative concerning the mounting defaults and here was the response:
“Over recent weeks there has been a small increase in the loans that are overdue. This is however not unusual given the nature and complexity of the loan book. We are actively supporting each borrower, either to arrange a refinance, repayment or extension for these loans. In the event that we became concerned about any of these loans, we would move to default the borrower. In most cases, it is just that the borrower is experiencing delays in refinancing or the sale of the property.”
I agree with the response and while it’s better for all loans to be completed on the due date, sometimes this just isn’t realistic due to the nature of property development.
Also, I have read some negative sentiments written by Lendy’s lenders. Some lenders are unhappy with certain loan offerings and the security valuations. Personally, I continue to keep a watchful eye on Lendy as I do with every peer to peer company. I remember that we as peer to peer lenders have a choice where to invest our money. I recently interviewed CEO Liam Brooke and communications representative Paul Riddell and was happy with our conversation. You can watch the interview here.
Remember that 12% annual returns come with a certain level of risk.
What Is A Lendy?
Lendy is a peer to peer lending company that offers secured property bridging and development loans. A bridging loan is a short term loan given to a property developer while they attempt to refinance while development loans are longer given to complete work whilst refinancing is sought. Lendy’s loans are given to the borrower at rates up to 1.5% per month. Bridging and development loans are common in the real estate investment world. All loans are secured by the property or land being loaned against, In the event of a loan default, Lendy attempts to sell the security in order to cover lenders capital and interest.
When Did Lendy Launch?
How Do I Sign Up?
Easy! Click Here. (New customers receive £50 cashback on the investment of £1000. This payment is made by Lendy and does not come from your investment. When you open an account through my website it helps me to continue to operate and offer reviews.)
Who Can Open An Account?
Any person 18 years or older who can pass the verification checks. Even U.S. citizens are welcome to apply!
What’s The Signup Process Like?
They run the usual i.d. checks with additional documental requirements if needed.
Are They Regulated?
Yes, by the UK Government’s Financial Conduct Authority under Interim Permission.
What’s The Minimum Deposit / Investment?
Deposit: Minimum £100 via bank transfer for your first deposit
Loans: £100 minimum for pre-funding on new loans and £1 minimum on secondary market loans
What Investment Products Does Lendy Offer?
Lendy offers one lending product. Lending on bridging and development loans.
How Much Interest Does Lendy Pay Lenders?
Most loans pay 1% per month but return rates range from 9-12% per year.
Is Interest Paid Immediately Or When the Loan Starts?
On new loans as soon as the loan is drawn down, interest starts to accrue. On secondary market loans, interest begins from the moment you click the purchase button.
When Is Interest Paid?
First of each month
What Are The Fees?
No fees to lenders
How Much Time Is Needed Managing My Account and Investments?
Because bridging and development loans are higher risk and not all loans are of equal quality, I have to spend time performing due diligence. Some lenders spend very little time researching loans and prefer to diversify across as many loans as they can buy. This used to be my strategy when the secondary market was liquid but now, I buy loans planning on holding them until maturity. My new strategy is, unfortunately, more time-consuming.
I recommend the due diligence route on loans before investing because it only takes one mistake to learn a painful default lesson.
How Long Are The Loans?
3-12 months but loans are often extended or can be paid off early.
Why Are So Many Lendy Loans Past Due / Defaulted?
When you open an account with Lendy, you may notice that several loans are past due or in default. Past due loans tend to be quite common in the property bridging lending world as developers often experience delays financing. If you’ve ever applied for a loan or for planning permission, you’ll know decision time frames can vary dramatically. Lendy often negotiates extended loan terms with borrowers and while this is occurring, some loans run past due.
Property developments often over-run projected time frames of development, refinancing and sale, hence the overdue loans. On a recent email communication, Lendy explained that of all 98 loans that have repaid to investors, 42 were repaid on time, 56 were repaid late, 34 were repaid under 90 days late, 13 were repaid between 90 and 180 days late, and nine were more than 180 days late.
