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Fantastic rental property security and high returns has earned lenders £20 million, with just £40,000 in losses.
These loans have been paying 7.25% interest after bad debts.
Visit Proplend* or keep reading the Proplend Review.
What does Proplend do?
Proplend* does secured property lending in the UK, usually to landlords of residential properties or commercial properties such as shops, business parks and hotels. These loans are most typically for 36 months.
It occasionally arranges some short-term property (bridging) lending, such as loans to acquire land for property development. However, it doesn’t do loans to actually develop properties. These loans are typically for 12 months or less.
It’s been paying 7.58% after bad debts, across all its loan types and grades (tranches A to C).
Two years ago, Proplend launched VAT loans. By autumn 2023, results look great, with 100% of loans repaid in full, but since there are still relatively few of them, they’re not covered here.
When did Proplend start?
Proplend first approved a loan in 2014 and has completed £200 million in lending.
What interesting or unique points does Proplend have?
Proplend’s biggest strength is in the security that borrowers offer lenders.
In most of its loans, called tranche A, borrowers are very stringently restricted in how much they can borrow compared to the property valuation. 50% is the maximum, leaving a huge amount of room for problems if a borrower can’t repay and the property needs to be forcibly sold to recover your lent money. No other P2P lending provider sets a better maximum limit.
More than that, borrowers are usually already earning rent on their properties that more than covers the monthly loan payments. Few P2P lending providers offer this kind of lending.
Lenders who want to take more risk to potentially earn higher interest rates can agree in advance to lend over 50% and be second or third in the queue when it comes to recovering their money if a loan turns bad.
Lenders who have selected only loans where they come first in the queue at a maximum of 50% of the property valuation have never suffered any losses.
Proplend* has had a good record of enabling lenders to exit their loans early – before a borrower repays. While Proplend won’t always manage to help you exit early, its typical exit times over the past six years have compared favourably with many other P2P lending and IFISA providers.
Proplend review: how does Proplend work?
Pictures speak louder than words:
4thWay’s Proplend review infographic: click to expand to see How does Proplend work?
Proplend review: How good are its loans?
Lenders in Proplend’s “tranche A” loans are protected by real-estate security with a property valuation that’s at least twice the size of the loan. This is incredibly good risk coverage for lenders. If a loan turns bad, any forced sale of the property would have to give lenders back less than half the property price, after costs, before you lost any of your initial loan.
Lenders lending in tranches B and C are choosing to take riskier slices of loans, with a greater risk of losses in the event a loan turns bad. Lenders can blend all tranches for a different risk-reward balance.
Proplend doesn’t just reject loan applications based on quality, but also to ensure diverse kinds of loans for lenders. Having borrowers with more different kinds of properties can reduce risk.
As the end of 2023 draws closer, we are seeing that rejecting borrowers in the name of diversification is possibly overkill – at least in this particular economic situation.
Yes, offices are still chronically under-used since the pandemic. And rising interest rates aren’t helping landlords, when the occupants of the offices decide not to renew their leases. But Proplend continues to get full repayment of all loans and interest, even on loans where borrowers have a few issues.
Even so, good money lending is about maintaining your high standards, so I take comfort from Proplend lenders’ exposure to offices, at about 11% of outstanding loans. Combined with Proplend’s tight lending caps against the value of each property, the downside risk to lenders is exceptionally well contained.
Proplend’s loans against tenanted properties
Most loans – of all tranches – are secured against properties that are earning rent.
The combination of rent and real-property security substantially lowers the risks, as it reduces the chances of loans going bad and increases the chances of recovering bad debt.
Regarding Proplend’s tranche A loans, the risks of lending half the property valuation while earning rent is lower than any other type of P2P property lending currently available in the UK and, indeed, any other type of non-property lending too.
It’s rare that Proplend accepts a loan where the borrower is receiving rent equal to less than one-and-a-quarter times the monthly loan payments to Proplend lenders.
Proplend’s short-term property loans
Proplend* has built up a good record of full repayments on its non-rental, short-term property (bridging) loans since it approved its first one in 2017.
The types of bridging loans that Proplend approves have a high chance of turning bad, but also excellent prospects of a full recovery. That’s why lenders have received all their money back, plus interest.
Don’t underestimate that last point. It’s normal for a good proportion of bridging loans to fall late in being paid off. What’s important is a good record in quickly turning around a late debt, and achieving this is an important sign of quality for these kinds of loans.
