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CapitalRise Review

Continues to impress.

4thWay PLUS Rating of 3/3

CapitalRise's Bridging & Development Loans have earned the Exceptional 3/3 4thWay PLUS Rating.

These loans have been paying lenders around 8.53% interest after bad debts.

Visit CapitalRise* or keep reading the CapitalRise Review.

CapitalRise is available to sophisticated/wealthy investors only

So to use it you need to have:

  • Invested in an unlisted company in the past 12 months (such as through crowdfunding websites).
  • Or you need an income of at least £100,000, or savings and assets excluding your own home worth £250,000.
  • Or you need to be a professional investor or have been one in the past two years.

When did CapitalRise start?

Lenders through CapitalRise* have lent £245 million since launch in 2016. A total of £340 million in facilities has been agreed with borrowers, who are property developers.

What interesting or unique points does CapitalRise have?

CapitalRise’s focus is prime central London development properties. With many P2P lending companies looking to other parts of the country or to less expensive properties, it’s useful to have a P2P lending company in this niche.

Prime property in London has an excellent long-term record, supported by the increasing wealth of the richest people in the UK and the world.

Back in 2022, CapitalRise also started accepting prime developments in outer London and in wealthier parts of the Home Counties.

How good are its loans?

Lenders mostly lend in senior loans – meaning you get your money back first in the event a loan goes bad.

CapitalRise maintains very high standards, not least because the loans are very large. It’s approved less than 1% of the borrowers that it has screened. This is remarkably tight standards. It could likely approve a considerably higher proportion of deals before you would notice any substantial change in loan quality, arrears or bad debts.

The most that borrowers can borrow is 75% of the current property valuation or 75% of the hoped-for sale price of completed developments. Those are good standards. On average, the loans are for less than 65%, having ticked up just slightly during 2023. This average is also good.

How much experience do CapitalRise’s key people have?

The key decision-maker has a lot of senior positions in property lending, with all the required experience.

The rest of the impressive team has a huge amount of relevant experience and training, which is far from a given in specialist property P2P lending.

CapitalRise review: lending processes

The checks that borrowers and developments have to go through before CapitalRise will approve a loan are impressive and as expected for a team of this calibre and for these kinds of loans.

CapitalRise focuses on the best end of the market not just in terms of location, but in terms of how good the borrowers and projects are.

As usual for developments, the developers get the money needed in phases, as and when inspections show that the developments are progressing well and that the next stage has been reached.

However, CapitalRise doesn’t raise all the cash needed for a development project in advance. While this is normal in P2P lending, it’s sub-optimal, as there’s always a small chance that not enough money can be raised to fund later tranches, and the project collapses.

That said, the high quality it offers means lenders are likely to continue supporting it through downturns, and CapitalRise has arrangements with institutions that can pre-fund loans and tranches that aren’t filled through its online lending platform.

How good are CapitalRise’s interest rates, bad debts and margin of safety?

There have been no bad debts. As of January 2024, five loan facilities are now massively behind schedule and so we keep an eye on them.

CapitalRise forecasts no losses to lenders due to its strict criteria, even before taking interest into account. I find that forecast plausible for most lenders most of the time, if not every lender all the time.

The latest 4thWay PLUS Rating assessment of CapitalRise shows that lenders spreading across many loans have a large margin of safety against losses, even if a severe recession and major property crash, similar to 2008, were to occur simultaneously.

CapitalRise’s history in terms of the number of loans and status of those loans is still not fully matured, although it’s getting closer all the time.

That’s why, in our toughest stress tests of recessions and crashes, we find you should lend and re-lend for at least two years in and through the downturn in order to be confident of earning enough interest to more than cover losses. So, by the time all your loans are repaid after re-lending, you’ll have been lending for maybe four years.

That said, those tests are our toughest and it’s more likely that you won’t need to re-lend at all to earn satisfactory interest. But you might have to wait longer to get repaid (with interest paid on top) during such a period.

Across all its loans, interest rates of around 8.53% are highly satisfactory for the risks involved.

With rates and bad-debt risks in such good condition, CapitalRise’s lending account earns the top calculated 3/3 4thWay PLUS Rating. This is absolutely no surprise to 4thWay’s specialists, who have been watching its quality for many years.

CapitalRise’s 4thWay Risk Score – which unlike the PLUS Rating measures just the risk of bad debts in a downturn and doesn’t account for interest earned – is a very creditable 6/10, meaning below stock-market risk, despite its stable, decent returns.

As CapitalRise’s history deepens, all 4thWay’s specialists currently expect this score to improve further to 5/10. Ultimately, it could also eventually hit 4/10, which is held by a very small number of providers. For reference, 1/10 is equivalent to the risk of sudden loss when you’re using savings accounts, while 8/10 to 10/10 is roughly equivalent to the range of risk in the stock market.

Has CapitalRise provided enough information to assess the risks?

It has been extremely transparent with 4thWay, providing reassuringly full information on almost all aspects of its business. The depth and quality of the data it provides to us is excellent.

Is CapitalRise profitable?

CapitalRise’s* most recently filed company accounts show it’s not yet profitable, although in its final quarter of its last accounting year it states it was profitable. It’s possible that it has already turned the curve, but, if it hasn’t, I’m sure that this one will be sustainably profitable very soon.

What is CapitalRise’s minimum lending amount and how many loans can I lend in?

The minimum lending amount is high at £1,000.

CapitalRise approves just about enough facilities against unique property developments that you should be able to diversify a fair bit by dripping your money in over the course of a year. Ensure you don’t lend multiple times against the same development, as and when each developer draws down the next tranche of cash for carrying out the next phase in the development work.

Does CapitalRise have an IFISA?

CapitalRise’s loans are available in IFISAs.

Is CapitalRise truly “P2P”?

Peer-to-peer lending is not a regulated phrase. By 4thWay’s definition, any online lending company is peer-to-peer if it structures itself and its loans to offer the same level of protection as direct lending, in order to protect lenders in the event that the lending company itself goes bust.

The most common way to create direct lending agreements is to use what the regulator calls “P2P agreements”, which are sometimes known as article 36H agreements.

CapitalRise uses another legal means of arranging the lending that we’ve seen quite a few times before. For each loan, it sets up a separate company that would survive intact even if CapitalRise itself were to go under.

If this isn’t your first experience in property lending, you may have heard of these sorts of companies: they’re “special purpose vehicles” that don’t conduct any trade, advertising or other operations. They merely hold your lending investments in a way that is bankruptcy remote from CapitalRise.

Lenders using CapitalRise lend to this company by buying bonds from it. (It’s really not important in terms of the actual risks to you whether it’s a bond or some other form of lending, but providers using this sort of structure usually find bonds the easiest and most convenient to setup.)

That company has just one purpose: to lend the money you put in the bonds on to the developer in a secured loan for the development in question and to pass all the benefits of lending on to you.

When these structures are set up and operated correctly, the borrower payments and interest can’t be diverted to pay anyone else, except to cover any agreed or required fees and expenses. It’s entirely as if the borrower owes you personally, while channelling it through the shell company.

This structure is effective, pretty standard and entirely legitimate, having been used in property lending probably many thousands of times. It effects the same risk mitigation as direct lending between you and the end borrowers. So, by 4thWay’s definition of peer-to-peer lending, this is truly P2P.

Visit CapitalRise*.

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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.

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