Collateral UK – An Introduction

Introduction

Collateral UK was incorporated in 2014 to offer a peer-to-peer platform to investors interested in investing in the UK property market. It specialises in short-term asset backed bridging loans. Usually but not always the investment opportunities are based around purchasing new build properties from the developer, with investments repaid when a customer or tenant is found for the property. Typical terms are 90 to 180 days. The advertised ROI is 12% but this can vary across specific loan requests. Collateral UK also offer a secondary market allowing investors the opportunity to exit early if they feel the need to.

There is no minimum deposit or minimum investment on the Collateral UK platform. This platform only currently accepts bank transfers, it does not accept card payments.

Available Loans Page

Screen Shot 2017-04-27 at 01.28.48
Image shows Collateral UK loan request page (with the property identity column removed).

The top row of the table (below the title row) shows the grand totals for all currently available loans. There are more rows on the platform than shown in this image so the totals look inaccurate but they are not.

 

Asset Value – shows the market value of the property requesting the loan.

Loan – is the value of the loan being requested on the assigned property.

% PA – displays the percentage ROI offered for each loan request.

LTV – shows the loan to value against the market value of the property. Collateral UK offer up to a maximum of 70% LTV against any property.

Available – is the current value of loan available for investment. If a loan is fully funded it is removed from this table until value becomes available again though an investor selling their loan part on the secondary market place.

Invested – Shows how much you currently have invested in to each loan request.

Remaining – displays the remaining time left on the loan term before expected repayment, in days.

Funded loans page

Screen Shot 2017-04-27 at 02.04.00
The image shows the Loans Funded Page for Collateral UK (with the loan identity column removed).

 

Age – the number of days you have been invested in each loan request.

Amount – shows how much you currently have invested in each loan request.

Start – is the date you invested in the loan request.

LTV – shows the loan to value against the market value of the property. Collateral UK offer up to a maximum of 70% LTV against any property.

Remaining – displays the remaining time left on the loan term before expected repayment, in days.

Interest – shows how much interest has been accrued for each loan request to date. Interest is paid to the platform account at the end of each month.

Sell – is the option to sell the loan part on the secondary market.

Renew – sometimes a borrower may request a loan extension or a loan renewal. This option allows your investment to be automatically rolled over to the new loan request.

Landbay – An Introduction

Introduction

Landbay is a peer-to-peer lending platform specialising in the UK buy to let property mortgage market. Landbay was established in 2013 in response to the resilience in the UK buy to let market thought the 2008 downturn despite property values dropping by 17%.

Investments on this platform are initially queued to await assignment to a suitable investment. However interest is paid on deposits (this has currently been suspended as of April 2017 due to excessive demand) even while in the investment que. Loan terms can be for as longs as 10 years on this platform.

Landbay’s minimum account deposit is £100 which can be invested in one of two options. Land Bay also operates a secondary market for an early investor exit option. You are also able to ‘Auto Invest’ interest earned to maximise returns.

The options LandBay currently offer

Screen Shot 2017-04-26 at 23.28.40
Investment options available on the LandBay platform.

Options are either a fixed rate of 3.69% ROI fixed for 5 years. Or at a tracker rate of 3.00% (plus LIBOR) ROI (Correct of April 2017).

 

The LandBay account dashboard

Screen Shot 2017-04-26 at 23.28.18
The Landbay account dashboard

The dashboard is very simple for Landbay –

Cash balance – shows any funds on the platform that are not currently invested or queued for investment. You are free to withdraw any funds at any time in the cash balance.

Invested funds – this shows all your invested funds assigned to loan parts. It also shows funds that are queued and awaiting assignment to loan parts. There is currently an estimated 2 month waiting list for loan assignment (correct as of April 2017) due to excessive demand.

Lifetime Interest – shows the total earned interest over the life of the account. This is also where you can access your statements.

With investments still queued for investment information on this platform will remain sparse, but more information will be added once the investments become active.

 

 

Is Brexit going to make us all homeless ?