Proplend hasn’t been approving many bridging loans for a while, as it focuses on lending against rented properties. Less than 1% of outstanding amounts are currently in bridging loans.
Proplend’s refinanced loans
Like all property lenders, Proplend allows some lenders to re-borrow when a loan comes to the end of its term. To do this, borrowers repay the debt to existing lenders by borrowing again through Proplend. This is called an “internal refinance”.
Refinances are not abundant, which is good. That would be a possible sign that problem debts were being deliberately kicked down the road. Alternatively, it’s a sign that Proplend’s borrowers have no solid long-term plan to stop short-term borrowing, which is more expensive and supposed to be temporary.
We now have sufficient history for Proplend to find that loans that are internally refinanced are probably more likely to turn bad, at perhaps double the rate of other loans, which is roughly in line with expectations.
The higher rate of problem debt here doesn’t concern me. Firstly, because Proplend is very quick indeed to label a loan as a bad debt. That’s why, typically, Proplend loans have been easy to recover simply by communicating with the borrower. They rarely require properties to be forcibly resold.
Secondly, recoveries are still exceptionally high when recovering the outstanding money and interest is paid for the delays. That includes increased penalty interest and fees, paid to lenders, which has actually boosted overall returns. This is a relative rarity, as P2P providers themselves typically pocket the increased interest, paying lenders just the standard interest while delayed loans remain unpaid.
That’s why all bad debts on internally refinanced loans have been recovered so far, with lenders paid the interest due and with no remaining loans in the recovery phase.
Even so, lenders might resist the temptation to lend in a high number of refinances, particularly in tranches B and C.
Proplend review: lending processes
Proplend* has remained picky about the loans it approves, maintaining high standards. It approves around 10% of loan applications.
Its processes for reviewing borrowers, their properties and their tenants are as we would expect for these kinds of loans.
This peer-to-peer lending company has proven that its processes to shut out fraud are good. Fraud is where property lending has caused serious trouble at less professional lending companies.
It uses very simple, but strict, base criteria to ensure that the loans it offers lenders are likely to repay in full and with interest.
Most critically, Proplend has demonstrated speed and effectiveness in its processes when reacting quickly to loans that fall late. These loans have typically been fully repaid within just three months.
How good are Proplend’s interest rates and bad debts?
Proplend’s results on its loans against properties receiving rent are in line with expectations. Around 80 of these loans have repaid and a similar number are still active and in good standing. There’s just one outstanding bad debt in recovery procedures, and it’s still paying interest.
On all its loans of all types, Proplend lenders has suffered just one loss in nearly 10 years. Some tranche B lenders lost 30% on one of their loans (there was no tranche C in that loan). Interest they earned on the loan will have offset some of those losses. Tranche A lenders in the same loan got all their money back. There have been no losses on any of Proplend’s other P2P loans.
Lenders who are lending in many loans have all made extremely satisfactory returns, even if they were also lending in that one bad tranche B loan.
Combined with generous interest rates for lenders, I believe the risks are very well contained.
Proplend’s tranche A loans really hit a sweet spot on the risk-reward scale. But its tranche B and C loans are comfortably in a good interest-rate range too when adjusting for risk, at about 8% to 11%.
Proplend’s results on its bridging loans have seen it classify one-third of the loans as bad debts, but almost every one of those bad debts was swiftly recovered in full. It has approved just one bridging loan so far this year: just tranche A with a 13.5% lending rate after fees.
Does Proplend offer a large margin of safety?
Proplend* continues to show a very steady and large margin of safety against losses. We regularly look at the performance of all its loans, using international banking-style stress tests.
Our conservative version of these tests calculates the estimated results during a severe recession and property crash, similar to 2008. Our tests strongly indicate that Proplend lenders who take the time to spread their money across as many loans as possible have a large margin of safety, even in terrible economic conditions.
That’s why Proplend has earned the top 4thWay PLUS Rating of 3/3 for tranche A. The same goes for its tranche B and C loans combined. (We combine the two in one rating, because we see them as closely linked. They are both junior loans that attract people who want to add in somewhat more risk to their lending.)
Tranche A loans also earn close to the lowest (i.e. best) 4thWay Risk Score ever, at 4/10. In contrast to the 4thWay PLUS Ratings, the 4thWay Risk Scores look at just the scale of losses in a severe recession and property crash, without considering the interest rate.
