19th June 2018
AltFi’s inaugural Alternative Property Forum had a real buzz to it. There were a wide range of lenders presenting, and most agreed that the diversity of the property investment space is a real strength. Meanwhile, there was a great deal of talk about ‘where we are in the cycle’ – with most agreeing that we’re at a late stage, although LendInvest’s Rod Lockhart admitted that he’s been saying that for 18 months and prices have held firm. Perhaps the most prevalent theme was the idea that alternative property finance firms can have a real impact in helping to support SME housebuilders, and thus to help the government hit its housebuilding targets.
We look forward to welcoming all those who attended and more next time.
Rod said that LendInvest is looking to use technology to lend more ‘efficiently’ than its competitors.
“We have to focus on the parts of the market that we feel we can lend competitively into.”
He made the point that all the people at the banks who had expertise in the type of finance provided by LendInvest have now long-since left, in the years following the financial crash and subsequent regulatory crackdown.
This last point was part of Rod’s case for the long-term future of alternative property lenders. He also cited continued regulatory capital controls for banks, legacy tech, and the fact that the supply of housebuilding remains low despite the government’s best efforts. He did concede, however, that the next ten years won’t be as easy as the last ten years have been for alternative lenders.
Mark asserted that the talent pool in property lending is now ‘in the alternative space’. He also said of platforms that get pricing and risk wrong: “The speed at which they came is the speed at which they’ll go.”
Uma said that alternative property lenders have to adapt their position in the market based on where we are in the property cycle.
James said that the interest rate cycle ‘is not going back to the way it was’ and that this opens up opportunities for alternative lenders to attract investment.
Marek said that EstateGuru’s main value proposition is that it allows investors to build a property portfolio that is diversified by geography.
John explained that buy-to-let offers two forms of security: the familiar first-charge against a property, and a stable cashflow in the form of rental income.
Landbay (the lender) can become the receiver of that rent in the event of a default.
Rental prices have been significantly less volatile than house prices over the past ten years, with only one slight wobble in 2009, otherwise rising 2-3 per cent a year in line with normal earnings.
John said that the supply of new rental properties is not growing in line with demand – and that rental growth will increase in the next few years.
Fintex today manages $130m across German consumer loans, US consumer loans and UK property loans. It only manages institutional funds, and in property lending it always lends its own money alongside its investors’, on a subordinated basis.
The firm uses Luxembourg securitisation vehicles because Luxembourg regulation is favourable to investors.
Robert is very much of the opinion that UK property is a multi-faceted asset class – a ‘massive market’ that could be sliced and diced in many different ways.
Fintex’s ‘trick’ to earning premium returns without taking undue risk is essentially to provide an extra layer of oversight over a partner lender’s due diligence processes, through the use of technology, to ensure that all the right questions have been asked of a borrower. At the end of the underwriting process, Robert thinks Fintex can identify exactly why a borrower would have been rejected by a bank, and can then determine whether that borrower remains bankable.
Michael stressed that the IFISA wrapper does not include equity crowdfunding.
He said that the key question is around how to popularise the IFISA wrapper, which has suffered a somewhat slow start. He also said that cash ISAs should carry risk warnings since savers are losing money in real terms every year.
There is almost £600 billion in the ISA market, representing a huge opportunity.
He said that the government is not going to hit its current target of building 300,000 new homes a year – but that IFISA money, supporting SME housebuilders, could be the solution.
Emma said that ‘direct lending’ means different things to different people, depending on the funding source and end customers.
Rod clarified that LendInvest is not a P2P platform – he now sees the business as an ‘alternative fund manager’, and it is registered with the FCA as such.
Andrea said that, when looking at this space, institutional investors will consider the track records of lenders, the people on board, the technology that is used to support the business, and methods of ensuring they have skin in the game.
Rod also said that operating an off-balance sheet model (such as P2P) is a great way to scale a lender quickly and efficiently.
Brian asserted that it is becoming much harder for developers to fund ‘speculative’ transactions.
A key factor that drew Proplend into the market initially was the fact that of £180bn of outstanding debt against commercial property, 25 per cent are loans of under £5m.
Income, risk and value are the three key areas in which Brian believes commercial real estate opportunities are superior to other parts of the property investment sector.
Proplend tranches loans to cater more specifically to the risk/reward appetites of its investors, by allowing them to choose which part of the capital structure they take exposure to.