David Turner, chief executive of Invest & Fund, explains to Marc Shoffman why surviving Covid-19 has made the platform feel healthy enough to rise to other challenges…
It can be challenging to be a property lender during most environments but there have been plenty of hurdles for peer-to-peer development finance provider Invest & Fund in recent months. The property market was effectively closed for two months between March and May, so it was harder to sell units, while building sites had to close at the height of lockdown which impacted completion dates.
Now developers must take steps to ensure staff can work safely and projects can be completed and units have to sell with the UK in recession, albeit with the help of a stamp duty holiday and pent-up demand from before the pandemic.
But David Turner, chief executive of Invest & Fund, remains positive after managing to keep his platform operating and maintaining loan repayments throughout the outbreak and even successfully rolling out its Innovative Finance ISA to new investors mid-pandemic.
Marc Shoffman: How has the platform responded to the pandemic?
David Turner: Invest & Fund is going to come out of the pandemic with clean books and everything repaid. We didn’t have to give payment breaks but instead quickly spoke to all our borrowers and explored their plans. The main task was making sure all the drawdowns for our existing customers were 100 per cent guaranteed.
We got that done in a fairly short amount of time and then started to explore if our developers needed new funding for other projects. A few sites were mothballed but every site is now pretty much back on track and we have started to see a number of sales come through. We are also seeing a decent level of enquiries coming through from new borrowers. The lending terms are pretty much as they were pre-Covid.
They were initially tightened to lower loan-to-gross development values of 50 to 55 per cent and are now back up to 65 per cent. We did initially slow down lending during the lockdown period as there wasn’t the demand coming in from borrowers until they worked out how they could work safely on site and what the situation was.
The government incentives around the “build, build, build” scheme – allowing existing commercial properties, including newly vacant shops, to be converted into residential housing more easily – have provided a boost. We have seen sales prices above where we would expect to see them – units have been selling for an average 106 per cent of their original valuation.
New borrowers are getting more confident about the market and our experience shows there is a bright future for development.
MS: Are your staff still working from home?
DT: We did have to furlough a number of staff and are now starting to bring those back as volumes pick up. Hopefully we can bring everyone back in the coming weeks. There will be a mixture of working patterns. We are not insisting that people come back to the office and we have systems in place for working remotely that are working well. Technology, as long as you have reasonable internet, means you can do a lot of what you do in the office at home. Working patterns will change – we will see people doing a mix of working from home and working in the office.
MS: How has the recently announced stamp duty holiday helped you?
DT: We are seeing the benefit. Sales are happening a lot quicker. There will be a spike in activity while the holiday is in place and there is all the pent-up demand from pre-lockdown. There is also a lot of talk about redundancies. What should be remembered in all this is that while jobs may be lost in some areas, they are being created in others such as logistics and technology.
MS: What type of loans are you seeing more demand for from borrowers?
DT: Most borrowers are asking for development loans. Pent-up demand, combined with the stamp duty holiday, has helped developers get more comfortable as they can see their last project has finished and sold as they expected. This gives them confidence about moving onto the next one.
MS: How have investors reacted?
DT: Our investors, like the developers, wanted to see how things would settle down at the start of the pandemic. They have also seen a rally in the equity market so there is now an opportunity to rebalance their portfolios. We saw a number of investors wanting to make sure they had a steady income through choppy waters, which we can provide. There was initially more demand on the secondary market during the height of the pandemic and we kept it open. Some sellers were trying to test demand and others were keen to buy so they could rebalance their portfolio.
Our Innovative Finance ISA launched in November for existing clients and then for everybody else in June this year. There has been a humbling response that shows people trust our model. We have had people put in their whole annual allowance and transfer their holdings from stocks and shares and cash ISAs. They are comfortable with our governance and credit risk surrounding the loans.
MS: How important are institutional investors to Invest & Fund?
DT: We are looking for our retail and institutional funding to be 50/50. The figure is closer to 80/20 currently. It is still important for us to stick to the core of P2P. A number of our competitors have moved away from that. We have a lot of high-net-worth individuals who invest with us and there is space for both. Our most recent institutional lender will fund whole loans, while our other institutional partners will do so alongside retail investors.
MS: What impact will Brexit have on your platform?
DT: Brexit is very much on our radar. It has taken a backseat and is moving further forward. It has been interesting how Covid-19 has played out and how behaviour patterns have worked through this pandemic. I would suggest this outbreak has been far more dramatic. If your business model survives a pandemic, then Brexit, although important, won’t have the impact that the coronavirus crunch has had.