Sometimes past due loans are in distress and headed for default.
When considering peer to peer lending, remember you won’t achieve 12% returns without higher risk and defaults are part of the property loan landscape.
As of October 2017, approximately £23m of loans are in default. This represents about 14% of their total loan book. Recently I’ve noticed that several defaulted loans have been recovered which is encouraging. Also over £152m of total loans have been repaid.
What will be important in the upcoming months is to see how efficiently these defaulted loans are handled. Customer confidence can quickly wane if defaulted loans aren’t handled appropriately.
What Security Does Lendy Loan Against?
All loans are secured against property or land. Lendy used to loan against boats and other items but they veered away from these types of loans. The loan-to-value ratios of the securities range from 11-70%.
What Are The Main Risks?
Company Failure: If Lendy fails, investors could see losses although there are many unknown variables so no one knows how lenders would fare on the outcome. The new structure should reduce lenders risk but platform failure is always a concern as it’s hard to predict.
High Borrower Rates / Lender Returns / Borrower Default: With high returns comes higher risk. Up to 12% annual returns to investors mean the borrower is paying 1.5%+ monthly, however, this is standard in the property bridging loan business. High borrowing rates mean the loans can be high risk and the risk of default is always present. Lendy recently starting offering lower interest return paying loans but I’m not sure these loans are any less risky than the 12% paying loans.
Valuation Errors: If Lendy or its vendors over-value a piece of property and the borrower defaults, investors may lose money if the property sells for less than the loan balance. Lendy has informed me that they carry valuation insurance which holds third parties liable if valuation mistakes are made. Valuations are often subjective, especially in regards to land, so I’m usually skeptical of the accuracy of valuations and look for loans with reasonable loan-to-values.
Underwriting Standards: If Lendy loosens its credit standards, defaults could rise substantially. Lenders place great amounts of trust in Lendy’s ability to provide lenders with quality loans. Some lenders’ have expressed dissatisfaction because loans they perceived as unworthy were potentially offered on the platform and then withdrawn. I can’t verify this information and personally, I haven’t experienced any issues but it is something I keep an eye on.
Property Market Downturn: The Brexit vote result triggered a secondary market loan glut as lenders became nervous about possible declines in property values. Lendy even suspended and cancelled upcoming loans. This event highlighted how a single economic event can affect peer to peer lending. If the market downturns, property values could decrease and a defaulted property sale could recoup less than the loan amount and expenses; resulting in lender losses.
Sector Specific: Being heavy in the real estate sector is risky should a downturn occur. Defaults could increase and property values could fall.
Is There A Provision Fund?
Yes. The fund aims to hold a balance equal to 2% of the entire Lendy loan book total.
Am I Lending To Lendy Or To Borrowers?
In the olden days, ok 2015, lenders were lending to Lendy (or Lendy Ltd). In 2016 Lendy announced they were changing their legal structure to better protect lenders. All new loans are ring-fenced and some of the older loans are too (when Lendy deems it necessary). This means investors are lending directly to borrowers rather than to Lendy; good news for lenders.
What Happens If Lendy Goes Bust?
The consequences of a company failure would likely be devastating as there is no way to know if investors would be able to recoup their money. Lendy has provisions in place in case they ever ceased trading. Direct from Lendy’s website:
“If our platform were to fail or we and/or Lendy Security Holding become insolvent we would transfer our obligations under the Terms and the Loan Contract to a third party back up servicer, with whom we have entered into a back up servicing arrangement.”
Not much information on the website but the Lendy people have explained that third party companies are in place (as per FCA regulation) to wind down all loans if Lendy ceased trading. While a total loss is unlikely, don’t invest more than you are comfortable losing.
WHAT I LIKE ABOUT LENDY:
High Paying Lender Returns
In the era of ultra low interest rates, 12% annual returns are attractive. Interest payments are made on the first of the month and can usually be reinvested in secondary market loans. All my payments have been received on time, every time.
