LENDY will no longer service interest payments on overdue loans from its own balance sheet, as one of a slew of changes the peer-to-peer property lender is making to meet the City watchdog’s requirements.
The platform, which recently rebranded itself from Saving Stream, said on Monday that it is updating its overdue loans default policy, to take effect from 1 August.
“In order to ensure that P2P platforms do not accidentally take on the role of a principal/lender, loans in arrears will see all interest obligations accrue to the benefit of lenders,” said Lendy in a note to its investors.
“This will replace the process whereby Lendy would pay the first 90 days in interest on a loan to lenders and then recover that money from the borrower.
“Whilst in some situations this may mean a delay in the receipt of interest payments for lenders (i.e. where a borrower is in arrears on interest) this will remove some ambiguities from the business models of P2P platforms.”
Lendy also said that secondary trading will be temporarily suspended on defaulted loans going forward, driven by Financial Conduct Authority (FCA) rules. The firm said that secondary trading of such loans currently accounts for just one per cent of overall trading, but this change would help prevent less experienced lenders buying riskier loans.
“As part of the process that the FCA is going through in the authorisation and regulation of the P2P sector they have asked the industry to make a number of changes to their terms and conditions,” said the platform.
“The industry is evolving fast, and Lendy will be implementing these changes over coming weeks, in order that it continues to remain at the forefront of developments.”
The firm is also introducing two new incentives for investors. One is a bonus accrual feature, set to launch this week, which Lendy said would boost secondary market liquidity. It will pay an “enhanced monthly interest rate” of 50 per cent of the existing monthly interest rate, which will accrue over the “tolerance period” – the first 180 days of an overdue loan – and will be payable once the loan has been repaid, if Lendy recovers sufficient capital from the sale of the property.
The second incentive is a new cash back offer to reward lenders who fund the later stages of certain property development loans, meaning they will receive one twelfth of their investment in that loan – equivalent to one extra month’s interest per year – payable at the same time as their interest payment.
“The scheme is being launched in recognition of the fact that there is a perception that the level of risk increases in the later stages of a new property development, and so to better reward those lenders who can help developers bring projects to completion,” it said.
Read more: Lendy launches new cash incentive
Lendy added that it is looking to introduce a new variable pre-funding model, whereby investors will be able to set separate pre-funding levels for new pipeline loans, ranging between seven and 12 per cent per year. This will provide lenders with more investment flexibility, it said.