John Goodall: Other P2P lenders should take independent BoE stress test

John Goodall, CEO at Landbay (pictured above), believes that other peer-to-peer lenders should be doing independent Bank of England stress tests on their loan books.

As part of its commitment to help people understand what they are investing in, Landbay recently commissioned MIAC Analytics to conduct an independent stress test against the BoE macroeconomic scenarios on its £235m residential BTL mortgage portfolio.

The test factors in scenarios designed by the BoE which includes a recession with GDP falling by 5%, house prices falling by 33%, and a base rate rise to 4.25%.

It took MIAC Analytics around two to three weeks to produce the results, which projected that, in the case of a severe economic downturn, Landbay’s return to investors would drop to an average rate of 3.13% per year, down from the 3.54% maximum return it currently offers.

In an exclusive interview with Bridging & Commercial, John claimed that it was “best practice” for other platforms to volunteer to take the BoE stress test.

“I can't see why a platform would argue that it's a bad thing to do it.

“…There's a cost to it, but I don't think that cost means that it’s something that other platforms —that are serious players — can’t afford.”

John stated that the purpose was not to remove risk, but to help retail investors understand the risk and work out whether they think the return is worth it.

“The best-case scenario [in] P2P is you get the rate you were promised,” he said.

John claimed that, statistically, the country was due for another downturn, and added that there were headwinds.

“So, I do think, for P2P platforms, that this is something that you'd want to educate your investors [on].”

In addition, John believed that there was also an internal learning process from a stress test where it may shed some light on a platform’s credit policies.

He said it could inform platforms of certain loans which perform worse than other types of loans, and therefore they could then restrict LTVs or increase the price on those sorts of loans in future credit policy.

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