Con­cern at scale of peer-to-peer lender’s de­faults

The Sunday Telegraph - Money & Business - - Front page - By Ash­ley Arm­strong

A RAPIDLY grow­ing peer-to-peer lender has ex­posed in­vestors to a bank­rupt for a sec­ond time, while a quar­ter of its loan book is con­sid­ered to be in de­fault, rais­ing fresh con­cerns about reg­u­la­tion in the boom­ing new fi­nance mar­ket.

Sources close to Lendy Fi­nance, which ear­lier this year be­came the ti­tle spon­sor to the sail­ing re­gatta Cowes Week, spoke to The Sun­day Tele­graph af­ter be­com­ing con­cerned that the level of de­faults re­vealed an on­go­ing weak­ness in un­der­writ­ing checks, which is putting in­vestors at risk to losses. The FCA is in­ves­ti­gat­ing how peer-to-peer lenders dis­close de­fault rates as part of a de­layed con­sul­ta­tion into the bur­geon­ing in­dus­try.

The Portsmouth-based prop­erty lender has grown dra­mat­i­cally since launch­ing two years ago, lead­ing to its loan book bal­loon­ing from £50m to £300m. The growth is driven by more than 15,000 re­tail in­vestors who are at­tracted to a prom­ise of 12pc re­turns in a pro­longed low-in­ter­est en­vi­ron­ment.

Fur­ther scru­tiny re­veals that £3.7m was lent to a prop­erty busi­ness as­so­ci­ated with Matt Roberts, who was de­clared bank­rupt in March. Mr Roberts bought a for­mer Catholic con­vent prop­erty in Glouces­ter for around £1.75m in 2013. Lendy pro­vided the loan on a much higher £5.6m val­u­a­tion of the build­ing, but Sav­ills are mar­ket­ing the prop­erty, which is now be­ing sold by the re­ceiver, at £4m with of­fers be­lieved to have come in at just above £3m. Sources said the gulf be­tween val­u­a­tions could mean in­vestors face fur­ther losses. A Lendy spokesman said that it “has re­ceived of­fers in ex­cess of lenders’ prin­ci­pal, and Lendy’s pro­fes­sional ad­vis­ers are con­fi­dent that this should be suf­fi­cient to re­pay lenders’ prin­ci­pal in full when the sale process com­pletes.”

Last year it emerged Lendy, or Sav­ing Stream as it was then known, had also lent £2.5m to a com­pany, Acorn Fi­nance, linked to a twice for­mer bank­rupt, Des­mond Phillips. At the time the busi­ness said that Mr Phillips’ back­ground, who set up Acorn Fi­nance, was “not rel­e­vant to its ca­pac­ity to re­pay”.

A study of Lendy’s loan book re­veals that al­most 25pc of loans, worth £47.2m, are out­side orig­i­nal terms, mean­ing re­pay­ments can be one day to 434 days over­due. In­dus­try prac­ti­tion­ers said that typ­i­cal lend­ing prac­tices should mean any loan that does not meet a re­pay­ment date is con­sid­ered a de­fault.

How­ever, Lendy says that just 14.5pc of its loan book is “cur­rently in de­fault as de­fined by our agree­ments with lenders, and in line with the wider bridging and de­vel­op­ment fi­nance mar­ket”. Lendy, which said that it has strength­ened its due dili­gence team, has a 180 day “tol­er­ance pe­riod” be­fore class­ing a loan to be in de­fault.

The growth is driven by more than 15,000 re­tail in­vestors who are at­tracted to a prom­ise of 12pc re­turns

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