If I could accurately predict the precise affects of the United Kingdom leaving the European Union (EU) I would not only be a very rich man but undoubtedly a man in great demand. Not even the most learned academics on the planet truly know what the UK’s Brexit negotiations will ultimately lead too, but that’s why it’s exiting, no ?

So in all seriousness the idea of this blog is bring together a collection of credible sources, information and data in an attempt to lay out some possible effects and changes Brexit may have on the UK property market. This endeavor is even more of challenge at this time as the UK prime minister Teresa May has just announced, in the last few days, a ‘snap’ general election to be held on the 8th of June. This means UK politicians are now in campaign mode, and not everything in an election campaign is necessarily rooted in the unbridled truth, but I shall try my best, never the less. This is also in light of several European elections including France and Germany to take place over the coming weeks and months.

One of the UK’s known strategies for the transferral of legislation from the EU to the UK is known as the ‘Great Repeal Bill’. This simply stipulates that all relevant EU legislation will be transferred at the stroke of a pen to be sifted through and reconstructed at the UK parliaments leisure. I’m not entirely convinced with the ‘simplicity’. This is an institution that the UK has been increasing intertwined with for over 40 years and even if the transferral of legislation is that easy, there are also physical disconnects and un-plugs that will need careful and considered management to avoid causing untold damage to either side of the negotiating table. Including areas that could affect the robustness of the UK property market.

brexit-uk-leaving-eu

Is the EU institution involved in the UK housing market ? If so how ?

The short answer to this question is no, at least not directly. However there could be an argument made that the EU do regulate, at least in part some peripheries of the UK property market. One example being, what are known as securitisations. Securitisations are banded together and repackaged mortgages which are then traded by 3rd parties as entirely new financial transactions. These securitisations can make up what is commonly refered to as a Government Bond which are then traded on the International Bond Market. This is basically one way a country raises money (in the form of debt exchange) when it needs to raise capital beyond its domestic income (taxes). Now, largely speaking the origin country is usually expected to regulated their own bond offerings to the bond market (poor regulation could lead to poor bonds and a country damaging its own credit score and ability to raise money in the future, so it’s in the countries own interest to make sure what they are offing is credible and well-regulated). The UK’s regulator is the Financial Conduct Authority (FCA). So where does the EU come in to play ?

In 2010 at the Pittsburg G20 the European Central Bank (ECB) along with its international partners agreed to accelerate the ECB’s regulatory program for international monetary markets in response to the 2008 financial crisis (ECB Source). While this program is significant with particular focus towards clamping down on fiscal misconduct and the lack of best practice polices, widely seen as a substantial contributor to the financial crisis, any EU centralised regulation or unintended negative consequences of specific regulation is, and can be, at least in the large part buffeted by the fact the UK is not part of Euro currency. For example the Bank Of England have fiscal tools at their disposal to migrate or reduce any potential damage to the UK economy. So to come back to the specifics of the UK housing market in respect to the trade of mortgage securitisations on the international market, yes EU regulation could potently effect the UK’s effectiveness for such bond sales, which in turn could effect the wider UK housing market through the availability or cost of mortgages. However the UK’s bond market is largely the UK’s responsibility and given the interconnected nature of such international markets in 2017 it seems foolish to belive that EU would ever want pursue a punitive policy against the UK designed to cause damage to the UK economy or the property market as it would very likely damage the EU at the same time, and though contagion could well ignite another global financial crisis.

The second area that needs examination would be the specifics around property and land ownership. Having spent some time searching through the EU’s online archive of available literature I have been unable to find anything that specially relates to legislation around the ownership of property in either member states or soon to be former member states. There are plenty of 3rd party research papers and analysis for most of the countries of EU (including the UK) on this subject but they stop short of being a representative view of the EU institution, in fact most of them specifically state that they are independent and non representative. So I’m afraid on this one we are going to have to venture a little way down the long and winding road of hypotheticals. It has long been a stated ambition of the EU to desire ‘ever closer political union’. One of the most fundamental tenants of any political establishment is the ‘ownership of property/wealth’. There is a remarkable amount of research conduced on behalf of EU on this subject but yet there is no concrete legislation. One might well deduce that legislation could be in the pipe line (post Brexit), but it’s equally viable that the EU intend to keep property ownership and its accompanying legislation, devolved to its constituent states (countries). After all property ownership and rights often date back century’s and vary massively from country to country. So as it stands the EU has no legislation (as far as I can find) on this subject so I think the UK’s house’s and the rest of EU’s members house’s are not about to be repossessed, thank goodness.

