PROPERTY developers are increasingly using peer-to-peer loans to access funding in stages rather than in one go.
Platforms are reporting a change in the way developers are drawing down loans as it is cheaper for them only to pay interest on money they are actually using.
Michael Lynn, founder of P2P property lender Relendex, explained that more and more developers are asking to take loans in tranches.
“We do have a single development loan with separate drawdown, but developers may not want to pay interest for non-utilisation and that is incompatible with lender expectations,” he said.
“Instead, we are seeing more and more borrowers asking us to create separate loans and we just have the final loan-to-value in mind when setting the rate.”
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Lynn said the investor will always be told that the loan is part of a wider project. “Effectively it is a whole load of different projects falling under the same security,” he commented.
“We point out that people will be sharing the security with subsequent lenders as the development completes.”
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Another P2P property platform, Lendy, takes a similar approach, as most of its development loans are structured in tranches.
“It helps to keep projects on track and within budget,” said Liam Brooke, co-founder of Lendy. “An independent monitoring surveyor keeps track of progress and build costs of the development, and drawdowns of the tranches are based on the reports the surveyor provides.
“That way, investors can have confidence to invest in the later tranches of the loan, knowing the project is meeting its milestones.”
Kuflink, which currently provides P2P bridging loans, is looking to expand into development finance and is considering using a similar structure.
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“This is something we may be looking at in the future,” a spokesperson said. “As far as developers are concerned, it depends very much on the deal whether they would be looking for the option to take funds on a tranche basis or in one go.”
The only issue is having lenders ready to fund loans throughout the project, but platforms are confident that high levels of investor demand will continue in the sector.