In Focus Consumer Credit Two sides of the same coin
Both risks and rewards lie at the heart of P2P lending, but work can be done to mitigate potential problems
Paul Riddell Head of marketing and communications, Lendy
paul.riddell@lendy.co.uk
There are few people who like to gamble with their hard-earned savings. But there is no such thing as a sure saving or investment strategy. The value of stocks and shares can go down as well as up, money held in a savings account can be eroded by inflation, and investing in property can be impacted if the housing market slows down. And peer- to-peer (P2P) investing is no different. With interest rates in double figures, there
are clear rewards of P2P lending. These generous rates have helped the sector in the UK to grow dramatically over recent years, with current lending at way over £10bn. To be successful, investors are encouraged
to not only consider the benefits, in the form of high income, but also, to understand their own appetite for risk, and capacity for loss – an appreciation of each is key to building the right investment portfolio to match their personal risk appetite. For us, as a P2P property-investment
platform, it means investors are encouraged to make these assessments and to ensure their portfolios are diversified at a platform level, sector level, and borrower level. Helping their users understand risk is vital
for P2P platforms, and most take managing investor risk very seriously. Rigorous and robust lending criteria, with streamlined due diligence, credit, and legal checking, must underpin every good P2P platform. A typical due diligence approach my be
as follows: l Initial due-diligence – experienced business development managers should carry out an extensive ‘know your customer’ process when they first source a loan. Their checks should include background searches into the prospective borrower, credit and anti-money laundering screenings, and, whenever possible, interviews with the borrower.
December 2017
l Legal panel – screening by an independent legal panel to ensure a legal charge is properly made against each security property, and that each of the security properties has good title. The solicitors should also ensure that, if a borrower grants additional security, such as guarantees and debentures, that these are properly executed and enforceable. l Valuation – use highly rated independent firms to value security properties and carry out a full red-book valuation. l Credit checks – each lending proposition should be placed under extensive scrutiny to determine viability. This should include an analysis of the borrower, sponsor, or other principal parties’ experience, credit record, business plan, and financial projections with particular regard to a borrower’s ability to service the debt and repay at maturity. l In-house credit team – once the full process has been completed, a P2P platform’s credit team should then consider all the information gained and approve each lending opportunity before it is put to investors.
Property-related risk The value of UK property can go up as well as down, in line with changes to the overall health of the economy. If the value of a property, against which you have lent, falls, the borrower may find it difficult to meet their repayment obligations, particularly if they try to refinance their loan based on a reduced valuation. We make every effort to minimise these
risks for our investors and to ensure, where possible, that all investments are repaid in full and on time. In the event that a borrower defaults on their loan, we have the following protection in place: l All loans are secured with a legal charge (mortgage), which means the property can be sold if the borrower defaults on the loan.
www.CCRMagazine.co.uk
Investors are encouraged to not only consider the benefits, in the form of high income, but also, to understand their own appetite for risk, and capacity for loss
l Loans do not exceed a maximum of 70% of the open-market value. So, if the borrower cannot repay the loan, it is highly likely that we will be able to recoup all funds from the sale of the security property, as there is a substantial amount of equity. l For all lending, we obtain a professional valuation, undertaken by RICS registered valuers with local experience, which are backed by professional indemnity insurance. Each valuation is carefully inspected by our underwriting team to ensure the security is acceptable to support the lending proposal. l In the unlikely event that we are unable to recoup all the funds from the sale of the security, we have a discretionary Provision Fund to allow us to compensate investors, if there is a shortfall in the capital. CCR
23
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52
