Best Alternative To Landbay
It's got a little more fiddly for peer-to-peer lending platforms to keep on going. New regulations that started in December have put extra burdens on them – and it seems that this was enough to tip some to the point where they've chosen to close their doors to ordinary lenders.
From now on, prime residential buy-to-let lender Landbay, as well as development and short-term property lender ThinCats, are available to institutional investors only. This means that hedge funds, banks and similar businesses will now have exclusive access to the platforms. Small investors are out.
MoneyThing is also making a soft close for ordinary lenders. Due to increased competition, it's decided to gently wind down existing loans and will no longer approve new ones.
But it's Landbay's closure to the small investor that will have been a particular disappointment for its users. Because it was the only UK-based peer-to-peer lending platform or IFISA provider that offered a large supply of buy-to-let lending to prime and highly-creditworthy borrowers.
These kinds of loans have the lowest intrinsic risks of any kind of lending. Yet it isn't just that the intrinsic risks were low. It's also that the people behind the platform are skilled. Because poorly skilled people can turn a low-risk type of investment into a higher-risk one.
What is the best alternative to Landbay?
I think the best alternative to Landbay is Loanpad*. Indeed, in terms of the risk profile, I think it's head and shoulders above the rest. Or at least a head. It doesn't do the same kind of lending, but nevertheless Landbay's overall low-risk edge versus Loanpad was small at best, if not equal.
|Interest rates||3.19% or 3.54%||4.00% or 5.00%|
|4thWay Rating of risk and reward balance (see note under table)||4thWay PLUS Rating
|4thWay Alt Ratings:
High-Quality Secured Property Loans Rating
Hidden Gem Rating
|Average loan size compared to the starting property value||72.34%||40.3% as of August 2023 (Remarkably low/good!)|
|Maximum loan size compared to the starting property value||80%||50%|
|Lenders' position in queue to recover any bad debts when the borrower has other debts||First||First|
|First loss taken by peer-to-peer lending platform?||No||No, but partner lenders lend separately and they lose their money first. Typically they lend around 33% of the total borrowed|
|Diversification||Landbay tries to spread your money across at least five loans||Loanpad automatically spreads your money across all outstanding loans|
|Reserve fund||0.6% of outstanding loans (small, but useful)||None|
|History||£440 million across over 1,500 loans since 2014, with no bad debts||£194 million across over 60 loans since 2018, with no bad debts|
|Minimum lending amount||£100 (£5,000 in its IFISA)||£10|
|Length of loans||5-25 years||3 months to 18 months|
|Early exit (if other lenders available to buy you out)||Yes. Fees up to 0.2% of £50, plus an adjustment if other lenders expect higher rates than you.||Yes, usually free.|
4thWay PLUS Ratings are calculated for each individual lending account and 4thWay ALT Ratings are also issued at account level. However, in both Loanpad and Landbay's cases, all their lending accounts received the same rating. Loanpad's history still too short for a full PLUS Rating, but it is easily on track.
While Loanpad is smaller than Landbay, it has plenty of room to grow, with a borrower pipeline available to it. What's more, the vast majority of lending through Landbay was already being taken up by hedge funds, so it should be easy enough for Landbay's individual lenders to move across.
Loanpad's two biggest features to reduce risk
Loanpad does property loans, and one of the biggest attractions is the small loan size compared to the property valuations.
Loanpad does secured property loans where the maximum that you lend is 50% of the property's value. This is a very attractive limit that contains the risks very well. In all the loans, you're the first in the queue to recover debts that go bad.
The average loan size is 40.3% as of August 2023. That is extraordinary for lenders, giving massive cover in case property prices fall.
The other largest safety feature is that your money is also automatically spread across all outstanding loans, adjusted daily.
At last count, this meant lending to 19 different borrowers across several dozen loans. This is more than enough diversification as soon as you start lending. With Landbay, it could sometimes have taken a little bit longer to get your money sufficiently spread around.
Loanpad's hidden history
Combined, those two points are exceptional defences against losing money, but it doesn't end there.
While Loanpad has a shorter history than Landbay, the loans come from the Handf family, which has many decades of experience in approving this kind of lending. And it has a more than ample supply of borrowers. Loanpad also claims to have other similar partnerships in the wings, although we'll have to see if those take effect once Loanpad has grown some more.
The Handf family itself always takes substantial junior debt in any loans that end up on Loanpad. That means they will lose a lot of money on a loan before Loanpad lenders do. On average, the family lends about 30% of the total money the borrower borrows – and they would lose it all before Loanpad lenders lose a penny. That's a strong commitment to their ability to choose good borrowers and good properties.
So if Loanpad lenders are lending 40% of the property valuation, Handf is lending around 30% on top, for a total debt of 70%. If the property is sold at half its valuation after costs, Handf will lose most of its money but Loanpad* lenders can expect to be just fine.
Loanpad's legal expertise is critical in these loans
The Handf family is well known to Loanpad. Loanpad's CEO was a property lawyer who worked with them since 2006, before briefly running a property lending business himself. It's useful having a lawyer, since the legal aspect is important in these kinds of loans to avoid fraud at the beginning and to recover bad debts at the end.
How Loanpad differs from Landbay
Where Loanpad diverges from Landbay is that these loans are not the lowest intrinsic risk, i.e. they are not residential buy-to-let mortgages to experienced landlords.
Different kinds of property loans
Instead, they are development loans and bridging loans. That said, they are not the riskiest kind of development and bridging loans. For example, Loanpad* always requires planning permission in advance and the limits on borrowing are highly sensible. Loanpad also aims for loans to be against properties that can be easily sold. The example Loanpad has previously given me was a two-bed, town centre flat, rather than a farm in Somerset.
And with such huge security, combined with better diversification and even higher interest rates, lenders are looking very good.
A shorter record
Another contrast with Landbay is that its record is not deep enough for it to earn a 4thWay PLUS Rating yet. However, it's on track and it's currently beyond imagination that it won't earn the top rating. Dozens of loans have been successfully repaid in full and its business model looks secure.
No reserve fund
Landbay's reserve fund was a replacement for full diversification. On average, I prefer full diversification over a reserve fund. This is because it isn't just one of the best ways to lower the risks, but it means that lenders are paid more interest. Otherwise, interest is diverted to top up a reserve fund that might not even be needed. Ultimately, peer-to-peer lending platforms just need to do good loans and enable a wide spread. And that's what Loanpad does – and it makes it even easier than Landbay, in fact.
Independent opinion: 4thWay will help you to identify your options and narrow down your choices. We suggest what you could do, but we won't tell you what to do or where to lend; the decision is yours. We are responsible for the accuracy and quality of the information we provide, but not for any decision you make based on it. The material is for general information and education purposes only.
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The 4thWay® PLUS Ratings are calculations developed by professional risk modellers (someone who models risks for the banks), experienced investors and a debt specialist from one of the major consultancy firms. They measure the interest you earn against the risk of suffering losses from borrowers being unable to repay their loans in scenarios up to a serious recession and a major property crash. The ratings assume you spread your money across hundreds or thousands of loans, and continue lending until all your loans are repaid. They assume you lend across 6-12 rated P2P lending accounts or IFISAs, and measure your overall performance across all of them, not against individual performances.
The 4thWay PLUS Ratings are calculated using objective criteria that can be measured and improved on over time, although no rating system is perfect. Read more about the 4thWay® PLUS Ratings.
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