What does Kuflink do?
Kuflink* does loans to property owners requiring short-term (bridging) loans secured against their properties, including some development lending.
When did Kuflink start?
Established in 2016, Kuflink lenders have lent £209 million. Kuflink has a prior business operating since 2011 that has been successfully lending in the same kinds of loans.
What interesting or unique points does Kuflink have?
Kuflink’s loans fit in an interesting space for bridging and development in terms of the risks. It has a good record showing a fairly low proportion of loans that go bad – although many loans are extended before finally repaying – and excellent recovery of bad debt.
Just a very small proportion of loans have had to write-off some debt. Kuflink takes the first loss of 5% on loans in its manual lending account, called Select Invest. Loans for less than 65% of the value of the property – or less than 65% of the expected sale value on developments – are not covered by this first loss.
In its Auto-Invest accounts, its first strategy when a loan is going wrong is to look to take over the loan by moving lenders onto a new loan. Although that isn’t legally agreed or guaranteed, it could be useful sometimes in helping lenders to maintain their full interest rates.
The combined result of these facts is that lenders have still had zero losses, even after Kuflink has built a pretty reasonable history of loans.
How good are its loans?
Kuflink* has two key requirements of its loans and borrowers and these are typical of this kind of lending.
Firstly, the maximum that a borrower is allowed to borrow is 75% of the property’s valuation. Very sensibly – even necessarily – Kuflink sometimes requires the borrower to secure the loan against a second property if it’s coming close to this maximum. And Kuflink limits the maximum to 65% if it doesn’t know the area well. Combined, these standards are good for these kinds of loans, and we have seen sufficient results to show that Kuflink’s RICS surveyors are valuing properties sensibly.
Secondly, the borrower needs a clear exit strategy – a clear way to repay the entire loan at the end. This is a standard, essential requirement that we’d expect to see.
If loans pay regular interest, the ability to meet those interest payments is also important to Kuflink. So far, the data shows that these loans are also doing well, although, for this sub-segment of Kuflink’s loans, a little more history is needed before we can do any sensible, risk-based calculations.
Although a third of Kuflink’s loans are junior loans, the results of these have been exceptional, demonstrating that Kuflink thinks carefully before agreeing loans where Kuflink lenders are not first in the queue to recover their money if a loan turns bad.
While Kuflink does allow some first-time developers to borrow smaller amounts, the quality of all its loans that have elements of refurbishment, conversion or development are in line with the rest of its loans, with the results of these loans even being a tick better.
Developers can usually borrow up to 70% of the starting property valuation and further borrowing as development progresses may not exceed 70% of the expected sale price of the property. These are very sensible standards.
Around a third of Kuflink loans get officially extended, sometimes as many as two or three times. This has happened more on loans that started shortly before the pandemic hit, as you’d expect. This is quite typical of bridging lending, so it’s something to watch very closely for any signs that it’s moving beyond normal and, instead, concealing problems by kicking them down the road.
That said, Kuflink shows an excellent repayment record on older loans that have been extended at least once. Of the loans that were initially due to be repaid by the end of 2019, but were then extended, just one is still outstanding. There were a handful of small bad debts among these loans, totalling less than 0.1% of the amounts lent. (Kuflink covered those bad debts itself.) All the rest were repaid in full, with the amount repaid being over £12 million.
How much experience do Kuflink’s key people have?
The family business Kuflink* demonstrably has a decade’s experience with these loans.
It seems very likely that Kuflink has sufficient experience to conduct the key lending operations of its business.
While we have not been able to pin down and independently verify individuals with large amounts of prior experience, Kuflink itself has a profitable record in lending since 2011, it has a large pool of people with different experiences in bridging, development and property surveying, and highly satisfactory results in its P2P loan book, both in loan performance and recovering any bad debts.
Kuflink review: lending processes
The data it provides is very comprehensive, suggesting an interest in numbers that, while not essential for all kinds of bridging lending, does correlate with the lower- to middle-risk end. Even so, I believe Kuflink could improve its results further by making more ratios and hard lines central to its underwriting policy, as well as more emphasis on quantitative factors.
Kuflink is not what we at 4thWay between ourselves call a “swinger”, which means a P2P lending platform that is willing to approve loans without solid property valuations, in return for higher interest rates or smaller loan amounts compared to the estimated valuation of the property. Kuflink’s data and its explanation of its processes show that it prefers to err towards tighter standards.
Although Kuflink has some surveying experience of its own, it always requires an independent valuation of property security.
Kuflink has explained that it’s important for it that a borrower can meet regular interest payments, if they have been agreed for the loan. (Most loans don’t have regular interest. The loan and all the interest is repaid at the end.)
Kuflink could probably lower the chances of loans falling late a little bit further if it was stricter about the borrower having experience, although this might also be at the cost of less lending and lower interest rates. Borrower experience is not as crucial when Kuflink’s other core standards are high.
Critically for these kinds of loans, Kuflink* reacts fast when they fall late, initiating formal recovery proceedings 30 days after a loan goes late and attempting – frequently with success – to recover the debt within about another 30 days.
Kuflink’s credit committee – which makes the final decision on whether to approve or reject a loan – includes some independent directors. Kuflink’s independent directors have probably made mistakes in some other areas, but their relevant experience and the overall performance so far is supportive of the committee’s record in signing off loans.
