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4thWay Alerts Service: Wellesley Update

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By on 22 November, 2016 | Read more by this author

The 4thWay Alerts Service lets our email subscribers know when a 4thWay writer has seen any major changes at a P2P lending website that he/she would want to be informed about personally – speaking as lenders themselves.

I have seen several changes at Wellesley & Co.* since I first reported on it, so here's an update.

Interest rates are now close to savings rates

Interest rates fall and rise in P2P lending for different reasons, not all of them are under the P2P providers' control. Sensible individual lenders set minimum rates for themselves.

Rates have come down from as much as 5% to now 2.25% when lending for one year and 2.35% over two years. (Wellesley no longer offers longer deals.)

Wellesley's interest rates are now within one percentage point of the top savings accounts and cash ISAs. Savings are lower risk, not least because your first £75,000 in savings at each bank (or sometimes within a banking group) is protected by the Government.

Wellesley has other higher-risk investment products paying more interest, but those are not peer-to-peer lending and therefore not covered on 4thWay.

We are getting less information

In 4thWay's very first guide back in 2014, it said that lenders (and investors in any investment) should take transparency seriously. This means how open a P2P lending provider is about its facts, figures, processes and people.

Transparency is a lender's best friend. The more you know about a P2P lending website and its loans, the more confidently you can decide whether to lend and what interest rate is a fair price.

Two years ago, Wellesley was at the forefront of transparency, but now, with transparency rising elsewhere, Wellesley is not just falling behind but has gone into reverse.

Wellesley has stopped showing any information on late or extended loans in its statistics for lenders. Its filed accounts for the end of 2015 showed that over 40% of loans were classed as “overdue”, albeit mostly by under three months. There are both acceptable and bad reasons why lates might be so high with these kinds of loans, but we have no information.

Wellesley no longer shows when loans have gone beyond late and it has started taking steps to recover as much as possible of the debt. Now, it only provides some limited statistics on loans it has actually written off, last updated in July.

Over the past year, I regularly noticed conflicting or inaccurate figures in Wellesley's summary statistics.

Not shown in Wellesley's statistics is that at some point Wellesley started lending in euros against properties in Spain. As of the latest information I have, these now account for around half of the loans.

According to Wellesley's most recent annual report, it largely eliminates the exchange-rate risk of those loans. (If you're wondering how, Wellesley uses “derivatives”, which in this case is basically insurance against foreign currencies turning unfavourably against you).

When the first bad debt occurred, Wellesley took the decision not to explain why loans have gone bad, what they are doing about it or what they have learned from it. This is a contrast to other P2P lending websites that do large property deals. I see in the annual accounts that Wellesley took the substantial step of becoming a 50% joint-owner in a development project in Spain after a loan suffered trouble.

Gradually, more Wellesley data in our comparison tables has been replaced with phrases like “No info”, because more of our experts' questions about the latest status remain unanswered (although Wellesley might justifiably say that it doesn't exist just to answer 4thWay's' questions). It should be noted that most P2P lending sites don't answer every one of our questions – often for legitimate reasons.

Wellesley's rating

We can no longer assess Wellesley's 4thWay rating due to lack of information. It is therefore now unrated.

Wellesley's borrowing

One of the company's in the Wellesley group has been borrowing a lot of money itself, both to expand the business and to lend to property borrowers. Wellesley has largely borrowed directly from ordinary people by issuing bonds; its borrowings have therefore faced less expert scrutiny and less details were available to assess the deal.

If Wellesley uses borrowed money to expand, it puts pressure on itself to grow fast enough to pay its loans back, plus interest. If it uses the bond money to lend more in property loans, it puts pressure on itself to relax its standards in selecting borrowers, since Wellesley needs to earn interest to cover the interest it is paying on its own debts.

Wellesley also needs to keep finding borrowers to lend to so that it can meet its commitments to individual lenders to pay us interest regardless of whether our money is on loan or not.

All businesses, not just ones that are borrowing, can face short-term pressures, and Wellesley is borrowing very cheaply through its bonds. But given a choice I would rather see early-stage businesses getting cash through new issues of shares, instead of through debt, and all the associated costs, as well as the associated risks of borrowing to lend.

Crucially, if you lend through Wellesley's P2P accounts, your loans are ringfenced from Wellesley's own debts. If Wellesley or one of the company's in its group couldn't repay its debts, the people who have lent to Wellesley itself can't take a slice of your P2P loans. Those existing loans of yours should be gradually paid back to you as the borrowers continue to repay.

