OCTOPUS Choice has surpassed its own lending target and funded more than £315m of property-backed loans since launching in 2016.
The adviser-friendly P2P lender said last year that it was targeting £200m of lending in its first two years of operation.
It has also managed to beat its target investor return rate of four per cent every year since inception, according to a new report from P2P research and investment firm Orca.
Octopus Choice returned an average of almost five per cent to investors in 2016, with returns stabilising to just over four per cent in 2017 and in 2018 to date.
At the same time, the platform’s average borrower rate fell from 9.5 per cent in 2016, to 6.97 per cent in 2017, and 6.43 per cent as of 16 October 2018.
According to Orca’s analysis, the platform’s loanbook expansion was largely fuelled by a 167 per cent spike in loan originations between 2016 and 2017. Originations went on to grow by 33 per cent between 2017 and 2018.
However, this increase in loans may have also contributed to a higher rate of defaults.
According to the Orca analysis, Octopus Choice saw its default rate rise from below one per cent in 2016, to almost 3.5 per cent in 2017. In the current year to date, no defaults have been recorded, but this is likely due to the fact that the average loan term is 26 months, thus creating a two-year delay between loan originations and default data.
While no investor has lost capital to date, Octopus Choice has stated that it expects between two and three per cent of the loanbook to be late paying or over term at any given time.
“This is not abnormal and should not represent a material concern,” said Orca in the report. “In fact, 91 per cent of loans which have a status of ‘hold’ have recovered within three months, demonstrating the effectiveness of loan recovery by Octopus.”
Orca’s report praised Octopus Choice for “solidifying its position as a major player in the P2P lending market after only two years of trading.”
However, Orca warned that Octopus Choice may be at risk from market concentration.
“All loans are property loans, primarily buy-to-let loans which account for 55 per cent of the total historic loan book,” said Orca. “Bridge loans, bridge-to-let, and more recently commercial loans have helped diversify the loan book, and investors’ portfolios.
“However, there is no refuting that should the property market take a substantial downturn, Octopus investors’ holdings could be affected and, indeed, the value of the assets underwriting loans could be compromised.”
Octopus has recently begun to diversify by investing in more properties in the North East and the North West, but its entire property portfolio is currently confined to England.
According to Orca’s research, Octopus Choice turned a profit of £937,033 in the financial year 2017/18, with turnover of £5,107,139 and net assets worth £3,830,850. The previous year, profits were £1,768,926, while turnover was £2,151,097 and net assets stood at £2,893,817.