HNW Lending Review
Here is the most recent HNW Lending review from one of our experts.
4thWay's Quick Expert HNW Lending Review
A “swinger” with a high number of very secure loans and first loss usually paid by its directors, but the minimum lending amount is very high
HNW Lending Review: their best-rated product
This account has been paying 8.59% interest.
When did HNW Lending start?
HNW Lending has completed £96 million across 400 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, taking the first loss of 10% or more in at least half of them and averaging [HNWLendingFirstLossOnBottomHalf] first loss in the rest. 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.
HNW Lending frequently offers loans that are a fraction of the valuation of the property security. 4/10 loans are for 50% LTV or less. Lenders who spread their money equally across all of these loans have earned a phenomenal average 9.31% lending rate before losses – which have been negligible.
Lenders can ask for personal updates on their own loans by emailing email@example.com.
HNW Lending during COVID-19
HNW Lending approved very few loans for many months, but activity began to pick up again from the end of 2020 through to the end of spring 2021.
Turning to existing lending, many borrowers hit by the pandemic have been unable to repay, at least temporarily, or have asked for forbearance. Outstanding bad debt is currently double the amount in normal times, but the properties the borrowers own still back the loans and the average loan size is very low. HNW Lending has almost invariably, ultimately, recovered bad debts in full and I expect many of the outstanding bad debts to be recovered in the next 12 months. Plus interest: lenders continue to earn interest on loans that turn bad.
Critically, 4thWay had anticipated this doubling of loans turning bad at HNW Lending during a big downturn, due to the type of lending and security it offers. Interest rates are sensible for covering the risk.
How good are its loans?
HNW Lending can be loose in how it selects borrowers where it appears that property or items are clearly worth a lot more than the loan. This helps it find more loans to pay decent interest rates but it could also lead to some losses on some loans. That is what we call a “swinging” P2P lending site.
On average, with HNW Lending's senior loans, borrowers borrow just £43,000 for each £100,000 in the property that they put up as loan security.
Borrowers are all wealthy “high-net worths” that tend to have a lot of property and other expensive possessions, but little cash. This means that loans can go bad quite often but there is a high prospect of recovery.
How much experience do HNW Lending's key people have?
Its key decision maker has a decade's experience. He comes from a property background that is alternative to the usual route, although still involving reasonably similar skills and experience to those we would usually expect.
HNW Lending review: lending processes
Its processes tick all the boxes for this kind of lending, provided you accept that it is supposed to have a high proportion of loans that go bad – at least for a time.
It mostly sticks to property or items it understands with a maximum loan of 70% of their value; HNW Lending doesn't always get independent assessments, but it does so when it is particuarly appropriate; items used as security are stored securely and insured; borrowers pay interest monthly or in advance; and bad debts are quickly spotted and 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 recovery of bad debt is usually successful.
The focus is on accepting property security and borrowers where recovering bad debt is easy, so there have been no losses for lenders to date.
How good are HNW Lending's interest rates, bad debts and margin of safety?
The usual expected result from the many loans that turn bad is a full recovery of the bad debt – complete with additional interest. For example, no loans made in 2014 and 2015 have any remaining late payments or bad debts, despite the fact a good number of those loans went bad at some point, as they were expected to do. Expectations for loans issued in 2016 are now that just 0.1% of them will be written off.
If you use HNW Lending's auto-lend, in addition to the first-loss feature, some of the excess interest is held back to cover additional bad debts and to meet missed interest payments. We lack the data and information to calculate the size of this surplus and lenders have no guarantees about its future size, but so far it has paid lenders back for all missed interest payments and already covered expected losses on outstanding bad debts.
Even without the interest surplus, interest rates for both auto-lend and manual lending appear fantastic for the risks involved in HNW Lending's loans. The margin of safety is therefore very good, provided you spread your money out across a score or more loans to contain risks.
I see signs of pressures on interest rates and expect that lenders will earn perhaps up to one percentage point less in future than they have in the past, but the risk-reward balance shouldn't shift too much.
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 is quick to respond to our questions. It's history is deep enough for our full risk-modelling techniques (enabling us to assess it for a PLUS Rating).
While 4thWay gets detailed information, HNW Lending should however 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. (See 4thWay's detailed comparison pages for more detailed statistics on HNW Lending's bad debts.) Public information also lacks clarity on such things as its first-loss cover, auto-lend interest rates and late loans.
Is HNW Lending profitable?
We have limited information on the financial health of this P2P lending company as it is too small for full, audited accounts, but it states it's profitable, and its founders and shareholders are high-net worths themselves, currently lending over £2.5 million in the same loans as everyone else.
What is HNW Lending's minimum lending amount and how many loans can I lend in?
If you want 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.
Alternatively, you can use auto-lend, which currently spreads £10,000 (or £5,000) across more than 40 loans, with a maximum of 10% of your money in any one loan.
What more do I need to know?
About the loans you buy in HNW Lending's auto-lend account
HNW Lending's auto-lend account doesn't take on loan parts of HNW Lending loans that have already turned bad bad, but anyone putting new money into auto-lend will be buying its existing good and bad loans. While this is something you should know, I expect that the vast majority of the bad debts will continue to be recovered and with interest ultimately paid for the entire time you were lending.
Be prepared for a wait to receive your money back
Since a lot of loans turn bad and are recovered through the courts, manual lenders can have a long path to getting all their money back, because you can expect lots of loans to turn bad. You do earn interest while you wait perhaps six months to two years 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.
Anyone doing P2P lending should always be prepared to hold onto their loans for longer, when necessary, and not rely on early-exit options.
Regulatory and legal structure
Finally, HNW Lending approves some loans under the traditional P2P agreement involving loans regulated by the FCA, while it also approves other loans using other structures that simulate the P2P, direct lending structure. Both structures are common in P2P lending. 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 for the P2P lending account is easier and incurs fewer costs for HNW Lending.
HNW Lending review: key details of Manual 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?
HNW Lending Quick Expert Review: a “swinger” with a high number of very secure loans and first loss usually paid by its directors
HNW Lending has completed £96 million across 400 loans since 2014. Most of its loans are property loans, although it also completes loans…Read the full review here
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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.
*Commission 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 when you click through from our website and open accounts with them. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.