To start with, could you tell us a little bit about Blend Network: in particular, what is it that you offer to investors, and what is your process to find good borrowers?
Blend Network is a peer-to-peer property lending club. We connect investors who are looking to earn a good return on their money with small and medium experienced property developers who need funding for their property projects. We offer our investors the opportunity to invest on property-secured loans that will earn them double-digit returns – last year, the average return for our lenders was 12% p.a. and some of our loans had a 15% return p.a. All our loans are secured against first-charge on the property and we have zero default on our loans. In regards to the borrowers, these are very experienced small and medium property developers looking to build more affordable houses across the UK. For example, the borrowers behind a typical loan we did last year were two very experienced property developers, they had nearly 60 years of property development among them. They approached Barclays to get a loan to build eight houses, Barclays said no but referred them to us. We were able and very happy to fund this loan, the project is doing great and the borrowers have already made an early repayment. This is the profile of our typical borrower at Blend Network. We find our borrowers both directly and through our network of introducers.
There are already P2P lending platforms which offer secured lending investments. What would you say it is that sets you apart from the competition. Why should I invest my money with you over the others?
Although P2P lending has been around for nearly a decade now and there are a number of platforms in the UK, Blend Network offers a very niche market.
First, our returns (12%) sit at the top-end of the risk-return curve across P2P platforms. The reason for our higher return is that we lend in very niche high-growth markets across the UK but outside London. Our strategy is to avoid Luxury residential in Prime London. Instead, we focus on properties that costs between £100k to 3300k per unit in the regions. We are looking for great risk rewards.
Second, we pride ourselves on our highly detailed due diligence process on the loans. For example, we always always visit the site and meet the borrower in person, sit with them to assess whether the project makes sense and whether they have the experience required to deliver the project. We believe due diligence is key.
Third, we at Blend Network (the management and the equity shareholders) lend our own personal money on the same terms as other lenders. We believe this is very important to show that we have skin in the game and we believe in the loans.
I read that you’d received £10 million in funding at the end of last year. Do you already have plans in mind for this?
Yes, we actually went on an offsite to Miami in December ? (just kidding). The £10m is a combination of equity to grow the business and funds by the new equity shareholders to lend on the loans. We are planning to use the funds to grow our underwriting and origination team in order to bring in more high-quality loans for our lenders. Indeed, in January we announced that we hired Paul Watson as Head of Origination. Paul comes from Octopus property fund and brings in a wealth of property knowledge with him to help build our pipeline of high-quality double-digit loans. Over the next few months, we will be hiring more people in the underwriting and origination team.
What is it that attracts you to Northern Ireland, with one of your biggest opportunities coming from there?
Last year we did a significant number of deals in Northern Ireland because we believe it’s a severely under-served market in terms of funding for small and medium property developers and has a very strong property market due to lack of supply and strong demand. However, this year we will be diversifying and bringing more loans all across the UK regions except London. We really like the north of the UK because it benefits from strong demand and shortage of supply. In many areas across the north, lenders pulled out during the financial crisis a decade ago and are yet to go back. The bottom-line is that if you are a developer and want to build 150 flats in large cities like London, Manchester or Liverpool, you can get funds. But if you are a smaller property developer looking to build 10 or 15 flats 20-30 miles outside the major cities, then banks not may want to lend. And that’s our niche market. We have been very bullish on Northern Ireland since early days. Now, reports are showing (see chart in this article and image below) Northern Ireland been the best performing region in the UK.
What’s next? How do you see the future of P2P lending in the UK over the next few years?
We recently wrote a blog post about our top predictions for the P2P industry this year:https://blendnetwork.blog/2019/01/04/the-p2p-industry-in-2019/ But more generally, I see P2P becoming increasingly more of a mainstream tool to access investments and more widely used by retail investors. If you think about it, P2P is a great tool that helps ‘democratise investing’ because retail lenders with just a few thousand Pounds to invest can access the exact same deals as more sophisticated investors investing hundreds of thousands of Pounds. For example, at Blend Network the minimum investment is just £1,000 and we have some very high-profile private investors and family offices investing up to £50k or £100k on each loan. So, someone with £1,000 would be co-investing in the same deal with someone investing £50-100k.
Do you think that, if interest rates were to rise over the medium term, P2P platforms would have room to lift their rates to match?
I think that if interest rates rise, we will see a rebalancing of investment portfolios. Rising interest rates would be mostly negative for the equity market and investors would prefer to keep their cash at the bank with a return. I believe that platforms offering 4-7% p.a will look less attractive and we will see a lot of flow towards the bank with rebalancing. Some of this cash will go to higher yield products like property platform offering 10%+ p.a. Blend should benefit from it and see more lenders due to the higher the risk/reward.
What are some of the challenges that you have faced growing the business?
Our lending database has grown fast. With zero default and returns mostly around 10-12% p.a. on each deal, the appetite to lend is growing very fast. We have to find a lot more deals now. That’s why we have done the equity raise, to be able to hire originators & underwriters to grow that side of the business too. For us it was very important to keep the culture of good quality loans, that’s why we went for shareholders that were lenders too.