LendInvest: the first peer-to-peer mortgage lender

LendInvest is the first lender to offer peer-to-peer mortgages longer than bridging loans, but access is limited and so are the types of mortgage.

LendInvest is a new peer-to-peer lender. As with Mayfair Bridging, it has sprung from a bridging loans provider called Montello Capital Partners, although loans can go into years, rather than the average three months of a bridging loan.

Read about Mayfair Bridging and bridging loans in New peer-to-peer lender offering 10% tax-free return.

Who can invest?

As with Mayfair Bridging, investors in LendInvest have to be accredited, which means they're either:

• High net worth: £100,000 salary per year or £250,000 in assets, excluding the family home, pensions and insurance contracts or
• “Sophisticated investors”: private-equity professionals, business angels, directors in companies with turnover of £1 million plus, or similar credentials.

You need to invest a minimum of £50,000 in each loan.

Returns for investors are currently higher than average at 8% plus per year before bad debt. Higher returns are not unusual for new peer-to-peer services, since investors demand higher returns for the risks of investing through a new service and because fewer investors are competing to lend, which means interest rates aren't drivendown.

Another reason for higher returns with LendInvest might be that the types of loans so far have been the shorter-term, expensive kind, such as bridging loans.

Many loans available to invest in on LendInvest are secondary loans, which means a financial institution has lent money secured on property but has now decided to sell the loan to someone else. This could be because they need their money back sooner or they want to lend their money to others with a better or worse risk profile, for example.

Who can borrow?

Although investors can invest in secured loans on both residential and commercial property, residential owners hoping to borrow through LendInvest will have no luck. LendInvest is for institutional investors and buy-to-let landlords who have or require unregulated mortgages – which means no homeowner loans.

At present there is very little information on the LendInvest website, since it's only in the soft-launch phase and loans have mostly come through Montello, which receives £50 million to £100 million in bridging-loan business a month, according to Christian Faes, co-founder and director of LendInvest and a principal partner at Montello.

The directors

Faes practised law with Clifford Chance and as legal counsel to Deutsche Bank. Ian Thomas, LendInvest co-founder and another Montello partner, is a qualified chartered surveyor who used to hold senior positions with SEGRO and Ballymore Property Group.

Answering the important questions

I asked Faes to fill in some of the most important information gaps on the LendInvest website. You can read the full version here, but these are the important things to take away from it:

• Most of the loans so far have been secondary loans. Over time LendInvest expects there to be a more even split between new loans and these secondary loans.
• Borrowers can remortgage through LendInvest, though they would need to be able to provide a good reason for doing so.
• LendInvest expects that longer-term loans will be on an interest-only basis.
• You cannot currently place your LendInvest investments in a SIPP.
• LendInvest charges a margin of the gross interest rate paid to the investor. For short-term loans this is 20%, for longer-term loans this is 10%.
• Borrowers are charged a 2% arrangement fee. This is split with the intermediary if the deal has been introduced through a middle man.
• LendInvest doesn’t hold the investor’s money at any time. All transactions and funds are paid through solicitor client accounts. Monthly interest payments are made direct to the investor, or their nominated account.
• Investors will be able to trade their loans on.
• There is no functionality for investors to automatically reinvest interest yet.
• There is no bad-debt provision fund in place. What Faes didn't say was that it would probably be inappropriate for LendInvest to have a bad-debt fund, since investors choose the specific mortgages they want to invest in for themselves. If there was a bad-debt fund, investors would all choose the high-risk, high interest loans and rely on the bad-debt fund to bail them out when things go wrong.

The risks of peer-to-peer investing

Investors must beware phrases like: “It provides investors with superior risk adjusted returns,” which LendInvest claims in its press release.

All asset classes – from shares to bonds to gold to peer-to-peer lending – can provide good returns to anyone who always bears in mind the risks and gets out when everyone else has forgotten about them.

You need to keep your head while everyone else goes crazy – which they will do one day. When investors, journalists, pundits and money managers start saying peer-to-peer lending is risk free, you need to run quickly.

Peer-to-peer lending is not yet regulated

This industry is due to be regulated soon, but currently your investments are not protected by the Financial Services Compensation Scheme. With a LendInvest minimum investment of £50,000, however, that might not be especially relevant.

More on peer-to-peer lending:

What is peer-to-peer (P2P) lending?

Peer-to-peer lending set to be regulated

Relendex: new peer-to-peer property investment

RateSetter: how ordinary people can lend to save