Whats the current state of foreign investment in the UK property market ?

This is largely an unpredicted consequence of the June 23rd 2016 referendum result or at least an under reported consequence, it’s also a story of two half’s. On the 18th of March this year The Telegraph published an article highlighting the recent flurry of foreign investment in to the UK. This includes a £563m purchase of an office park near Reading, a Liverpool shopping centre for £300m and a £400m redevelopment in Edinburgh. What do all these investments have in common ? They are all outside of London, in fact the investors in the Reading Office park also sold its stake in the ‘Cheese Grater’ building located in the heart of London. The lack of London-based property investments on crowd funding platforms such as Lendy, Funding Circle and Collateral are also noticeable in their absence.

There are multiple factors at play currently creating this situation, the devaluation in stirling being a significant one. A foreign investor buying in either American dollars or a currency pegged to the dollar can enjoy an average of a 10% effective discount (based on pre referendum exchange rates) due to the drop in stirling, if that 10% recovers in due course an investor could make millions in profit on a large investment for nothing more than their patience, a very attractive opportunity indeed. There are also regional factors at play, such as the confirmed development of the HS2 rail line, The Midlands Engine growth fund and The Northern Powerhouse growth fund.

London’s problems have been a long time coming. Excessive, unchecked foreign investment in to the capital over 20 years has resulted in hyper-inflation of property prices, the large-scale gentrification of whole postcodes and a bubble that looks fit to burst. The smart money seems to leaving London at a pace and its difficult to see how London will get out this one without enduring significant pain. You know what they say ‘what goes up must come down’ and London has gone up very high.

Domestic consumer confidence.

When talking about economics it doesn’t take long for the term ‘consumer confidence’ to come up. Consumer confidence is more of a temperature gauge, a feeling or a prediction of the health or potential growth of an economy at large, rather than a cold hard fact or data. So it’s not an exact science but it’s still a useful indicator of what the future might hold in terms of growth and economic health. For the purposes of this blog I’m going to try to focus in on consumer confidence specifically related to the property market, but lets start with overall picture of UK consumer confidence. The latest figures for consumer confidence (based on the Consumer Price Index (CPI)) show a figure of minus 6 points for the month of March 2017. This has been fairly stable since November 2016. The biggest movement in this measure in the last 12 months was July 2016 following the UK referendum result where it dropped to minus 12 but bounced back rapidly the following month to just minus 1. In the last 10 years only 2015 has shown positive measures with 2008 setting records for negative measures, bottoming out at huge, minus 39 points in July of 2008. So what does this figure actually mean ? In essence its rolling total for most (some minor specific transactions are excluded such as those bases around criminality) of all the transactions taking place within the UK economy. So the latest figures for March 2017 state that the sum of all the transactions taking place inside the UK were 6% lower in value based on the previous years comparable month, so show a retractation in economic activity as a whole. There needs to be caveat applied here in terms of current reduced rate of Stirling, meaning foreign investment is actually at a monetary lower value, which in turn is applying downward pressure on the overall consumer confidence figure, although even with this anomaly extrapolated economic activity is still down, slightly.

So lets look at the picture in specific relation to the UK property market. One reputable index used by a large part of the industry is the Ipsos MORI Halifax Housing Market Confidence Tracker. This is a consumer survey given to Halifax customers when conducting property transactions. Its based on a number of questions around confidence and opinion of the consumer most of which are framed ‘in 12 month’s time’ predictions. One of questions asked in the survey is as follows –

Screen Shot 2017-04-22 at 13.47.44

As you can see the overwhelming response to question of house price levels is a moderate increase over the next 12 months. This is in line with a general consensus of marginal increases in-house prices in 2017 leading to potential stability in late 2017 early 2018, reported by The Guardian, the BBC, This Is Money, and Barton Wyatt. Figures for London are bucking the trend with a slower than UK average increase in prices with some areas actually falling as the London market continues to overheat and burnout.

