By Daniel Lanyon on 5th December 2019
The property-focused peer-to-peer lender has been growing rapidly in the past year but is making a major pivot to solely institutional funding.
Landbay, one of the first P2P lenders in the UK, is closing access to its Buy-To-Let loans for retail investors.
The decision comes just ahead of the new regulatory regime governing marketing restrictions to retail investors for P2P lending. A 'crackdown' on the still fast-growing industry, as some have dubbed it.
Landbay's CEO John Goodall said in a media release that Landbay has been steadily moving to a more institutionally-funded model in recent years with existing and new institutional investors presenting the best opportunity for growth.
“Our aim remains to be the go-to funding partner in the UK buy-to-let market, for institutional investors, intermediaries, and landlords,” he said.
In a separate blog post, Goodall explained why the growth in funding from institutions presented a difficult choice for the firm.
"We have taken the decision to close the retail P2P funding element of our business and become a solely institutional marketplace lending platform. This is not a decision that we have taken lightly. The fact of the matter is that we would not have been able to get to where we are today without the retail business. However, it has been hard to see how to scale this part of the business on commercial terms that make sense."
"The cleanest way to do this with minimal impact to our current retail investors has been for a UK bank to take on the current retail funded mortgage book so that our retail investors can get all their money back immediately. There have been a number of other players that have pulled out of the P2P space and some quite high profile. I see no parallels between them and Landbay beyond the umbrella term of P2P we shared. I cannot think of a P2P platform that has been in the market for as long as we have that has had zero defaults or losses."
Goodall also outlined the same post how until early 2017, the restraint on Landbay's growth rate was its ability to raise funds to lend.
"Every P2P platform has to balance the supply of funds (investors) with the demand for funds (borrowers). In the early days we couldn’t grow the volume of retail investors quickly enough and most months we were only lending around £1m a month. Later that year, we started getting loans funded by institutional capital and overnight we had to change the focus of the business to finding more BTL mortgage borrowers. Our sales and marketing efforts pivoted accordingly – we built a sales team, we focussed on creating the best lending products we could provide and concentrated on building a meaningful presence in the mortgage intermediary market," he said.
More recently, however, as interest rates have fallen sharply within the mortgage market, the platform had to reduce its rates for borrowers in order to remain competitive, and in turn, reduce rates for retail investors.
"We have also reduced our fees so that Landbay has effectively absorbed some of that rate cut each time, thus squeezing our margins beyond tolerance, which is not sustainable," he said.
Institutional funders now account for 97 per cent of its lending with a new £1bn institutional funding deal coming live in July of 2019.
Goodall says that the firm has also increased staff by over 60 per cent to 100 people in 2019.
"We see huge potential to grow the business and we continue to meet institutions that want to work with us and fund prime BTL mortgages enabling us to improve our proposition for Landlords across the country."