On loans which go beyond the term and become designated as IA (Interest Accruing), lenders receive an interest rate bonus. This rewards lenders’ who are willing to take some extra risk on a loan that could be headed for default. Instead of being paid on the loan monthly, you will potentially receive the interest and bonuses after the loan is paid off or recovered. There is also a possibility you won’t receive the interest depending on the amount recovered. The secondary market shows the total monthly interest (including bonus) that a loan pays:
New Loan Prefunding
As more lenders joined Lendy, demand outstripped supply and loans became harder to buy. This meant that not only did you need to be logged in at the exact time of a new loan being posted, but you needed some fast fingers. Some of the smaller loans would be sold in seconds with larger loans filling in just a few minutes.
Lendy combatted the endless lender grumbles by introducing pre-funding on new loans. Pre-funding of new loans doesn’t require you to have the money in your account. After you receive your loan allocation, you must pay Lendy within 24 hours or they will release your allocation. This innovation bypasses one of the biggest inconveniences lenders have to suffer on most peer to peer lending platforms: the dreaded bank to platform deposit wait.
One thing to note is if you use the platform credit to buy newly issued loan pieces, you cannot sell those loan pieces for seven days if you used the credit feature. This is to prevent people from gaming the system and buying more than they need.
Here is how to set your pre-funding request from the Loans page:
Lendy now allows you to set your pre-funding separately for each interest rate they offer:
This pre-funding setting allows Lendy to gauge lender interest for the different loan types.
Loan allocation always depends on demand and supply so you never quite know how much your assigned amount will be. Based on my own experiences, here’s what I’ve received:
You can see that for larger loans, you will generally be assigned your total pre-funding request but this could change as more investors come on board.
I lender demand is high, Lendy uses a bottom up pre-funding system for loans under £1m, where the smaller sum investors are allocated their pre-funding amounts before larger investors. Some readers have reported struggles trying to lend larger amounts of money due to the bottom up system, (see more in my dislike section).
Loan Repayment History
Lendy has a proven history of loan repayment. As of October 2017, Over 100 loans amounting to over £150m have been repaid, including a £7.92 million development loan that was repaid 21 days prior to maturation. While past results are no guarantee of the future, large loan repayments like this add to my investor confidence in Lendy’s operations.
Loan Status Clearly Displayed
Recently a column was added to the loan table which shows the status of a loan. This feature is a welcome one for lenders who want Lendy to be more transparent.
Here is what the abbreviations mean (You can also hover over the ? symbol for an explanation.):
IOA: Interest On Account
This is the interest paid upfront by the borrower to service the loans monthly interest payment. This means the loan is in good standing.
IA: Interest Accruing
Once a loan goes past its maturity date, it is designated as an IA loan. Interest accrues as a credit on lenders account but is not paid until it is recovered from the borrower through the disposal of the security. This means the loan is either in negotiation to be paid off or extended, or is on its way to defaulting. If you buy an IA loan on the secondary market, sometimes bonuses are offered which amount to a 50% extra interest. For example, if an IA designated loan pays 1% per month, an IA loan with a bonus would pay 1.5% per month.
Secondary Market For Buying
Lendy’s secondary market is very easy to use and used to be relatively liquid for selling. Demand and supply heavily impact the way the secondary market behaves. Post-Brexit, there was a glut of loans for sale but that phase quickly passed and in December 2016, there was barely anything for sale.
October 2017 paints a very different secondary picture with plenty of loans for sale.
The secondary market has experienced a liquidity slow down since Lendy now requires lenders to have the funds in their accounts to buy secondary market loans. Since bank transfer deposits can take time, a loan piece may no longer be for sale when your Lendy account is credited. Lendy has attempted to address this issue by offering bonuses interest rates on loans which are close to term. I’m not sure this is having much of an impact on the liquidity of the secondary market so for now, I only buy loans I’m willing to hold it to the end. Previously, secondary market loans could be bought on good faith credit so the market was very liquid.
