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HNW Lending Review
Security consistently shows its worth, lending standards keep improving and directors take the first hit of up to 10% on rare losses.
HNW Lending's Property & Asset Lending Averaging 55% Average LTV received an Exceptional 3/3 4thWay PLUS Rating.
This manual lending account is paying around 7.10% interest after losses from bad debts. Its auto-lend account pays 7% with additional borrower interest covering rare losses.
Visit HNW Lending* or keep reading the HNW Lending Review.
The minimum lending amount is high at £10,000 (£5,000 in the IFISA), although you can choose to spread this automatically across at least 15 loans.
When did HNW Lending start?
HNW Lending has completed £125 million across more than 450 loans since 2014.
Most of its loans are property loans, although it also completes loans against expensive cars or other items.
What interesting or unique points does HNW Lending have?
At least one HNW Lending* director co-lends in almost every loan, now taking the first loss of 10% in most loans, dropping down a bit in just a few loans.
If a loan goes bad and it can’t be fully recovered, the first thing that will happen is that the directors lose their share before anyone else suffers any consequences. Its founders and shareholders currently lend over £2 million in the same loans as everyone else.
HNW Lending frequently offers loans that are a fraction of the valuation of the property security. 4/10 loans are for less than half of the property valuation. Lenders who spread their money equally across all of these loans are earning 6.82%.
Lenders get unusual personal service: you can ask for updates on your own specific loans by emailing kim@hnwlending.co.uk.
How good are its loans?
I’ll split this into two sections: your security and the chances of loans turning bad
Your security
Security is something owned by the borrower that you’re usually able to forcibly sell in order to recover a bad debt.
On average, borrowers borrow just 54.96% in the property that they put up as loan security for lenders.
While a large number of loans have gone bad, most have an exceptionally high prospect of full recovery. This is because of the property used as security on your behalf, which is where HNW Lending* focuses its risk controls.
The overall quality of HNW Lending’s security has been proven time and time again. Five full cohorts of loans (annual “batches” of loans) have matured. Each time, HNW Lending has swiftly gone after all of the bad debts and the security, recovering almost all bad debts for lenders.
HNW Lending can be loose in how it approves some loans, where it appears that property or items are clearly worth a lot more than the loan. This helps it find more loans for lenders that will pay decent interest rates.
To offset the additional risk, the expected valuation of the property compared to the loan amount usually needs to be considerably higher than normal.
The chances of loans turning bad
Many of the borrowers have been wealthy “high-net worths” that tend to have a lot of property and other expensive possessions, but not always a lot of cash.
We have had the impression in the past that some borrowers weren’t always especially willing to meet their obligations if it doesn’t suit them, which means unnecessary legal action.
Historically many, many loans turned bad (before being recovered, with additional interest, thanks to the security). But, at the end of 2020, HNW Lending tightened its lending standards further to reduce the number of loans that turn into bad debts in the first place.
It’s now spring 2023 and we can already evaluate the benefits of their new standards, as just one loan since then has turned bad. That’s far, far fewer than we would have previously expected at this point. HNW Lending was great, but now it’s even better.
Where is it on the risk scale?
HNW Lending has consistently made a lot of money for its lenders. For example, 93% of all loans issued in its first five years up to 2019 already repaid in full. Lenders earned over £16 million and suffered losses under £100,000.
The P2P lending industry as a whole has been resoundingly profitable for lenders every year since it started in 2005, in stark contrast to the stock market.
Despite this, the financial regulator remains stubbornly cautious about it, still forcing P2P lending companies to write warnings like “This is a high-risk investment.” You’ll see this on HNW Lending’s website and all the others.
Read more about this discrepancy between regulation and reality in Peer-to-Peer Lending Vs Other Investments and Why Is Low-Risk P2P Lending Labelled As “High Risk”?
How much experience do HNW Lending’s key people have?
