LANDBAY has commissioned an independent stress test that found its investors would still receive returns of more than three per cent in an economic downturn.
The peer-to-peer lender, which specialises in buy-to-let mortgages, commissioned MIAC Analytics (MIAC) to provide the independent analysis of its £235m portfolio.
“We’ve chosen to undertake this stress test now because there is a great deal of uncertainty in the economy; Brexit is potentially approaching, and we still don’t know what Britain’s future relationship with the EU will be and therefore what that may mean for the UK economy,” Landbay said.
“While employment levels in the UK have remained resilient, house prices (at least in London) have been softening and interest rates have (slowly) been moving up. There are signs from across the world that economic growth is slowing down, particularly in China and the Eurozone.”
These stress tests are usually undertaken by the UK’s largest banks and building societies as part of ramped-up regulatory requirements after the 2008 financial crisis.
The scenarios, which are designed by the Bank of England, simulate a number of worst-case scenarios, such as a recession where GDP falls by five per cent, unemployment rising to 9.5 per cent or house prices falling by 33 per cent.
MIAC assessed the chance of Landbay’s loans going into default under these circumstances and the potential impact on portfolio performance.
Landbay currently offers investors annual returns of up to 3.54 per cent, which is predicted to drop to an average of 3.13 per cent in the stress test scenarios.
The P2P platform said that its reserve fund would cover a portion of the losses.
“We’re very pleased with the results of this stress test as it demonstrates the robustness of our loan book and the strength of our underwriting process,” said John Goodall, chief executive of Landbay.
“We believe that undertaking these stress tests, and sharing the results, is the responsible thing to do. It supports investors as they seek strong, sustainable returns across economic cycles.
“We’ll continue to undertake these tests on an annual basis, with the intention of being fully transparent about the process and results to investors or borrowers, or anyone just trying to find out more about the business.
“We’re proud to do the right thing by investors and hope this will prompt others in the industry to follow suit.”
Read more: Direct lenders could face ‘test’ in 2019