BLEND Network Review
The BLEND Network review has recently been updated by one of 4thWay's specialists.
BLEND Network Review
Interest rates look good and its first few years have got off to a fantastic start
What is BLEND Network?
Through BLEND Network, you are lending to fund property developments. BLEND Network also does bridging loans, but these are rare; it doesn't currently have any such loans outstanding.
When did BLEND Network start?
BLEND Network has completed £31 million since 2017.
What interesting or unique points does BLEND Network have?
We used to say that BLEND Network compensates for what was probably a shortfall in experience with stricter lending criteria – and yet in the past few years it has stocked up on new staff with a substantial amount of useful experience from quality business such as Octopus and CapitalRise, with relevant banking experience thrown in.
Unusually, lenders selecting loans for themselves can question the borrowers directly.
BLEND Network during COVID-19
BLEND Network actually managed to lend slightly more in 2020 than in 2019. The end of 2021 is getting more nearly in sight, and yet it has delivered an average return to lenders of more than 10% per year since it started.
Three or four loans needed forbearance for COVID-19. All but one of those loans have now repaid in full, with additional interest to lenders. The last loan been extended to give the borrower more time. This is a good record during these times.
How good are its loans?
BLEND Network focuses on the quality of the property security as opposed to the quality of the borrower. This is typical of a lot of short-term lending.
Although I would have liked to have heard more unprompted enthusiasm about the record of the property developers it allows as borrowers, it does consider their experience in approving loans and setting rates. Its record of zero losses with a sound outstanding loan book wouldn't likely be achieved if it didn't take borrower experience seriously.
In loans such as these, lenders might normally see a number of bad debts among the loans they make, but they should generally expect that all or most of those bad debts will ultimately be recovered. So far, BLEND Network has only been tested by one bad debt, which is recovered in full.
BLEND Network ensures that the loans put you at the front of the queue if the borrower's property ever needs to be repossessed and sold. When lending to property borrowers, this is where you should be putting most of your money, because the risk of large losses rise substantially when you come later in the queue.
BLEND Network appears to have loosened criteria recently, although this is to be expected as it grows into a mature business. Developer borrowers can theoretically borrow a maximum of 75% of the hoped-for future sale price when it comes to developments. The average lent is 64% of the expected sale price. On bridging loans, borrowers can borrow 75% of the starting property valuation.
These maximums and averages are fine, although they shouldn't rise any higher.
Developers receive their money in stages, which helps to control the risks. On the other hand BLEND approves loans to developers in tranches and doesn't raise all the money for them in one go. This always comes with a small risk that some developers will suddenly be unable to raise additional money at the right stage to complete a development and sell for the expected price.
How much experience do BLEND Network's key people have?
My confidence in BLEND Network has grown in recent years with new hires that have a lot of useful experience.
It now has a small team of people. This team isn't just with a background in development lending, but also substantial amounts of experience in property development itself, as well as mathematics. Those two are very nice bonuses in this field, which we have found typically correlate with very low bad debts and better lending results.
Previously, it relied on external partners, which made it too tricky for us to assess their capabilities. The deal structure they had with those partners was also sub-optimal. It's good to see BLEND Network has taken control of the process with its own team.
BLEND Network review: lending processes
Development loans are offered to developers in tranches, so that they get a chunk of the loan first, and then – crucially – only get further chunks after a monitoring surveyor has assessed progress on the development.
The money for each tranche is raised as-and-when it's needed, not up-front. This can lead to unforeseen difficulties in funding the loan in full. This is one of the least likely risks, but the impact could be substantial.
While the outline of its lending approval process looks appropriate, 4thWay's specialists need to have another few meetings with BLEND Network's key person about its full processes, now that it's team is all in-house.
After the first few bad debts start arising on BLEND, we'll be looking to see that it's quick to acknowledge them as such and take action. This greatly improves chances of success in recovering bad debts. BLEND Network has demonstrated to us that it probably will react on the quicker side if bad debts occur, but since its loans have almost all performed well, this hasn't yet been properly tested. Reacting rapidly to problem debts is essential for having a good chance of recovering all or most of the bad debt.
How good are BLEND Network's interest rates, bad debts and margin of safety?
With just one loan that turned bad and no losses to lenders, BLEND Network should be hoping to continue to build a record of very low bad debts after recoveries. Lenders currently expect 8.93% after allowing for potential losses in normal times of about 1% of loans.
BLEND Network is increasingly demonstrating its quality. However, it will need to build more of a record before we can conduct our calculated stress tests to see how it might perform in a serious recession and/or property crash.
During a downturn the amount lent to borrowers is at the maximum sort of level I'd like to see, so I would expect some losses in a downturn. It would seem appropriate then that rates before bad debts remain as close to 10% as possible for the time being.
Has BLEND Network provided enough information to assess the risks?
BLEND Network doesn't provide regular data to 4thWay, but it does respond to our ad-hoc requests for information and data, and it's very accessible. It's therefore around the upper-middle of the pack in terms of providing information. More is better, but nevertheless I feel they provide enough to make a decent prognosis about the risks.
Is BLEND Network profitable?
We have little information on BLEND’s financial health, as it is not required to publish a large amount of audited information in its accounts.
It's still new, so we expect it will take some time before it becomes profitable. It received a little funding to grow the business in late 2018, but it's unclear how much.
It appears to be growing at a fast, but not too fast, pace. Certainly in line with sensible growth. I currently expect it to become profitable at some point.
What is BLEND Network's minimum lending amount and how many loans can I lend in?
BLEND Network is beginning to approve more loans, being something like two dozen per year at present. You can choose your own loans or spread your money across multiple loans automatically. The minimum you can lend in each loan is £1,000.
When using auto-lend, you can choose the maximum you want to lend in any loan. Have patience, as it could take you quite a lot of months to spread your money around enough. Top up your account as-and-when you need to.
While BLEND Network currently has around 30 loans outstanding loans, it has around half as many borrowers. This is because each loan is one tranche in a development and many developments require two or more tranches.
So, when you're deciding how much of your lending pot to put into BLEND, bear that in mind. You might choose to lend less overall in order to diversify more elsewhere, but do make sure you spread across as many borrowers as you can.
Does BLEND Network have an IFISA?
BLEND Network doesn't have an IFISA.
BLEND Network: key details of its lending account
4thWay PLUS Rating
Interest rate after bad debt
Here we show the P2P lending site's own estimate
4thWay Risk Score
Lower Risk Scores are better. How is this different to the 4thWay PLUS Rating?
BLEND Network Quick Expert Review: interest rates look good and its first few years have got off to a fantastic start
Through BLEND Network, you are lending to fund property developments. BLEND Network also does bridging loans…Read the full review here
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