Its key decision maker – who’s also the CEO – has a decade’s prior experience. His property background doesn’t hold identical skills and experience to those we’d expect. However, we’ve followed his learning curve over nine years at HNW Lending and seen the improvements.
I would still like to see a wider variety of professionals working for HNW Lending, although even without other experience it has already managed to significantly push down the number of loans that turn bad while earning lenders a lot of money.
The CEO clearly works very hard to prevent lenders from losing money and he puts his money where his mouth is. With the biggest problem borrower in its first three years, for example, after recovering much bad debt, he ensured it was only him who had any money left on the line, with all P2P lenders repaid.
HNW Lending review: lending processes
HNW Lending’s processes have gradually improved and become more professional over time as it has learned from mistakes and eliminated them. As the years have gone by, I have become increasingly positive about how it assesses borrowers, and approves or rejects them.
HNW Lending* mostly sticks to property or items it understands with a maximum loan of 70% of their value, which is a sensible limit.
It doesn’t always get independent valuations of property, vehicles or other assets used as security. This is unusual in this kind of lending and partly reflects why a higher proportion of these loans turn bad.
However, it skips those assessments only in lower-risk cases. For example, it will only consider doing so if the estimated property valuation is less than 50% of the loan amount.
Loans are usually real property loans, but sometimes they are secured on valuable items. When items are used as security, they’re stored securely and insured, borrowers pay interest monthly or in advance, and overdue loans are quickly spotted, rapidly acknowledged and acted upon. The latter is far from a given in peer-to-peer lending of this kind, but vital to ensure that ultimate recovery of bad debt is usually successful.
HNW Lending restarted offering a small amount of lending against properties in foreign countries in 2021. It still needs to build up a record here, but it did learn the hard way on some early problem foreign debts – which were fully recovered.
My assessment after extensive interviewing is that it’s now very cautious about selecting and checking overseas borrowers, while taking good account of the local situation and using local professionals.
HNW Lending’s bad-debt recovery processes have been proven time and again. It has chased late debts rapidly and pursued borrowers hard, although it has shown compassion at times for specific cases.
How good are HNW Lending’s interest rates, bad debts and margin of safety?
History has shown that almost all loans that turn bad recover in full – complete with additional interest. For example, just £70,000 of the first £55 million lent through HNW Lending was written off (0.1%), with just 5% of the remaining loans outstanding and in good stead.
HNW Lending* repeatedly defies gravity. Up until the 2020, each year has had high bad debts – often 20% or 30% – but it goes on to recover virtually all of the amounts due. Lenders are paid interest for the entire period the loans were outstanding, including when the debts were bad.
From the end of 2020, after tightening its lending standards, I now expect that those high amounts of bad debts that need recovering are a thing of the past.
There’s already sufficient history to show that, at the very least, the ride has become a lot less wild. This won’t necessarily improve your returns, since recovery has always been so good, but it might be easier on your health.
The margin of safety therefore looks fantastic, provided you spread your money out across a score or more loans to contain risks.
HNW Lending’s Auto Invest
Auto Invest currently pays 7% and spreads your money across at least 15 loans.
In addition to the hefty first-loss taken by one of the directors, some of the excess interest paid regularly by borrowers is held back for auto-lend lenders. This covers late repayments, missed interest payments, and ultimately makes up for bad debts that haven’t (yet) been recovered.
To date, lenders using auto-lend have always received the full interest due to them and all losses have been covered.
From February 2023, 4thWay has started to get additional information about HNW Lending’s auto-lend account, which really helps us to close the last hole in information that we had.
We now know that, at this point, there is a sufficient cash surplus in the auto-lend account to more than cover any worst-case write-offs from outstanding bad debts within the auto-lend loan pool.
We estimate worst-case write-offs might be around £100,000, whereas Auto Invest has about £150,000 in cash to cover it. While the surplus can be used for other things, such as covering new arrears, this is still looking healthy.
In the event of a huge downturn and property crash, the cash surplus will also take the edge off any additional losses, very likely still leaving you with most of your expected returns.
