The institutional money keeps rolling into the UK peer-to-peer lending space.
Landbay – a peer-to-peer mortgage provider that was launched roughly a year ago – has secured a mind-boggling £250m wholesale funding line. To give you the exact context, Landbay completed its first deal (a £175k loan) in July 2014 – less than 10 months ago.
15% of the new funding facility will be supplied by a European asset manager, with the remaining 85% to be contributed by a major UK bank. Both parties have chosen to remain anonymous for the time being, at least until allocation of the funding begins July 1st 2015. The warehouse funding facility is reportedly expected to be fully deployed within just 12 months. In other words Landbay expects to have comfortably surpassed the quarter of a billion mark in cumulative lending volume within little more than year’s time. For context, Landbay has transacted approximately £5.5m to date, according to the Liberum AltFi Volume Index. As 2014 drew to a close, the platform announced the highly ambitious goal of breaking the billion pound barrier by 2018. Today’s funding commitment is step in right direction.
John Goodall, Co-Founder and CEO of the young platform, was understandably thrilled:
“To secure the largest annual credit line yet from institutional financiers for a P2P lender is a major coup for Landbay, especially at this relatively early stage of our development. It provides hard evidence of the robust model we have built, with huge opportunity to scale up. And at an industry level, this milestone provides further proof of how P2P finance is eating into the traditional marketplaces previously monopolised by the Banks.”
There has never been securitization of loans that have been originated within the UK P2P market. In a fascinating twist, Landbay plans to become the first to slice and dice up a package of its alternative mortgage product for institutional investors. Mr. Goodall indicated that the platform aims to complete a formal Residential Mortgage Securitization in the year 2016 via traditional capital markets.
So how has Landbay, with its track record of just 9 to 10 months, managed all this?
We're told that it boils down to the quality of loan being written by the platform. The company has focused on the construction of a sustainable credit model – with the aim of delivering a more stable, long-term and lower-yield return of between 3.5% and 4.2% to its investor base. The rate charged to the platform’s borrowers typically fluctuates between 4.5% and 5.2% – information that can be gleaned by perusing the platform’s platform freely-downloadable loan book. The Landbay boss, Mr. Goodall, would argue that this narrow-margin approach is a testament to the company’s long-term ambitions.
Where does this leave the platform’s retail investors? With £250m of institutional funding now in the kitty – will any room remain for Landbay’s private lender base?
I had a chat with Mr. Goodall, who tells me that the funding line has been earmarked for a very specific, typically longer fix product range – 3+ year products. Retail money, on the other hand, tends to naturally gravitate towards shorter-term investment opportunities. For this reason Mr. Goodall sees the funding line as highly complimentary to the platform’s retail capital. Landbay’s institutional partners will invest on exactly the same terms as its retail investors.
Mortgages typically take between 2-3 months to complete – so whilst the funds will be made available from July 1st, don’t expect to see a marked impact upon Landbay’s transactional volumes until around September. At that point, it’s highly likely that the platform starts to rapidly climb the volume rankings in the Liberum AltFi Volume Index.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.