We hope you and your families are safe and well in these unprecedented times. We feel it’s critically important to keep communicating throughout this period so we can work together through the many challenges we may all face.
In this update, we will be covering:
1. A reminder about why CrowdProperty exists and how it benefits everyone as well as the wider economy
2. How the current situation impacts active loans
3. How the current situation impacts our pipeline and the importance of that lending to the economy
4. Some views on the investing market and how to keep up to speed on our evolving views
5. Our focus right now
Please be reassured that your best interests are always at the forefront of activity at CrowdProperty and never more so than right now.
1. Why CrowdProperty exists and how it benefits everyone as well as the wider economy
We set up CrowdProperty in 2013 to give a better deal for all – our lenders, our borrowers, the under-supplied housing market and spend in the UK economy.
As we personally experienced through decades of investing in and developing property ourselves, traditional sources of finance were failing quality property professionals looking to undertake quality property projects. Large housebuilders felt this pain less but there is a finite number of large sites in this country to develop. The critical segment to future housing supply is small and medium sized businesses (SMEs) building homes, exactly where our expertise lies and where our focus has always been.
The SME house-building segment dropped in housing output from 60,000 in 2008 to 20,000 in 2017, in a context where the country built c.200,000 in each of those years, when the actual requirement has always been over 300,000. Not building just one home not only exacerbates the housing under-supply issue but also means that £100,000-£200,000 less is spent in our economy on labour, materials and services. 100,000 fewer homes costs the economy £10bn-£20bn. Why did the SME segment drop by so much? By far the biggest reason is funding (42% of respondents to our survey). That’s what we experienced ourselves for decades and is what we are solving on the borrower side, which has huge economic significance for our country.
The principle of the ‘alternative finance’, ‘online lending platform’ or ‘peer-to-peer lending’ sector is to build more efficient specialist lending systems, ensuring that those with capital can get funds to those using capital productively more directly (matching the supply and demand of capital more efficiently), to the benefit of all. The sector is disrupting banks’ huge cost bases and the many participants in matching capital of the past for fundamentally good reasons.
But we’ve taken this to another level which no one else has achieved in the property sector, to deliver an even better deal to you, our CrowdProperty lenders. As well as building proprietary tech-enabled systems and processes for efficiency and unparalleled expertise in exactly the asset class we lend to for effectiveness (too many platforms are underweight in the ‘fin’ or asset class expertise requirement in fintech businesses), we have uniquely built a direct-to-property professional channel to market. In fact it’s the ‘number 1 direct origination in the entire UK market’ according to a former CEO of a UK challenger bank.
This is important because we work directly with our borrowers. We don’t pay brokers for business and nor do our borrowers pay brokers to find us as a lender. Not only does this give our CrowdProperty system an economic advantage (which we pass on as a better deal to our customers) but also the direct relationship with our borrowers means better due diligence, better project monitoring, better communication and better results.
We’ve now seen £2.6bn of project applications and we attract around £150m of funding applications per month. We’ve funded £65m in total – i.e. less than 3% of all applications. This demonstrates our expertise in attracting applications and the thoroughness of our due diligence, especially with a policy covering key criteria that can only ever tighten over time. We grow by continuing to improve our origination in terms of both volume and quality mix - never by relaxing criteria to chase growth. We have always focused on building a long-term sustainable lending business and as we approach 1,000 UK homes funded with a 100% capital and interest payback track record through 6 years of lending, we have only scratched the surface of our potential to continue delivering great value to our lenders and borrowers alike. These factors, alongside our operational best practices, are why institutional investors also back CrowdProperty projects – because they see the value in our unique model, expertise, security, track record and returns and also want a piece of the action.