Screen Shot 2017-04-22 at 14.11.54

The chart above (taken from the same Ipsos MORI survey) also shows the prediction for a moderate increase of house prices, but the blue line shows responses to future confidence in the state of the UK economy as a whole. As you can see a majority of participants are lacking confidence in the strength of the wider UK economy. Now this is interesting because logic might indicate a weakening economy would lead to a drop in house prices or demand for houses. So why does this not appear to be the case ? Well the UK hosing market has always been particularly resilient even when the wider economy is cooling or retracting. Part of this discrepancy could also be down cynical media reporting, everybody is told the economy will suffer post Brexit but reality so far is not supporting that theory, although that could change once Brexit negotiations are completed. Along with this there are very limited investment and saving options for UK consumer right now with record low interest rates, making property still an attractive proposition.  So with the exception of the London area consumer confidence in the UK housing market still seems to be resistant.

The wider European landscape.

Its worth considering the wider European situation from an investors point of view aswell. Europe, or more specially Western Europe has been seen as an attractive place for Middle Eastern and Asian investors for some time. There is no denying the UK is in a state of political flux right now, but looking at the alternatives in Western Europe, both Italy and Spain have considerable unemployment problems at 11.5% and 18.6% respectively although they are slowly coming down. France currently has unemployment of 10% but that is gradually increasing. Germany has an impressive sustained unemployment rate at just 3.9% however economic growth is very sluggish at just 0.4%. That being the case for most of Central and Western Europe, Eastern Europe generally has strong growth but lacks the investment infrastructure and security seen in the West. As for the UK, it’s on course for 2% growth in GDP with an unemployment rate of just 4.7%.

The verdict ?

So to conclude my humble analysis of how safe the UK property market currently is. I would say right now its in pretty rude health. The UK is quite insulated from European market pressures because we have an alternative currency with full autonomy. There doesn’t appear to be any major regulatory obstacles to over come in respect to the property market in the Brexit negotiations. Foreign investment and interest in investments across the country (excluding London) in both the public and private sector seems to be strong, with support from regional growth funds. Domestic consumer confidence has taken a hit but this is often short-term and driven by speculation not facts (people who need a house will still need to buy a house even if they put it off for 6 months). UK unemployment is at the lowest rate since 1977 and growth is moderate despite the prevailing political and economic head winds. But of course it could all turn a 6 pence, so enjoy the ride.

How are the new Stamp Duty changes (April 2016) effecting the UK housing market ?

What are the changes in Stamp Duty ?

As of April 1st 2016 considerable changes in payable Stamp Duty (SDLT) were introduced by the conservative government in the UK (excluding Scotland) when buying a second home. So for example if you purchase a second home on a free hold for £150,000 that you do not intend to occupy yourself the SDLT due on that property would be £5000 after April 1st 2016. Previous to this date the SDLT due would have been £500. If the property is £300,000 the SDLT due would be £14000 where as it would have been just £5000 prior to the April 2016 changes. (calculate your SDLT here). In essence 3% has been added to the Stamp Duty percentage for each ‘slice’ of property values (over £40,000). So as you can see the changes are significant to 2nd home owners or buyers.

Why were these changes introduced in to the UK housing market ?

Well quite simply the UK housing market has been overheating for some years now driven by a number of factors. A shortage of housing supply due to both lackluster new house building and a growing population. Speculative investors ie. investors buying up housing stock in the hope that prices will increase so they can sell the property on for a profit, this problem is particularly acute in London with overseas buyers dominating the higher end of the market distorting prices even further. A lack of alternatives for investors and savers. With Bank Of England interest rates remaining at record low rates traditional investments and saving options are just not attractive options for most people. Finally the ‘buy to let’ market, more homes in the UK in 2017 are now rented than ever before and while this may indicate that it is more cost-effective to rent rather than buy your 1st property this is often not the case with rents actually being higher than a mortgage on the same property, applying further upward pressure on house prices overall.

