Adapting to investor desires
The House Crowd’s founder and chief executive Frazer Fearnhead explains how the platform is shifting its focus in response to investor demand…
THE HOUSE CROWD started life in 2012 as the world’s first equity property crowdfunding platform. The fact that our roots were in property rather than fintech has influenced the way we have developed and the products we offer.
My core belief, as a ‘property guy’, is that investing should be a long-term strategy. We have always tried to educate our members as to the benefits of income-producing assets, reinvesting, compounding and growing wealth steadily.
However, we recognised that most of our investors prefer their money to be tied up for very short periods and to have the flexibility to withdraw it if they wish. As such, we have adapted to deliver what our clients wanted. The last eight years have been a process of constant evolution, as we have regularly analysed investment behaviour and reacted to client feedback.
A large part of our success can be attributed to the fact we have been extremely agile and good at pivoting quickly when decisive action was required. For example, we started off helping people to build a diverse, long-term, buy-to-let portfolio on an equity basis. People wanted their money back more quickly so we started to source properties which could be refurbished and sold quickly.
Then, in order to give more stable returns and greater liquidity, we started offering loan notes. We recognised after a few years that the administrative burden of crowdfunding and managing buy-to-let crowd-funded investments was just too heavy to scale the business.
The debt-based investments we had started to offer provided higher annual returns.
Based on these facts and the minimal opportunity to make large capital gains in the current market, it made sense to move away from equity investments in favour of peer-to-peer property-backed loans. To date we have offered a broad mix of P2P bridging and development loans on a self-select basis, but we are now strengthening our focus on our auto-invest product.
We found that some investors were purely opting for the highest-paying loans – which tend to be higher risk – rather than diversifying their portfolio with lower-risk, lower-return loans offered on our platform. Almost all the issues our member support team deals with stem from investors being unable to get their capital back when required or interest not being paid on time.
Therefore, it made sense for us to follow what many platforms have also done and switch to an auto-invest model. From January 2020, our platform has been almost entirely focused on auto-invest as opposed to self-select. We offer three main products: Cautious, Balanced and Bold, with maximum loan-to-values (LTV) and maximum average LTVs for each product. Target rates are from five to seven per cent with occasional incentives or bonuses.
These auto-invest accounts provide a good level of diversity to mitigate risk, combined with reasonable liquidity – investors can give 30 days’ notice to get their money back (subject to our standard terms).
We are also shifting our focus towards making loans to professional property investors and developers, rather than bridging loans to people who are often in difficult circumstances. We believe this will enable us to provide a less problematic business model and greater client satisfaction.
For the time being, we still offer a few self-select development loans, but we have decided that our Innovative Finance ISA and self-invested personal pension wrappers can only be used with our auto-invest offering.
Not only does auto-investing remove the hassle for our customers and provide greater diversity but it could also result in higher returns, by utilising funds for 365 days a year and the benefits of compound interest. Everyone’s a winner.