You can sell any amounts of your loan pieces for free. I’ve found that if I put something up for sale that is in high demand, it usually sells quickly. Loans with high queue amounts (see below) can take weeks to sell.
In the past, many lenders bought more loans than they intended to keep and sold their unwanted parts on the secondary market when newer loans became available. Lendy has addressed this problem with rules preventing lenders from buying more of a loan than they intend to keep. If a lender uses account credit to obtain new loans and doesn’t have enough money in his account to pay for the new loan pieces, the lender cannot sell any of the new loan parts for seven days. If a lender has enough money in their account to buy the new loan allocations without using the credit system, this seven day limitation doesn’t apply.
This rule prevents lenders from requesting larger pre-funding amounts of new loans with the intent on selling existing loans to pay for the new loan parts.
Back to the secondary market. You can sell all of your loan or just a portion. Once you place a loan for sale, it is immediately available to other lenders:
The capital and interest in paid into your account as soon as your loan piece is sold. Simple.
This secondary market has been working well but if a property downturn or recession occurred, a mass exodus of investors could make loan exit impossible.
One downside to the secondary market is when you place a loan part for sale, you immediately stop receiving interest. If your loan part takes weeks to sell, you won’t receive any interest. I think this is a bit cheeky on Lendy’s part since they will still receive the interest payment. I think it’s better not to receive interest for a period of time than to be stuck with a bad loan.
An excellent feature Lendy recently added is when you click to sell a loan part, there is loan queue amount displayed so you know how much is for sale before your parts will be sold:
This feature allows you to decided whether to sell your loan pieces or wait until the queue has decreased.
All loans are secured by property at loan-to-values under 70%. Some loans are also secured by personal guaranteed. In the event of a loan default, the security could be repossessed and hopefully sold to recover losses. While having security is good, it’s important to understand which security is good and which is questionable. For example selling a farm or land can be more difficult than selling a house. Also, the lower loan to value deals are better if the valuations are accurate.
Entire Loan Term Interest Payments Are Collected Upfront
This is a major plus. For example, if a loan is given to a borrower for 12 months and the interest payments are £10,000 per month, £120,000 is collected from the borrower in advance. This ensures lenders can be paid for the full 12 months. It’s an extra level of security that I like.
The Provision Fund
Provision funds always offer an extra layer of protection against borrower defaults. In theory, this discretionary fund could be used to compensate lenders should a shortfall exist after a security sale. The fund aims to hold 2% of the Lendy total loan book but there’s no way to verify this as Lendy doesn’t publish the amount held in the fund. It would be nice if they did.
Payments & Withdrawals
Interest payments are paid on the first of each month and have always been on time. Withdrawals are timely, usually landing in my bank account within 12-24 hours during business days.
Lendy’s website is easy to navigate clearly displays all the information you need to manage and buy loans.
Lendy usually has a consistent flow of new loans or new tranches on existing loans. You can view upcoming loans using the pipeline tab:
WHAT I DISLIKE ABOUT LENDY:
The Lower Paying Interest Rate Loans
Lendy has started offering lower return paying loans in the 7 to 10% range. I’m not sure these loans are less risky than the loans that pay 12% so I tend not to invest in them unless I’m sure the security is really good. The lower paying loans are a direct result of increased lending competition between the different peer to peer lending companies as loan supply struggles to keep up with lender demand. It’s possible these lower paying loans could be the new norm.
Secondary Market For Selling
If I had a neutral section of likes and dislikes, the secondary market changes would go there as I both like and dislike them. The new changes went into effect in March 2017 and no longer allow lenders to buy secondary market loans without having the money in their accounts. This is both good and bad.
These changes are good because it means Lendy is complying with the FCA regulators who probably mandated this change in order for Lendy to receive full authorisation.
The hassle factor of needing funds in your account to buy loans decreases the attractiveness of what was once a great secondary market. Also, the liquidity of the market has slowed down and sometimes loans can take a long time to sell. Gone are the good days when lenders could sell loans in minutes.