The April 2016 increases are an extension to George Osbourne’s (Chancellor Of The Exchequer) 2014 Stamp Duty reforms that fundamentally changed how Stamp Duty was charged on all properties. From a ‘slab’ format where the percentage for the corresponding threshold was applied to the whole value of the property to a ‘slice’ format where graduating percentage rates are applied to each slice of the value of the property according to the threshold parameters. Osbourne’s changes were strongly criticised by a report at the end of 2016 by Oxford Economics claiming they were causing damage to the housing market, job losses and a loss of tax revenue, which lead to campaign by The Telegraph to get the reforms over turned. However the report only focuses on properties valued over £1,000,000 most of which are in the London area. The report seemed not make much of an impression as Philip Hammond (Chancellor Of The Exchequer) decided to build on the reforms with April 2016 increases.

So how did this change effect the UK housing market ?

Many predicted a surge in housing sales and purchases ahead of this change to avoid the additional charges and the table below seems to support that prediction –

Screen Shot 2017-04-20 at 22.34.04
Table shows Office For National Statistics data for property sales volume between Q1-2015 – Q3-2016

You can clearly see a significant spike in sales in Q1 – 2016 of 68,853 sales compared to the previous quarter across England and Wales, however a caveat should be applied to these figures. Q1 of any year tends to be the more popular time of year to buy and sell a house but even with that caveat extrapolated there is still a significant upturn in sales. Whats more stark however are the following figures for Q2-2016 and Q3-2016. The sales volume does drop back but not as far as the comparable previous years figures, suggesting that the increase in Stamp Duty, designed to cool the market has not worked. In fact right up to latest figures ending December 2016 all measures including sales volume and property prices appear stable. So in conclusion the robust UK housing market as a whole seems to have taken the Stamp Duty changes in its stride, at least for now.

Lendy – An Introduction

Introduction

Lendy started life in 2012 but operated as the Saving Stream peer-to-peer leading platform until spring 2017 before reverting back to the Lendy name. Lendy operates exclusively in the UK real estate market by providing loans to both existing property purchases and new property development’s.

The platform offers property backed investments lent at no higher than 70% of the property value. The investor is free to choose from a variety of property providing there are loan parts available to purchase at the time of browsing. Interest is earned daily but paid monthly (first day of the month) on active investments.

There is no minimum account deposit or withdrawal for Lendy, with average advertised annualised return of 12% per annum (Rates can vary across properties). Loans tend to be for 6 month terms. An investor can either reinvest monthly interest or withdraw it. Lendy also operates a secondary market place to allow investors an early exit option if needed. All properties available for investment on this platform include an investment pack detailing everything you need to know about the loan arrangement, including intended use of borrowed capital; schedule of capital delivery; due diligence; surveyor reports; independent property valuation reports and much more.

The property investment page

Screen Shot 2017-04-03 at 02.51.34
The property investment page for Lendy

The main page for the Lendy platform displays a list of properties currently available to invest in. Information displayed is as follows –

DFL013 – Is a unique reference number given to each property used for a quick reference when referring to a specific property.

Richmond Road, Bradford – This is the location of the property.

13/01/2017 – This is the date of the start of the loan agreed between the borrower and Lendy. This does not change even if the repayment schedule is restructured.

The photograph – Shows the property described.

Loan – The total value of the loan agreed between the borrower and Lendy.

Loan to value – This is the percentage value of the loan against the independent valuation of the property or development. Lendy will lend to a maximum security of 70% against the property value to accommodate market pressures or potential default and recovery proceedings.

Amount available – This is the current amount available to an investor. If a loan is fully invested in at any given time it will not appear on the investment page by default. Loans can become available again if another investor decides to sell their loan part on whats known as the secondary market. In fact most of what you see on investment page is actually secondary loan part sales. New properties (primary’s) tend to snapped up quite fast in the first instance.

