CapitalStackers has revealed that it is taking into account the possibility of project delays and even a freeze on new construction when appraising deals, amid the coronavirus pandemic.
The property backed peer-to-peer lending platform also noted that for delayed projects, higher interest will be accrued through longer-than-anticipated loan terms.
CapitalStackers typically lends up to a maximum of 75 per cent loan-to-value, meaning that the sale price will have to fall by more than 25 per cent from the appraised valuation before investors’ capital is affected.
This is also after CapitalStackers has allowed for potential construction delays, cost overruns and deferred sales. And the platform emphasised this is less than the 20 per cent by which the market fell during the last financial crisis, from September 2007 to March 2009.
Steve Robson, managing director of CapitalStackers, said the platform benefits from having a business model that insists every project has funding in place to complete the construction before any work starts, and nobody parts with any money until those funds are underwritten.
“Obviously, we could never have envisaged such a curved ball from left field, but delays and cost increases are always built into our modelling, so we’re confident that we’ve given our investors a good deal of headroom,” he said.
“Fortunately (although it is by design rather than luck), we don’t have an ongoing need to fund monthly construction payments, which is going to be nigh on impossible in this climate.
“In an environment where investors are pulling funds out of pooled lenders, I suspect those platforms which rely on monthly fundraising to meet contracted build costs are going to be under immense pressure.”
Robson said he hopes the government does not close down all construction sites after politicians Jeremy Corbyn, Nicola Sturgeon and Sadiq Khan all urged the Prime Minister to stop all new building work.
“We believe that closing all construction would be a huge mistake,” Robson said.
“Away from London and the big cities, most sites are capable of being managed with appropriate distancing and safety, and the urgent need for new housing will not go away when this crisis ends.”
Robson said CapitalStackers has reacted to the ongoing pandemic by being more transparent and communicative with its investors.
“It’s always been a core part of our proposition, but now everyone will be all the more hungry to know what’s going on, so we’re making sure we get even more frequent updates directly to them,” he said. “We’ve made ourselves available on the end of the phone any time any of our investors wants to talk about any scheme.”