Remember that secondary markets are never guaranteed as a way for lenders to exit loans. They are merely a beneficial tool that some companies offer. I always recommend picking loans you’re happy to hold until maturity.
Important: When you place a loan for sale on the secondary market, interest stop accruing immediately. This can be a drag on your returns if the your loan takes weeks to sell, so keep this in mind if you are selling a loan which has a large queue.
Bottom Up Investing Process Means Lenders Looking To Make Larger Investment May Not Receive Desired Allocation Amounts
Bottom up means that on new loan pre-funding, Lendy fills loan requests in order of size, smallest to largest. This means that a lender wanting to loan £100 will receive his allocation before a lender wanting to loan £1,000. Some readers looking to invest larger amounts have reported receiving far less of a loan amount that requested; sometimes as low as 10% of their requested allocation. The allocated amount varies depending on the loan size.
Lendy currently only offers real estate loans so if the property market goes down the spout, this could put a severe strain on its business model and lenders funds. It would have been interesting to see how Lendy would have fared during 2007-2010 property decline. It’s important to diversify across different lending sectors so a downturn doesn’t hurt your returns too badly.
High Interest Rates For Borrowers = Higher Risk
Paying high interest returns to investors means Lendy charges its borrowers up 1.5% per month. This increases the risk of default.
Sometimes it’s easy to forget how risky peer to peer bridging lending really is but remember, 12% returns means higher risk.
Increasing Number Of Loans Are Past Term And In Default
An increasing number of loans are past their repayment due date and it’s something I’m keeping a watchful eye on. It’s not unusual for property refinancing to take longer than anticipated so extensions are provided as needed. Hopefully, Lendy remains transparent with its information.
Some of Lendy’s loans are in the millions meaning that two or three defaults could really sting lenders. However, I have faith that Lendy will be able to successfully recover the defaulted loans as their survival and ability to maintain investor confidence will depend on it.
If you don’t have much time to do loan due diligence, it’s essential to diversify across many loans and not to be tempted to put too much money into any one loan.
Due Diligence And Research Time Is Needed To Identify The Good Loans
I highly recommend reading each loan valuation document and performing your own due diligence on loans. Researching the borrowers’ names and companies can uncover interesting information about past debt, bankruptcies and development experience. Unfortunately researching loans does take some time but it can help reduce your investment risk and is well worth the time.
Lendy’s communication used to be poor but has significantly improved, including sending weekly update emails. I have received emails from readers complaining of slow or no responses to email questions.
When I first began investing in Lendy, the secondary market was a beautiful feature since you were able to buy and sell loans very easily. Now the need to have funds in your account has dramatically slowed the secondary market for selling. Post Brexit loan supply has highlighted the reality of how lenders may not be able to sell loan pieces during economic changes. With this in mind, I invest in loans I’m prepared to hold long term while exiting loans I have little faith in. Since the loan supply has reduced, it’s important not be tempted to over invest in any single loan. The key to Lendy (and every peer to peer platform) is due diligence and diversification.
When possible, I used to sell loans that were within 45 days of maturity but this hasn’t been possible lately due to secondary market oversupply.
Lendy is a higher risks investment for anyone looking to lend money within the property bridging sector. 12% interest paying bridging and development loans are prone to defaulting so don’t be surprised by this, especially during unstable economic times. Lendy lessens risk by including a provision fund, securing loans with property and collecting a full term of loan repayments in advance.
The website is easy to use and there is a secondary market to buy and sell loans although selling loans can take weeks depending on supply and demand. The loan pre-funding option saves you from having to constantly monitor the website to get a piece of the action.
I continue to remain invested through Lendy but I am keeping an eye on the rising defaults while exiting the loans I believe may be headed for future trouble.
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** This unbiased Lendy review is for information purposes only and should not be considered investment advice. Opinions expressed in this Lendy review are based upon my investing experiences. All information was deemed to be correct at the time of writing. Peer to peer lending contains risks so never invest more than you can afford to lose. **