How good are Kuflink’s interest rates, bad debts and margin of safety?
Outstanding bad debts have risen during COVID-19 for the first time, but a good chunk of this is likely to be recovered as legal action is taken. Kuflink has enough history to show convincingly that almost all its loans recover in full if they turn bad. Even if recovery of bad debt ultimately turns out to be shockingly bad and far worse than I expect, the bad debt will still be low.
When losses are confirmed on individual loans, they can reach 20%-30% of the amount lent on some bad debts. Don’t let that figure scare you. Firstly, it’s a rare event. Secondly, Kuflink has so far taken the full hit on those bad debts, and it still expects more of those bad debts to be recovered. Thirdly, even if individual lenders had taken the full cost of that bad debt, the overall lending results would still have been good.
If we look at just at the older, maturer loans, we can better see what the results are likely to be after recent, outstanding loans are repaid and all recovery action has been completed. Looking at those loans, with full diversification, the bad debt versus the total lent has been around 0.25% per year. This is low and, again, so far covered fully by Kuflink.
With Kuflink’s eyes largely focused on the property security and not as much on the borrower, this explains the fact that some loans have turned bad – albeit temporarily – in its first five years. Yet its standards (and safeguards) are high enough that no lender losses have occurred, which puts these loans in an interesting space compared to most.
Most bridging, in our experience, is either super safe with just about zero loans even temporarily suffering bad debts, or they have high bad debts. Here, we have something a little different, with low numbers of loans turning bad, combined with excellent recovery.
Kuflink’s lending rates of 5%-7%, depending on the lending account you use, are very satisfactory. I would feel especially comfortable with lenders choosing the higher-rate accounts and committing to lend for several years. That means lending longer and earning higher interest rates, but with the same underlying risk in the loans, so the overall risk of losses goes down further.
Our international banking standard stress tests of Kuflink’s loan book, using a much stricter version of the Basel standards than global banks are required to use, indicates that Kuflink* lenders should still make money overall when lending through a one-in-100-year recession and property crash similar to the 2008 crisis. This gives lenders an excellent margin of safety.
Has Kuflink provided enough information to assess the risks?
Kuflink recently closed the gaps in the information it provides 4thWay, now filling in all the blanks and providing detailed loan data and access to key people. It has also improved its website statistics for the public. Its marketing language on its website has also improved since 4thWay last checked. The level of information now provided is complete and highly reassuring.
Is Kuflink profitable?
Since the launch of its P2P lending site, the overall group used to be loss-making, but accounts published in 2022 show it made its first profit of around £400,000 last year, off a real income of more than £3 million.
This might not be a one-off. It seems most likely that it has already now reached a stable kind of profitability, which is still a rarity in the budding P2P lending industry.
What more do I need to know?
You earn interest from the time you pledge your money. So, if it takes a while for a loan to be fully funded, this doesn’t prevent you earning interest in the meantime.
In prior years, Kuflink was in the news after being criticised by its former auditors for its 2019 accounts for accounting and governance. It has made huge changes since then and company accounts for 2020 and 2021 show a clean bill of health from its new auditors.
Is Kuflink a good investment?
I like the spot where Kuflink is. It’s not the high-risk bridging and development lending that involves huge numbers of problem loans that you hope will be offset by high interest rates. And it’s not the absolute safest of its kind, which can often pay unappealing interest rates. It’s above that level of risk, but with good interest rates.
It’s a good investment and its new, energetic commitment to better accounting and governance is just what it needed.
What is Kuflink’s minimum lending amount and how many loans can I lend in?
The Kuflink minimum investment is £100. You need to take the time to spread your money around, potentially by dripping your money into an auto-lend account over six to 12 months or by lending manually.
With auto-lend accounts, Kuflink* attempts to spread your money across at least five loans and you’re likely to quickly end up with more loans than that. However, if you’re unable to spread across dozens of loans after trying for a while, ensure that you cap the total amount you lend through Kuflink and lend even more elsewhere.
Does Kuflink have an IFISA?
Kuflink’s auto-lend accounts are available as IFISAs.
Can I sell Kuflink loans to exit early?
You can sell loans early for a 0.25% fee in Kuflink’s manual lending account, called Select-Invest. With its auto-lend accounts lasting one, three or five years, you wait till the end.
Kuflink: key details of its Auto-Invest 5 Year Account
4thWay PLUS Rating
3 PLUSes is best. What does the 4thWay PLUS Rating tell you about the risks and rewards?
Interest rate after bad debt
Here we show the P2P lending site's own estimate (or 4thWay's if theirs are not appropriate)
4thWay Risk Score
Lower Risk Scores are better. How is this different to the 4thWay PLUS Rating?
£209 m since 2016 in secured short-term (bridging) & property development loans, with auto-lend & auto-diversification. Available in an IFISA
Minimum lending amount
Exit fees - if you sell loans before borrowers fully repay
Early exit is not guaranteed. Usually, other lenders need to buy your loans
Do you get all your money back if you exit early?
Loan size compared to security value
Reserve fund size as % of outstanding loans
Company/directors lend alongside you/first loss
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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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