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