Loanpad is a new British P2P site. It offers cleverly structured, lower risk investments
The British P2P market is the largest and most sophisticated in the world. Dozens of investment sites have already been established. New sites that launch face a lot of competition to attract new investors. To succeed, they have to offer something a bit different. Loanpad, which has just launched, has achieved this differentiation. We think it has the potential to be successful.
Loanpad’s P2P investment products are unique and offers some features that many investors will find attractive. Loanpad sources its loans from specialist property lenders. All loans are secured on residential and commercial property. When the lenders sell these loans to Loanpad investors, they retain at least 25% of each loan, which acts as a subordinated ‘first loss’ piece. This first loss position will absorb any losses arising from a loan default first. This means that the risk of loss for Loanpad investors is very low, as the ‘effective’ loan-to-value (‘LTV’) will be around 35% on average. This makes the Loanpad investment structure probably one of the lowest risk P2P products anywhere on the market currently. Investor funds are also spread across several different loans, which provides diversification.
Other features that we think will grab the attention of investors is the ability to exit their investments easily, and receive daily interest. The Classic Account allows investors to withdraw their funds immediately when needed, while the Premium Account requires a 60 day notice period prior to withdrawal of funds.
The interest rates of 4% for the Classic Account, and 5% for the Premium Account, are not the highest available in the UK P2P space, but we think that when the very low risk profile is considered, and the liquidity on offer, it will be seen as an attractive yield by many investors. Loanpad also offers ISA wrappers on the above products, which will make income received tax efficient for British taxpayers.
To learn more and review the full terms and conditions, click here.
Louis, you are launching Loanpad today, please tell us why you set the business up, and what you are hoping to achieve
We set up Loanpad to create a fluid daily lending platform. Daily interest. Daily access (subject to liquidity). Daily diversification. We then created the lending structure to underpin this system because it was a way to significantly mitigate risks and is a very scalable model.
What types of accounts are you offering, and what are the expected returns for investors?
We have two types of accounts. Our Classic Account has a 4% interest rate, with daily access. Investors can invest up to £20,000. We have to limit the size of the classic accounts to help us provide the daily access feature. Our Premium Account has a 5% interest rate. There is a 60-day withdrawal notification (or pay a small fee for immediate access). £250,000 account size limit.
How will the funds of Loanpad investors be deployed? Can you explain the structure? What is the underlying collateral? Is there a trustee?
Funds in investors lending accounts (Classic/Premium) will be spread across the entire Loanpad loan book. Security is held by a separate company, Loanpad Security Trustee Limited. Our lending partner funds at least 25% of any loan and their position takes the first loss. The loans will be secured against residential and commercial property (bridging/commercial finance, and land with planning permission (development finance). All properties will be located in England and Wales only.
What will the effective LTV for Loanpad investors be, taking into account the 25% subordination of the loan originators?
Generally between 10% and 50%, with a likely average of ~ 35% LTV. The 25% subordination is a minimum and will often be higher, at least at the start.
You are offering investors an ability to exit their investments at short notice. This is very attractive, but how will you manage the liquidity position to ensure that there will be sufficient cash available to honour withdrawal requests?
Firstly we enable easy access wherever possible. Unfortunately, we are unable to guarantee it. With that said, we have several mechanisms to meet this goal including our lending partner structure, limited lending account amounts and larger underwriters.
The lending partners we work with will generally hold substantial reserves for future development commitments and can aid the platform with liquidity by buying back loans. This is always at the lending partners discretion (there is no obligation on them to do so) and the more lending partners we work with the more the likely available liquidity. We do not expect to have to utilise this possibility.
The classic account is also limited to £20,000 per investor, so the daily withdrawal expectations will be limited. Where liquidity available is very high, we will enable daily access from Premium for a very small fee ranging from 0.1% to 1.0%, dependent on that liquidity.
We are also in discussions with institutional investors to provide “underwriting facilities” i.e. to provide capital for lending in larger scale where needed (as we scale up with new partners) and to provide liquidity in the event of larger than expected withdrawals. These investors range from high net worth individuals to listed investment trusts. This will be scaled as necessary. Our platform is built for retail investors, so we are primarily interested in growing our lender base and not using large investor capital except for the reasons stated.
How much diversification will Loanpad investors have? How many loans?
Investor funds will be spread across the entire loan book daily. On launch this will be just a handful of loans. However, as we grow, investors’ diversification will automatically grow too. Investors can see all loans and their allocations to each loan at any time, updated daily.
What happens if a loan defaults? Can you explain how the interest cover fund (‘ICF’) works?
The ICF will pay out all interest due on loans where a borrower has not paid it. This continues until the loan is recovered and/or a loss is crystallised. Where a loan goes into default the interest cover fund kicks in to cover daily interest on that loan. This fund exists to make sure investors get paid in full every day.
Loans that go overdue are not automatically suspended. Loans are only suspended where there is a realistic prospect of a capital loss. As the security underpinning each loan will be larger than usual (because of the senior structure), capital loss is unlikely except in the rarest of occasions. However, where a possible capital loss does seems likely, the loan is suspended and investors’ funds in that specific loan will be frozen pending recovery (but continue to receive interest from ICF).
What types of other P2P products are you looking to compete against? Is it Zopa, Ratesetter, Assetz Capital?
We are competing with all other P2P platforms for investors. The biggest competition for investors will be the ones you have named plus Funding Circle. We are not competing with any P2P platforms for borrowers.
We believe that our products offer investors a unique lending structure and a unique platform experience. Our accounts offer the simplicity of typical online accounts, but with the risk profile as outlined.
These accounts pay interest daily. All funds are diversified daily. And daily access is available normal conditions.
You are a new platform. What backup servicing plans are in place, in case Loanpad is not around in the future?
We have given considerable thought to our wind down plans to ensure that loans continue to be administered and investor funds returned in the event of an operator insolvency event or voluntary wind down. As such, we believe we have put in place a robust back up plan to ensure an appropriately funded and staffed wind down committee, together with external consultants, to help wind down any outstanding Loanbook.
Please tell us about the team you have put together and their backgrounds
We have a growing team consisting of finance, legal, accounting, marketing, technology and compliance. Details if all can be found on the About us page, which will be updated frequently post launch. We have also engaged a variety of external specialists.
What is the track record of the loan originator you are working with? How does Loanpad perform due diligence on the loans it adds to the platform?
We have a long working history with our first originator and know them well. They have a very good track record – 40 years in business and profitable in every single year. They have had no material losses at all to speak of, the occasional default interest only has not been recovered. They have a very tight network of borrowers/developers.
What authorisations have you received from the FCA?
To operate an electronic system in relation to lending. We have also received authorisation from HMRC to be an ISA Manager, which enables us to offer the IFISA. The IFISA operates the same way as our standard account, but with the tax benefits for UK taxpayers.
To visit Loanpad, click here.