The existing loans will also easily cover any worst-case losses multiple times over through the interest due to you.
The strong pipeline of new loans coming up looks healthy for auto-lend. Newer loans are having higher rates too, which means these will have more surplus interest to cover any losses.
HNW Lending’s Manual Lending
Most money lent through HNW Lending* is done manually (which suggests most of its investors are wealthy, as you need to put more money in to do it this way).
When choosing your own loans, lenders might expect to earn around 7.10% after losses, which is more interest than auto-lend, because no interest is diverted to cover late payments or bad debts.
As of March 2023, I estimate worst-case losses should be no more than 2% of outstanding amounts in the manual lend account. As loans typically are repaid after more than a year – around 18 months – those losses will add up to less than one-fifth of the interest paid on those loans, which is in line with past results.
Even so, these losses will be unevenly spread for lenders who haven’t adopted sensible strategies for themselves in spreading risk across lots of loans. With manual lend, the responsibility not to put too much money into any one individual loan is entirely yours.
Has HNW Lending provided enough information to assess the risks?
HNW Lending* is transparent with 4thWay, sharing a great deal of detailed information and data with us. It’s quick to respond to our questions. Its history is deep enough for our full risk-modelling techniques (enabling us to assess it for a 4thWay PLUS Rating).
While 4thWay gets detailed information, HNW Lending should provide much more information and statistics on its website directly to potential lenders, particularly on the proportion of outstanding bad debts, so that lenders can better understand the types of loans they are getting into.
Information available to non-registered users of the HNW Lending website lacks clarity on such things as its first-loss cover, auto-lend interest rates and late loans.
HNW Lending does however provide detailed information on each loan to signed-in investors. It also shows them the current status of each loan, including late or bad loans that are held in the auto-lend account, as well as information on the first-loss paid for by an HNW Lending director.
Is HNW Lending profitable?
Unaudited accounts indicate that HNW Lending was gently profitable in 2021 and 2022. HNW Lending tells us that has been profitable every year since it started. While this is unusual, it’s certainly plausible based on its lending volumes and low staff numbers.
What is HNW Lending’s minimum lending amount and how many loans can I lend in?
If you want to use auto-lend, , this currently spreads a minimum of £10,000 across at least 20 loans, and typically over 40 loans, with a maximum of 10% of your money in any one loan. If you use the IFISA, the minimum you can put in is £5,000.
If you prefer to pick individual loans yourself, it’s very exclusive, with a high minimum of £10,000 in each loan you lend in. However, if you put £15,000 into HNW Lending’s IFISA, the minimum you can lend is reduced to “just” £5,000 per loan.
What more do I need to know?
Be prepared for a wait to receive your money back
Manual lenders can have a long path to getting all their money back when loans turn bad. You do earn interest while you wait perhaps six months to two years (sometimes longer) for legal procedures to be completed.
Auto-lend lenders potentially face that same issue, if lots of lenders want to sell at the same time, although more typically you’re able to sell the loans and get your money back.
Regulatory and legal structure
Finally, HNW Lending approves nearly all loans using the most typical, standard P2P agreement, which is regulated by the FCA. It also approves other loans using other structures that simulate the P2P, direct lending structure. Both structures are common.
It’s unusual for there to be a blend of structures, but the reasoning is straightforward: the regulator requires that HNW Lending’s IFISA uses P2P agreements, while the alternative structure sometimes used in its P2P lending account is easier and incurs fewer costs for HNW Lending.
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 opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by ESMA or the FCA. All the specialists and researchers who conduct research and write articles for 4thWay are subject to 4thWay's Editorial Code of Practice. For more, please see 4thWay's terms and conditions.
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.
*Commission, fees and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from HNW Lending and other P2P lending companies not mentioned above either when you click through from our website and open accounts with them, or to cover the costs of conducting our calculated stress tests and ratings assessments. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.