Not only are we continually improving the products we bring you, including the ever-evolving AutoInvest (there’s further news just around the corner on this too) and the many tax-free ways of lending, we’re also fully transparent about our performance (which is critically important in this sector) both on our award winning statistics page and by opening up our loan book – and every cashflow therein – to various market commentators including leading market analyst Brismo. This underlines our complete commitment to disclosure best-practice and independent accountability for the performance of every loan that we originate both historically and going forward. If platforms aren’t entirely transparent about all aspects including the spread between borrower and lender rates, there’s probably a reason why.
2. How the current situation impacts your active loans
So what does this all mean to you personally in today’s challenging times? Let’s consider in-flight projects first. The CrowdProperty model means you always have first-charge security on the carefully curated, quality property project asset that will provide homes to under-supplied domestic demand in good, liquid markets at mainstream prices points – i.e. where there is enduring demand. Should the worst happen, you have first call on the asset and CrowdProperty controls any recoveries process in your best interests (the importance of control within first-charge security is often underestimated).
As previously communicated, we are working closely with our borrowers on a project by project prioritised basis to risk manage this situation and ensure they are prepared for any possible disruption caused by Covid-19. As clarified by Alok Sharma (Secretary of State for Business, Energy & Industrial Strategy) on 31st March, building and construction should continue where it is safe to do so, aligning to new Site Operating Procedures formally issued by the Construction Leadership Council. We have advised all borrowers to review their supply chains and identify any areas of potential impact on supplies. The building and construction sector may be instructed to down tools altogether, but it currently has an opportunity to continue economic productivity, especially in the SME space, but with it comes the paramount responsibility of protecting the NHS. Ongoing activity, or continuing activity rapidly after any implemented restrictions lift, does not just benefit development companies but all stakeholders through the supply chain - whether it's self-employed labourers on site through delivery drivers, service providers, materials manufacturers etc. As property experts, having been in the shoes of our borrowers for decades, we are working closer than ever with them in many practical and knowledgeable ways to mitigate the risks to progression.
We believe that timescales may well push out in terms of progress on-site or exiting projects (whether through sale or refinance to hold). We have time contingency built into every project but it's hard at this stage to know what the full impact will be. We are reviewing projects on a case by case basis, continuing to carefully assess drawdown requests and independent monitoring surveyor reports, releasing drawdowns only where validated progress has been made. As required we will continue to raise funds for follow on project phases when site progression is clear but it’s important to note that funds are only ever released upon independent review of completed elements of the project, funded in arrears to the progress and the value that has been added on site. Before release, those funds are held in separated ‘project wallets’ by CrowdProperty, just like your own, fully separated lender accounts, and earns you interest even whilst not released.
We have recently directly experienced other finance providers pulling out of refinancing completed projects. The projects have been successfully completed and value been added but it is now a question of time for the sale/refinance market to return for some exits to be realised. We are assessing these and making plans on a case by case basis, which we will communicate to all lenders involved. In some cases, it will take time and we will all work together to ensure a successful outcome. Bear with us on these but rest assured that returning your capital and accrued interest is absolutely our top priority.
3. How the current situation impacts our pipeline and the importance of that lending to the economy
In terms of future projects, our pipeline of quality projects has never been stronger given the unique direct-to-property professional brand we’ve built, as we promised, in order to cater for your ever-growing demand for projects over the last few years. We are actually seeing significant increases in applications for funding as many other finance providers, often with single sources of funding that are directly exposed to the current stock market volatility, revoke finance offers and have effectively shut up shop. Whilst we are being even more selective than ever right now, and thoroughly assessing exposure to the risks of the current situation, we are accepting applications and we will be listing strong projects for funding, with a clear view of security and security coverage – i.e. first-charge security at modest LTVs behind quality projects being undertaken by quality property professionals in good markets. Case by case we will be releasing projects onto the platform based on the right timing for the projects themselves, to cater for your ongoing demand as you, for example, look to deploy ISA allowances (especially given the imminent end of the tax year) or invest via our many lending options. It’s always good practice to diversify across many loans (made easy via AutoInvest) and with a strong pipeline to get your funds working on projects that will exit or refinance in 12-18 months’ time, the risk/reward balance and security offered by CrowdProperty projects is as strong as ever. By demonstrating strong liquidity on the platform from you, our loyal lenders, there is no doubt that more high-quality projects will apply to CrowdProperty for funding and more high-quality projects can be made available once fully due diligenced.