The account page

Lendy (Q1) 2017-04-03 at 00.57.59
Lendy Account Page

Balance – This is the total amount of money you currently have on the platform. The figure is made up of funds deposited, plus funds invested, plus interest earned from previous months (does not include the current part month interest until its paid out on the first day of the month) minus any losses through defaults.

Live loan parts – Shows how much you currently have invested in live loans.

Available funds – Is any money in your account not currently invested in a loan part. When interest is paid at the end of the month it will show as available funds, until you either reinvest it of withdraw it in to your bank account.

Export to Excel – A handy little button that allows you to download all your account figures in to an excel document, handy for record keeping and tax calculating.

Drawdown – This quite simply means the borrower has started to access and spend the money they have borrowed, meaning the loan is active and investors interest will be calculated at the rate as outlined in the investment pack. It is not uncommon for larger loans to be broken down in to smaller development tranches, with the borrower required to achieve defined milestones before the release of the next wave of funds. This is mealy an additional security measure designed to limit the impact of a potential default. Details of such arrangements can be found in the investor pack attached to the property.

Remaining – This shows in days the time left on the original loan agreement. The common loan term for Lendy is 6 months but can vary as agreed in the terms of the loan between Lendy and the borrower. If the remaining time is show as a negative number this means the original repayment deadline has elapsed. This does not necessarily mean the loan has defaulted. It usually means the terms have been adjusted, so repayment may take longer than originally expected, however interest will still be paid to investors every time the borrow makes a repayment. Specific details of the loan progress can be found in the investment pack and are also summarised in a weekly email to all investors on the platform. Total default and recovery proceedings are a last resort following exhaustive renegotiation and repayment restructurings.

Amount – This column indicates the amount of money you currently have invested in any single investment. There is no minimum amount you need to invest meaning you can directly reinvest all of your monthly interest if you like, maximizing your returns.

Interest  – This is the total amount of interest earned on each loan part to date. The amount will include any interest gained in the month but not paid (at the end of the month). It’s also worth noting that this shows the total interest earned for the duration you have been invested in that loan part ie. if you have been invested for two months it will show the total for the two months not just the amount for the current month.

 

The secondary market

The Lendy platform operates what is known as a secondary market. This is essentially an early exit option for an investor if they need to release invested capital before the end of the loan term.  How this works is actually quite simple.

Screen Shot 2017-04-03 at 05.55.09
The Lendy sell loan window

Find the loan part you want to sell from the list on your account page, click on it and click on ‘sell loan part’. It will take you to a page detailing the property, scroll down and you will see the box show in the picture above. You can sell all or a portion of the loan part by using the slider or typing an amount in to the box. The ‘sale queue’ on the example above is £97,193.13 . This means if the loan part was to be put up for sale it would have to wait for the queued balance to be sold first. The flip side of sale que is the value available for investment of that property shown on the property investment page at that given time.

As soon as a loan part is queued for sale it will no longer gain interest. If you were to cancel the sale of the loan part it will return to earning interest. There are no transaction charges involved with either selling or canceling sales of loan parts on the Lendy platform. It’s worth noting that the secondary market is still a marketplace requiring demand for loan parts being sold, if there is low demand it will take much longer for the sale que and then your loan part to be sold. So the balance between offloading investments and loosing potential interest is something of a personal preference and will probably take a bit of experimenting to work out whats best for you.

What is PropTech ?

PropTech is short for Property Technology. This term casts a wide net over a number of areas but can defined by any technology developed to assist in the purchase, leasing or marketing of property. With-in the PropTech sector a number of platforms have sprung up in recent years allowing the small fish investor (like me) to easily invest small amounts in property transactions in exchange for a reasonable return. We all know UK banks are currently delivering pitiful returns on savings accounts at this time so its good to know there are alternatives.

Of course its has to be said any money invested in these platforms is at risk like any other investment, so be aware you can walk away with less than you started with if a borrower hits choppy waters and starts to default on repayments. I would suggest reading as much as possible on your chosen platform and more generally about the sector so your eyes are open before making any commitments.