Lenders still have suffered no losses

No change to report here: Wellesley lenders have still not come close to experiencing any losses and have received every penny due in interest.

There have been late payments and write offs. However, when loans have not been repaid, and security has not covered those losses, Wellesley has paid for those losses itself: apparently more than £4 million with another £4 million earmarked for the future.

Wellesley continues to come tantalisingly close to saying that it will cover losses without taking the step of making it legally binding. While we do not count lawyers among our experts at 4thWay, we believe there are reasonable legal and regulatory reasons why Wellesley doesn't go so far as to do so.

Wellesley* has a team with a lot of experience in this kind of lending and we have also seen no reports that lenders are having difficulty withdrawing their money. Let's hope Wellesley's busy team also takes the time to catch up on the transparency front sooner rather than later.

For more on assessing P2P property lending sites, take a look at How To Assess P2P Lending Websites, especially section two.

*Commission and impartial research: our service is free to you. We already show dozens of P2P lending companies in our accurate comparison tables and we keep adding more as soon as they provide us with enough details. We receive compensation from Wellesley & Co. 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.

8 responses to “4thWay Alerts Service: Wellesley Update”

  1. SteveH says:

    The rates at the moment are indeed probably not worth the risk, tiny though it is. But definitely worth reminding that Wellesley take first loss, skin in game, money where mouth is, so if a loan isn’t repaid we have a charge on the property with a not bad LTV, a protection fund, and then Wellesley’s own money before we see a loss.

  2. DaveS says:

    Given a 69% average loan to value ratio, it would be nice to know the specific details of how the £4million losses materialised. I have a feeling that information will not be forthcoming!

    • Matthew Howard says:

      Like maybe 9/10 of the P2P lending companies that offer development loans, what Wellesley calls “LTV” on its development loans is not the loan size compared to the current property valuation. Instead it is the loan amount to the hoped-for sales value of the development on completion. Usually, development loans are for over 100% LTV versus the current valuation of the property. More in these articles:

      https://www.4thway.co.uk/candid-opinion/property-development-riskier/
      https://www.4thway.co.uk/candid-opinion/checklist-for-selecting-development-loans/
      [Last section] https://www.4thway.co.uk/assess-p2p-lending-websites/

      Cheers,

      Matt

      • Matthew Howard says:

        “it would be nice to know the specific details of how the £4million losses materialised”

        I think that in at least one case Wellesley decided to buy out lenders and did a deal to co-own a delayed development, possibly because it was sure that the project would be a success given more time (and maybe more cash). I’m just speculating here based on what I remember of the notes to its 2015 accounts. The point here is that Wellesley probably pays out with its own funds sometimes earlier on in the debt recovery process so that lenders don’t suffer delays, and then Wellesley recovers its own money from the borrower afterwards.

      • DaveS says:

        Thanks for the info Matt. I always thought that property development loans were released by way of stage payments as the ‘value’ of the project increased in line with the work completed. Rather worrying to find that some lenders release a significant portion of the funds before any further value added to the project!

        • Matthew Howard says:

          They do do that – each staged payment is called a “tranche” – and it massively contains the risks, but lenders still typically have to provide cash in the initial tranche that covers not just the purchase of the existing land and buildings but also is enough money to get the works going. The developers have to put some money down themselves of course and this can be a big sum, but the LTVs against current value are clearly no way nearly as impressive compared to properties that are being rented out.

          That’s why with developments you should expect to be paid higher interest rates and/or a large provision fund or other so-called “credit enhancements” (other protections), and you need wide diversification. You also need to spread your money around – not all your eggs in development lending.

          In P2P, development lending is interesting in that second and third tranches usually pay the same interest rate as the first tranche, even though it can mean significant risks have been overcome, such as groundworks completed on time and on budget. Something to think about.

          • Matthew Howard says:

            There’s a good, live example on the P2P Loans Feed of a first tranche being more money than the development site is worth currently . Look for the “Honourable mention” of a ThinCats loan here: https://www.4thway.co.uk/p2p-loans-feed/

            (In this case, though the developers are putting up additional security that really lowers the risks for lenders.)

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers “bonds”. Unlike its P2P lending service, its bonds don’t allow you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers two “bonds”, one of which is available as an ISA.

Unlike its P2P lending service, neither of these bonds allows you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

×

Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers two “bonds”, one of which is available as an ISA.

Unlike its P2P lending service, neither of these bonds allows you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

×

Why are Orchard’s interest rates different?

Orchard’s lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Orchard’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Got it

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers “bonds”. Unlike its P2P lending service, its bonds don’t allow you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

×
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