We remain committed to and will continue to provide you with secured lending opportunities that exceed our exacting standards, and this can help the economy to continue to move forward, ensuring that the nation bounces back swiftly following the current challenges. This is where the peer-to-peer lending model and the best protagonists therein can prove themselves invaluable to the nation, as can lenders and borrowers.
4. Our views on the investing market and how to keep up to speed on our evolving views
Last week we published this article about asset class investing in the current market and found this thoroughly researched piece written by the US property portal Zillow on impact of pandemics on economies and property markets interesting – suggesting a short, sharp economic output drop and then a reversion to medium term trend (although we’re risk managing to many different scenarios at CrowdProperty). As we don’t share all of our analysis, thinking, research and views over email, if you’re interested in keeping in closer touch, do follow us on our social media channels.
You can also keep an eye on the CrowdProperty Blog on which we share our own content (for example our recent series of 40 articles on alternative finance, peer-to-peer lending, property and CrowdProperty) and the best content that we find through our research.
5. Our focus right now
Our brilliant team continues to work relentlessly hard, with only ever tightening criteria, to tightly manage existing loans in your best interests and to continue to bring you strong, expertly-due diligenced, first-charge secured investment opportunities in a market not serving the economy well enough, alongside the service you have grown to expect from CrowdProperty on both sides of the marketplace. Where relevant, we will be in touch on a loan by loan basis with all lenders therein to ensure that you are up to date on those loans as we identify and mitigate any risks.
Earlier this year we added extra firepower to our board in John Mould, who led ThinCats as CEO to £600m lent to businesses, after COO roles at both Hermes Investment Management and New Star Asset Management, and formerly an Executive Director at Morgan Stanley. He brings deep financial services, asset management, risk management and alternative finance operating expertise, including through high growth stages, adding a few words as to why he chose CrowdProperty to join:
“The CrowdProperty business model, fundamental expertise at the core of the business, quality first-charge positioning and technology-focus presents huge opportunity to take the UK SME property project market. It’s impressive how the team have taken their time to build strategic advantage in the sector and can now controllably, selectively and profitably scale, with quality at the core. I particularly like their long-term business focus and their pursuit of excellence – it’s easy to see huge potential, hence gladly accepting the position to bring complementary perspectives to the board.”
This is important to you, as a CrowdProperty lender, as it shows that a heavyweight of the financial services industry sees the strength of the CrowdProperty proposition, business model and future potential and brings further expertise to our Board.
Our focus remains as ever on quality property projects being undertaken by quality property professionals delivering homes for under-supplied domestic demand in good, liquid markets at mainstream prices points. The CrowdProperty Shield, comprising rigorous due diligence, always first-charge security and unparalleled property expertise is core to CrowdProperty and we write to reassure you that we are doing everything in our power to expertly risk manage your current investments. We cannot reiterate enough that your best interests are always at the forefront of activity at CrowdProperty and never more so than right now. We will also bring you more high quality lending opportunities with appropriate contingencies in place in a market that can contribute critical economic productivity, underpinned by the number one objective of protecting the NHS. The recognition and validation of what we have built at CrowdProperty, including being rated #1 property platform globally out of over 200 by Brickfunding, is not only a testament to our track record to date but also the robust, differentiated and leading business model we have built for performance and protection throughout cycles.
These challenging times are temporary and we thank you for your ongoing support and trust – not only have we prudently funded over £1,000,000 of projects in the last 2 weeks, we’ve also paid back over £1,000,000. We’ve built this platform to give everyone a better deal at all times and together we can directly support ongoing economic productivity and a swift economic bounce back. If you have any questions do get in touch – we’re here to help as always.