World’s first tranche P2P loan completed

World's first tranche P2P loan completed




LendInvest, the peer-to-peer (P2P) mortgage lending platform, has recorded another world-first by completing a loan split into different tranches… .

LendInvest, the peer-to-peer (P2P) mortgage lending platform, has recorded another world-first by completing a loan split into different tranches…

Its new product, Tranche Loans, is a way for lenders to pick the desired level of risk and return that they would like to achieve on an individual loan basis.

On the back of feedback from its investors, LendInvest launched the new Tranche Loans for investors who have an increased appetite for risk where they can be rewarded with higher returns.

Other peer-to-peer platforms have sought to allocate a risk profile to individual loans, designating the risk profile of the loan according to their own criteria. However, LendInvest is now offering investors the ability to invest in different tranches within a single loan. Tranche A is the lowest risk portion of the loan, and Tranche B is subordinated to Tranche A, and so on.

By creating new tranche loans and blending the rate, it has effectively lowered the cost of a mortgage in the long term.

The first Tranche Loan on LendInvest was a loan for £365,250, against a property in Croydon. It was a short term bridging loan with a duration of nine months. Tranche A of the loan was for £200,000 offering investors a net return of 0.7 per cent per month; and the subordinated Tranche B of the loan, was for £165,250 offering investors a net return of 1 per cent per month.

The residential and commercial P2P mortgages platform was created by bridging lender Montello, and it offers a crowdsourcing alternative to bank-backed mortgages.

All loans are underwritten to high standards, with the lower tranches still meeting these grades, and to what it boasts as the 'best loan underwriting and fraud detection systems in the market'.

Co-Founder, Christian Faes, commented: "This is another first for LendInvest, as we continue to show our ability to innovate and provide investors with the best investment solution.

“As a true peer-to-peer investment platform, investors have the ability to select the actual loan that they invest in. As part of this, an investor is able to see all of the relevant information on the property that they are lending against, and the borrower's situation. With Tranche Loans, investors now have the added flexibility of being able to choose where in the capital stack they invest.

“Our new Tranche Loans, allow investors to choose the level of risk that they are comfortable with, within a single mortgage loan, and to adjust their investment return accordingly."

The only implication is in a default situation, where there is now a waterfall model of recall. Upon such a loan being wound up, Tranche A investors get paid first; Tranche B investors get paid second, and so on. In all tranches the security for the loan remains unchanged.

LendInvest also hopes to be able to benefit the mainstream borrowers by being able to offer a lower cost blended rate.

If the platform finds lenders are attracted to this product then it may look at lending to borrowers where its investors have a higher appetite for and are willing to shoulder a higher degree of risk (higher LTV or more regional geographic locations etc.). LTVs could rise to 80-85 per cent.

B&C understands that the platform is working on additional financial products and hopes to be offering new asset types in the very near future as its business expands. LendInvest also stated it intends on reducing its margins as volume levels increase.

David Serafini, Managing Director of LendInvest, told B&C: “We also hope to be able to benefit the mainstream borrowers by being able to offer a lower cost blended rate. We are therefore not increasing our margin as we’re passing any savings onto the borrowers.

“We do not see any increased risk regarding our current loan book as we have not started to lend under these new circumstances yet. We will gradually introduce these when we’re confident in our lenders appetite. There are also one or two other products in development coming soon. These products are all with a view to offer lower cost longer term mortgages to borrowers but still try to keep investors happy with superior risk adjusted returns. We also hope to reduce our margin even further as we increase the volumes we transact.”

Since its launch in May 2013, the company has completed £27.5 million in loans secured against over £43.6 million in UK real estate assets. This included the completion of a £4.1 million loan in January 2014, the largest P2P loan in history.

LendInvest has also launched auto-lending for investors, which will see their capital deployed automatically for certain loan types as opposed to specific loans.

Leave a comment