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Landbay: Lend Instantly, Spread Risk Automatically
We needed to fill a few gaps in Landbay's data in our detailed comparison tables, so today I interviewed John Goodall, CEO.
It has clear, strict lines in the sand that it won't cross when deciding to approve a loan application. This includes:
- The loan cannot be for more than 80% of the property valuation.
- The property must be receiving rent worth at least 125% of the mortgage payments.
Among several other strict criteria.
Here's what John had to say on the following subjects:
What proportion of loan applications are accepted?
Landbay probably accepts around 90% of applicants. Now normally if a company accepts as many as 9/10 loan applicants it means that its directors and risk officers are clinically insane.
But don't panic: this high acceptance rate is because the applicants have already been vetted by the brokers who refer the borrowers to Landbay.
John says that the brokers know precisely what they're looking for, which is not hard considering Landbay's tight criteria.
Landbay did tinker with direct applications for a while. John estimated that Landbay's own acceptance rates were around 2%-3%, which is going to be closer to the real acceptance rates, when you consider the number of borrowers the brokers must reject on Landbay's behalf.
Whatever the broker's rejection rate is, with Landbay's strict criteria it has to be very low indeed.
What happens when a borrower repays the loan?
Landbay loans are all interest-only, which means that the borrower repays interest but doesn't repay your actual loan until the end. This is normal for professional buy-to-let landlords.
Currently, all Landbay mortgages are five-year mortgages. Landbay allows small annual overpayments of 5%. Any more and the borrower will be penalised in the first three years.
This makes it easy to keep earning interest on your money, because you don't have to keep re-lending your initial loan.
Just one borrower has so far elected to take advantage of the small overpayments. That entire loan has been allocated to institutions (e.g. banks and hedge funds) that are lending through Landbay, rather than to individual lenders like you and me.
When individual lenders do start receiving repayments, it will be up to us to choose whether we want to re-lend it again. Currently, we cannot automatically re-lend loan repayments, but we can automatically re-lend our monthly interest payments.
How many loans are lenders lending in?
John said that lenders are lending in an average of about 10 loans each. Landbay wants to grow that to 20 and beyond over the coming months.
Landbay is currently approving around two loans per week. These are large loans, since they're property loans. Lender money is re-allocated on a monthly basis across more loans to spread out our risks more.
How much money is sitting idle?
Some P2P lending companies find it difficult to get all our money lent out swiftly. They have attracted too many people who want to lend their money. So money sits idly waiting to be lent out – and earning no interest.
Other P2P lending companies go through a regular see-saw, where at one time they might have too many borrowers, which means it's easy to lend and often at higher interest rates, and at other times they have too many lenders – so cash is sitting around.
Landbay belongs to a different group altogether. When Landbay approves a borrower, a bank lends the borrower the money in the first instance. Then, when you and I want to lend through Landbay, we take a part of that loan off the bank.
John says there are plenty of borrowers around to allow all lenders to get their money lent out within 24 hours.
How can Landbay charge nothing for an instant exit?
Most P2P lending companies have a clause to protect other lenders if you try to exit quickly or early by selling your loan parts to another lender.
Let's say you decide to sell your loan parts. If interest rates have risen when you sell, new lenders who will take over your loan parts don't want to lose out on those higher rates by buying your lower-rate loan parts.
So you have to compensate them for the difference.
Some also charge an early exit fee on top.
Landbay has dodged this problem with its easy-access product. This tracks the Bank of England's base rate, which is currently 0.5%, plus 3%, which is 3.5%. If you re-lend your interest payments, this works out at 3.56% per year.
This means that if the base rate rises to 2% then your interest rises to 5%. If you head for the exit now then the next lender will be expecting to get precisely the same amount you were earning, because it's a tracker product.
That's how Landbay can offer an exit with no potential charges.
So far, those leaving early have all been able to do so within 48 hours, except for the first person who tried to leave, because Landbay hadn't set up the administration to handle it.
John said that if someone was to try to exit a huge amount of money – he gave the example of £1 million – then they would probably ask that lender to exit in £10,000 chunks. Since Landbay is still relatively small, that finding replacement lenders swiftly for that much money is still fairly tricky.
Which is best: tracker or fixed deal?
John said that roughly 80% of lenders are choosing the easy-access tracker deal at 3.56%. However, he thought that, with interest rates generally forecast not to rise for at least 12 months, those people electing for Landbay's three-year fixed rate at 4.4% were likely to earn more interest.
Presumably, lenders are attracted to the “easy access” part of the easy-access tracker deal.
Who are lenders lending to?
A common discussion among expert lenders is around the question: who am I lending to?
Usually you are lending directly to the individual borrowers. However, sometimes you lend to the P2P lending company, and it lends to the borrowers.
It is safer if you lend directly to the borrowers. This is because, if a P2P lending company goes bust and you're lending to it, you might have to share what's left of your outstanding loans and interest with any banks or other businesses that were also lending to the P2P lending company.
I know it's complicated. But, for now, suffice it to say that with Landbay you're lending directly to your borrowers – not to Landbay. So it's not a potential issue.
How does Landbay have such low costs?
By our estimates, Landbay might cost lenders the least of all the P2P lending companies we have listed so far on 4thWay®. John said this is partly because they do larger loans, which means less case management.
He also said that since the whole loans stay on loan and earning interest for many years, they don't need to constantly seek replacement loans.
John said that individuals lending their money through P2P should receive the bulk of the winnings from the borrower, since we are the ones taking the risks.
Landbay's 4thWay® Risk Rating and 4thWay® Insight Report will be published soon.
Read more in Landbay: The Lowest Cost P2P Lending Company.
Get Started With the Safest P2P Lending Companies, including Landbay.
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