LANDBAY’S shift to institutional funding is not a sign of the death of peer-to-peer lending, its chief executive has said.
John Goodall (pictured), who co-founded the buy-to-let platform in 2015, said the decision to exit the P2P retail market was unrelated to negative press or recent platform collapses. He revealed the firm had made a strategic decision over the summer to look at different funding sources and had found a backer to buy its retail loans sooner than expected.
“This is a decision that is quite specific to our type of lending in terms of the economics, we were looking for our best funding source to be competitive in the market for buy-to-let landlords and borrowers,” he said.
“It is something that is unique to the nature of buy-to-let, when you weigh up institutional funding versus retail, it makes more sense to remain institution only.
“That may not be the case for other P2P lenders.”
He said the retail platform was becoming less commercially viable as other P2P platforms were lending at higher rates while Landbay was looking to compete with banks where mortgage rates are lower.
“Our margins were being increasingly squeezed and we would have had to cut investor rates to compete,” he said.
Goodall said an unnamed UK bank had emerged who was willing to purchase loans from retail investors quicker than expected, meaning the platform could exit retail P2P lending just days before the new P2P regulations are introduced.
This means investors will get all their money back plus current interest earned, meaning they will miss out on what they would have received over the lifetime of a loan.
“I think that retail investors are generally happy with the liquidity that has been provided by the institution that has funded the loans – it is very clean,” Goodall said.
“If we had exited the market without that we would have had to close the secondary market and investor funds would have been locked up for a number of years.”
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He said Landbay was ready to comply with all the new P2P lending rules – including appropriateness tests and self-certification questionnaires for investors – while it sourced institutional funding but now will not need to implement the changes.
“Our assumption was that negotiations would overrun into next year, we were already compliant with the changes,” he said.
“We have a wind-down plan, we don’t market aggressively and we had an appropriateness test but didn’t put it up as we knew we were going through this process.
“We didn’t want to put the test on the website on Friday or Monday and then pull it down.
“It made sense to get this done before the deadline as we were ready.”
The shift to institutional funding means the platform will need to change its regulatory permissions and will not have to comply with P2P lending rules.
All retail investors have had their loans purchased and those in an Innovative Finance ISA will need to transfer as their funds are now in cash and not earning any interest.
Goodall said that Landbay will not renew its membership of the Peer-to-Peer Finance Association.