Here at Landbay we’re always happy to answer any questions our investors may have about lending with us or the peer-to-peer market. We’ve picked up on a number of reoccurring questions about peer-to-peer and thought it would be beneficial to answer a few of them here.
Is peer-to-peer lending secure?
Every peer-to-peer lending platform does have an element of risk associated with it, however here at Landbay we take every measure to reduce it. As we only lend to the pick of the buy‐to‐let mortgage market, statistically the lowest‐risk asset class in peer‐to‐peer, it provides a rock solid foundation - the basic principle everyone looks for when considering where to invest. From diversifying your funds across multiple mortgages to stringent underwriting criteria and our Reserve Fund, we take a comprehensive approach to mitigating risk. We hide nothing and tell you everything. Read more about our risk mitigation here.
How does peer-to-peer lending work?
Peer-to-peer lending means that you lend money to other individuals or companies, without going through traditional financial middlemen such as banks or building societies. Landbay works by matching investors’ funds with borrowers’ loans through our technology. Each loan is comprised of lots of small loans made by individual lenders, with each lender having a direct loan agreement and lending relationship with the borrower. This means we can provide better rates for both our borrowers and investors, as we work to the same underlying principles of the traditional building society, but many of the ‘middle man’ processes are alleviated by technology to reduce costs, improve efficiencies and ultimately deliver a better return.
What happens if the people I lend to are late with their payments or default on their loan?
Your money is automatically diversified across mortgages that are secured by buy‐to‐let properties throughout England and Wales. Spreading your investment in this way makes it more robust, so you’ll never be reliant on one particular borrower, property type or location.
Buy-to-let mortgage repossession rates are currently 0.04% and peaked at 0.35% during the Global Financial Crisis (source: Council of Mortgage Lenders, 2008 and 2013). This positions buy-to-let mortgages as one of the UK’s lowest risk asset classes, and the lowest risk within UK peer-to-peer. Our view is that the single biggest factor in ensuring a mortgage is repaid is cashflow (i.e. rental income) - when you couple this with the ultimate backstop of tangible bricks and mortar security, it’s easy to see why tenanted residential homes have performed so robustly through all economic cycles.
However, it’s our job to prepare for worst case scenarios, thus our comprehensive approach to mitigating risk counters every possible risk (and occasionally even the implausible) to your investment. Therefore a percentage of our income is set aside for our Reserve Fund, a discretionary fund derived solely from our fees, which can be called upon to make up any shortfall should a borrower default or fall into arrears. To date there have been no claims on the Fund. Review The Reserve Fund.
How long do I have to lend my money for?
You can choose between our two investment products, our 3 year fixed rate product or our Tracker. You can redeem your loan parts at any time and at no cost, subject to our ability to reallocate your loan parts to new investors.
What sort of returns will I get?
The Fixed Rate Product interest rate stands at 4.4%, based on the reinvestment of interest through the term of the loan (4.2% pa, correct as at November 2015) and will remain at this rate for up to 3 years, at which point it will automatically revert to the Tracker Rate. The Tracker Rate Product has an interest rate of 3% + Bank of England Base Rate (BBR). The interest rate is therefore currently 3.5% per annum (correct as at November 2015) and will move up/down in line with changes to BBR. In the past BBR has generally increased in line with inflation. Due to the floating nature of this product you can redeem your loan parts at any time and at no cost, subject to Landbay being able to reallocate your loan parts to new lenders.
If you have any questions about lending with Landbay or peer-to-peer in general, why not email us at firstname.lastname@example.org.
The information contained in this report should not be used by consumers to make financial decisions. Consumers have a range of different financial needs and requirements and as such should always seek independent professional financial advice before making an investment decision.