Fears as P2P loans start to sink

The Daily Telegraph - Your Money - - MONEY -

Six in 10 loans on one high-pro­file plat­form are in ar­rears. Are re­turns of 12pc sim­ply too good to be true, asks Adam Wil­liams

Peer-to-peer in­vestors are be­ing urged to re­view their port­fo­lios as the scale of de­faults fac­ing the Lendy plat­form emerges. The num­ber of com­pa­nies of­fer­ing peer-to-peer (P2P) loans has boomed in re­cent years. Th­ese plat­forms act as mid­dle­men, al­low­ing in­di­vid­ual in­vestors to lend money to com­pa­nies and oth­ers. But in­dus­try ob­servers have be­come con­cerned at the num­ber of de­fault­ing loans at Lendy, where more than 60pc of its £181m loan book has fallen be­hind.

The brand rose to promi­nence by spon­sor­ing the pres­ti­gious Cowes Week re­gatta and in­vestors have been at­tracted by promised re­turns of up to 12pc. But as well as some of its loans turn­ing sour, le­gal ac­tion is be­ing pur­sued against the plat­form and 5,500 of its in­vestors by one de­vel­oper. If suc­cess­ful, this could have ma­jor im­pli­ca­tions for the rest of the fledg­ling sec­tor, which is al­ready fac­ing ques­tions about the amount of risk con­sumers are be­ing en­cour­aged to take on.

Lendy was launched in 2012 as a way to fi­nance ma­rine projects and later moved into prop­erty de­vel­op­ment. But ex­perts are now con­cerned that the plat­form has over­stretched it­self.

Ben Years­ley of Shore Fi­nan­cial Plan­ning said there ap­peared to be “some­thing lack­ing” at Lendy, given the vol­ume of loans in ar­rears.

“I like the peer-to-peer sec­tor, but it’s too easy to put your money in with­out know­ing what you’ve ac­tu­ally bought,” he warned. “If you’re do­ing de­vel­op­ment fi­nance, how much do you know about the risk? Ask your­self how much you really know about the per­son de­vel­op­ing it, or the site and its lo­ca­tion.”

Tele­graph Money’s ex­am­i­na­tion of Lendy’s fi­nances shows that a sig­nif­i­cant pro­por­tion of its £181m live loan book is in ar­rears of some kind. Around £83m is de­scribed as non-per­form­ing – the plat­form said it was “no longer con­fi­dent about the bor­row­ers’ abil­ity to re­pay” th­ese loans. A fur­ther £6m is owed to in­vestors in cases where the plat­form has taken con­trol of and sold as­sets but where this has not been enough to re­pay in­vestors.

An­other £24m of loans are not con­sid­ered in de­fault by Lendy, but are be­hind with their pay­ments. This is be­cause Lendy does not con­sider loans to be non-per­form­ing un­til they are 180 days over­due.

Al­though Lendy is not a mem­ber of the Peer-to-Peer Fi­nance As­so­ci­a­tion, the 180-day time­line is the stan­dard set by the trade body. It is also the timescale sug­gested by the Fi­nan­cial Con­duct Au­thor­ity (FCA) in its new pro­pos­als for reg­u­la­tion of the sec­tor.

Parik Chan­dra of Down­ing, which op­er­ates a ri­val plat­form, said firms should take faster ac­tion. “Down­ing con­sid­ers a loan in de­fault if a pay­ment is one day late, let alone 180 days,” he said. “It is quite com­mon in prop­erty de­vel­op­ment for plans to change, but where a date is missed we would ac­tively in­ter­vene.”

Lendy cur­rently of­fers a £50 bonus to new in­vestors. It said that, of all loans ever made through its plat­form, 80pc had been re­paid or were not in ar­rears. It added that it had made “sub­stan­tial in­vest­ments in its due dili­gence and re­cov­ery pro­cesses” in the past year and would con­tinue to do so.

Yet un­der its terms and con­di­tions, in­vestors can be made li­able for Lendy’s costs when they can­not be re­cov­ered from the bor­rower. Lendy said it spent a six-fig­ure sum on debt col­lec­tion each year out of its own pocket but did not rule out pass­ing this cost on to in­vestors in fu­ture.

There could also be fur­ther woe in store for in­vestors. One bor­rower is pur­su­ing le­gal ac­tion against Lendy and around 5,500 in­di­vid­ual in­vestors, claim­ing that a loan they took out breached the plat­form’s own terms. Lendy said this claim had “lit­tle merit”.

This is thought to be the first ac­tion of its kind. If suc­cess­ful, it could have reper­cus­sions for the wider in­dus­try, as all P2P in­vestors could be pur­sued in this way.

The level of ar­rears at Lendy also raises ques­tions over the FCA’s reg­u­la­tion of the sec­tor. The watch­dog au­tho­rised Lendy in July de­spite a sig­nif­i­cant amount of in­vestors’ cash be­ing ex­posed to loans in ar­rears at that point. The reg­u­la­tor said it did not com­ment on in­di­vid­ual firms.

Not all of th­ese is­sues are ex­clu­sive to Lendy and in­vestors on ri­val peerto-peer plat­forms should also be tak­ing stock, ex­perts said.

Neil Faulkner of P2P anal­y­sis firm 4th Way warned all in­vestors to en­sure they were di­ver­si­fied to avoid be­ing a ma­jor stake­holder in a sin­gle loan or plat­form that goes bad.

“In­vestors should as­sure them­selves that they have enough in­for­ma­tion and knowl­edge to make a sound as­sess­ment of the risks,” he said. “If they do not, they should not be in­vest­ing and should look for the exit as calmly as pos­si­ble.”

Mr Years­ley said in­vestors should con­sider why bor­row­ers were choos­ing to raise fi­nance at such high rates of in­ter­est.

“If your head­line rate as a saver is 8pc, for ex­am­ple, the bor­rower is prob­a­bly be­ing charged 12pc. That’s a big num­ber and I don’t think enough peo­ple go into enough de­tail,” he said.

“That’s not to say you shouldn’t in­vest in P2P, but there is risk. There will be more fail­ures to come.”

P2P plat­form Lendy is the head­line spon­sor of the Cowes Week re­gatta

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