Indeed, the tranche A loans are right on the verge of being the 4thWay Risk Score currently awarded of 3/10, which might happen at some point in 2024.
Last year, in December 2022, Proplend’s tranche B and C loans improved their 4thWay Risk Score by one point to 6/10, because projected losses before interest in severe conditions look even better, as its record deepens and matures further.
How much experience do Proplend’s key people have?
Proplend’s lending team has increased its relevant banking experience over the years through new hires as well as eight years of internal experience. Its two key decision makers, who have to approve all loans passed up to them from their lending team, are Tarun Patel and Matt Carson.
Matt Carson has a lot of experience in corporate lending and managing risk.
Tarun Patel brought the additional experience that I mentioned I wanted to see in an earlier version of the Proplend Review. Patel has a large amount of highly relevant and senior experience at Barclays Bank and Santander. Carson and Patel are backed up by other experienced people in their team.
Proplend had brought on a specialist in VAT lending. He has now left. Proplend is using their experience gained having worked with him to continue to approve these loans, although they are tiny part of lending.
Proplend also got a new chairman last year who was head of business banking at NatWest and Royal Bank of Scotland for 20 years, and he has substantial property lending experience. This is a fantastic addition to their team.
Has Proplend provided enough information to assess the risks?
Proplend* is very transparent with 4thWay, sharing the highly detailed data we need to use bank risk-modelling and investing techniques to assess its performance. It provides us with access to its key people and answers our questions.
Is Proplend profitable?
Recently published accounts show that Proplend was gently profitable for the first time last year, after being close in the prior two years – even after the pandemic hit.
Tentatively, as of November 2023, the information we have is that it looks like this year will also end profitably.
Proplend has a genuinely unique model and so success is likely imminent. Even so, with no large parent company behind Proplend, I shall of course be keeping an eye on its trajectory.
Is Proplend a good investment?
I think Proplend is a very good investment. Proplend* is an easy choice for anyone who can afford its high minimum amount for each loan and is able to take the time needed to spread across plenty of loans to cover risks. I expect it to continue to offer lenders highly satisfactory and stable returns.
What is Proplend’s minimum lending amount and how many loans can I lend in?
The minimum you can lend in each individual loan is £1,000.
At present, there aren’t a huge number of opportunities to lend. So take several months to add money to your Proplend account and build up your number of Proplend loan holdings.
With Proplend’s auto-lend facilities, you can choose the maximum amount that you’d want to lend in any loan. It now splits its auto-lend into two different facilities:
- Proplend’s “AutoLend Always On” spreads your money across tranche A loans.
- The alternative facility, “AutoLend Self Select”, is a half-way house. You select loans that you want to lend in – and whichever tranches you want – and Proplend will automatically lend money for you as soon as the loan is confirmed and goes live.
It makes sense to use AutoLend Self Select rather than select yourself without auto-lend, as you’re more likely to take part in lending.
4thWay investors tend to be particularly complimentary about how Proplend works behind the scenes to make sure lenders are happy they’re taking part fairly.
Does Proplend have an IFISA?
Proplend’s lending products are available as IFISAs at no extra cost.
What more do I need to know?
With the minimum you can lend in a loan being £1,000, you might sometimes find money waiting to be lent for a while, as you accrue interest to lend again. Some lenders withdraw their cash and earn higher interest while waiting for the next opportunity.
In the IFISA, it’s not quite as easy, but still doable. At least one lender using the Proplend IFISA figured out the solution.
The lender was earning over £100 interest per month. He elected for Proplend to pay out the interest to his bank account automatically.
Since Proplend’s ISA is “flexible”, it means you’re allowed to take money out that you have put in during the current tax year, and yet put it back in during the same tax year without losing any of the current year’s ISA allowance. So, before a tax year ends, he’s earned over £1,000 in interest that he returns to the ISA.
So long as you top up with at least £1,000 in new Proplend ISA contributions each year, you’ll be able to keep doing this technique for a long time.
Lenders see a running total of the amount paid out in their Proplend account, so they can keep track of what they’re allowed to put back in. And you get an email reminder towards the end of the tax year.
Worst-case scenario, you’ll earn around one percentage point less interest per year as a result of waiting to lend, but the risk also comes down to virtually zero while you’re money is not being lent.
Proplend: key details of its Tranche A Lending
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?
£200 m lent since 2014 secured on property receiving rent and some short-term (bridging) property loans, with optional auto-lend, auto-diversification & early exit. 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.
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.
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