Peer-to-peer lending is transforming the way businesses operate, access capital, and grow. One other example of where this is happening is in the residential buy-to-let mortgage market.
We spoke to the co-founder and CEO, John Goodall of Landbay to find out more about Buy-to-Let and what his company are doing to disrupt this exciting market.
What is Landbay and how does it work?
Landbay is a peer-to-peer lending platform for British residential buy-to-let mortgages. We offer UK investors a chance to benefit from the most resilient market in P2P, whilst providing professional landlords with a rational approach to mortgage lending via our alternative finance model.
When Landbay receives a mortgage enquiry, we subject every application to rigorous analysis before we agree to lend. Our credit and compliance checks involve a rigorous process.
What’s the market like for Buy-to-Let mortgages?
The residential buy-to-let mortgage market is a segment that has shown remarkable resilience through the financial crisis and yet remains highly fragmented and underserved. The profile of buy-to-let mortgages present two key characteristics that lend itself well to the peer-to-peer business model:
- Strong cash flow derived from rental income, enabling loans to be serviced through property market cycles;
- Non-amortizing debt over long terms, which enables the layering of stable, annuity-like income as a loan book grows.
UK rental demand rides above the peaks and troughs of residential house prices. During the 2008 Global Financial Crisis house prices fell 17.4%*, while demand for rental properties remained resilient. Rent flowed, mortgages were paid and repossessions were negligible at 0.35%* (source: CML, 2008 & 2013).
By volume, it’s a market that continues to grow with UK buy-to-let mortgage lending currently accounting for over £30 billion per annum. This ensures that we can hand pick the best lending opportunities without having to move up the risk curve.
Further research of the BTL mortgage market reveals that a significant portion of total lending is to what are classified as ‘professional landlords’ – this market alone is estimated to be half of the total BTL mortgage market, and there are few mainstream lenders participating.
The unique characteristics of this professional landlord mortgage market means that it is served by alternative, non-bank lenders and that the yields on offer are significantly higher than those offered to owner-occupier borrowers. This anomaly exists because the banks view professional property investors as commercial clients, yet the underwriting requirement neither suits their commercial teams (the deal sizes were too small) nor their residential home loan businesses, which have been largely moved to algorithm-based automated underwriting.
What’s the future for Landbay?
The strength of our platform’s lending processes, combined with our highly experienced underwriting and operations teams have allowed us to begin to scale. The UK is suffering from a high discrepancy between supply and demand for housing, meaning that the buy-to-let market continue to be lucrative for its investors. This market strength will continue to fuel our growth and we are excited about the alternative finance provision we are bringing to UK investors.
The future is bright for peer-to-peer, for buy-to-let and for Landbay.