Every day for the last five years we’ve heard about systemic failures of traditional lending. High-street lenders have made some marginal progress recently, but mortgage lending still remains at less than half pre-credit crunch levels.
The banks may eventually pull themselves together but it will take years. They are hampered by multiple funding and balance sheet problems. With mainstream lenders congealing in a post credit-crunch mess, other models are coming to the fore.
Peer-to-peer lending works by matching potential investors who want a return on their money with those who need credit. Andy Haldane, executive director for financial stability at the Bank of England, said peer-to-peer lenders could eventually replace high street banks. “At present, these companies are tiny,” he said. “But so, a decade and a half ago, was Google.”
West One Loans works on the peer-to-peer principle. We are funded by a pool of over 200 high net-worth individuals who are sophisticated investors. As individuals with a certain degree of expertise, the FSA allows them to be more flexible in their decisions. We match our investors to borrowers who need a bridging loan.
This model has a number of advantages. First, our multiple investors, all of whom have different criteria and attitudes to risk, are able to fund a very broad range of properties and customers.
We don’t have to be dogmatic about certain types of loans.
As you would expect, investor demand is strongest when dealing with urban property and up and coming areas. But generally there is a lender for every borrower. In fact, many investors actively seek a diverse portfolio of loans which allows us to cater for all types of customers.
Second, the returns for investors are good. At around 1 per cent a month bridging offers a better return than most traditional asset classes. Certain investors may even be able to fund some loans through their SIPPs, although this depends on the specifics of each case. As well as a reliable monthly income, investors aren’t tied in for long. The average West One loan matures after six months. Sometimes it can be even faster than that. This means lending decisions are less subject to long term forecasts, which makes them more flexible for everyone.
The third advantage is that we can do deals much faster than traditional lenders. This is because we have built our business to cater for our funding model. So we employ an internal valuation-auditor to validate and assess valuations. That gives our investors more confidence in our valuations – and helps them decide whether they want to fund loans faster. This yields excellent results.
Time will tell if Andy Haldane’s Google prediction was right, but it’s already clear the peer-to-peer funding revolution is underway. With the array of specialist peer-to-peer lenders you can get a loan for anything from a patio to a tower block. And now, thanks to West One Loans, you can get a bridging loan, too. Such reinvigorated competition is good news for borrowers, investors, and brokers alike.