We spoke to Matt Tooth, Head of Distribution at LendInvest, about overcoming prejudices around peer-to-peer lending and why the industry is growing so rapidly.
FR: Why do you think the peer-to-peer industry is growing at such a rapid rate, and will it ever be accepted as a mainstream lending channel?
Marketplace lenders like LendInvest have gained traction by providing a better product and a better consumer experience for borrowers, simple as that. The marketplace (or 'peer-to-peer') sector grew to £3.2bn of lending in 2015 according to research from Nesta, the innovation and research charity, and within this space property lending is the fastest growing segment.
FR: With stamp duty increases and further regulation being introduced to the buy-to-let market, do you see yourselves and other peer-to-peer lenders growing further into that space?
Yes we do. The buy-to-let market is a significant debt market (some estimates say it’s worth £30bn per annum) and our existing market share is tiny. At the moment we are primarily a bridging lender that also lends development finance and has aspirations to become a mainstream buy-to-let lender. As our cost of capital falls we will be able to take some market share regardless of the headwinds that investors and landlords are seeing in buy-to-let.
FR: What steps can be taken to further inform and educate brokers about the benefits of peer-to-peer lending?
LendInvest has a job to do to educate potential investors and the benefits of investing on our platform. But for brokers our challenge is really to overcome some existing prejudices around what marketplace or peer-to-peer lending means for them. Among some borrowers and brokers side there is a disturbing perception that the marketplace platforms like ours can be flaky and that certainty of funds is doubtful.
At LendInvest we think marketplace lending is a better description of the business model than 'peer-to-peer', since we have institutional funding as well as peer funding in the model. For all the established peer-to-peer platforms it is a question of degrees to which the platforms utilise institutional funds. Institutional funding (via LendInvest Capital, our wholly-owned funds management business) provides the liquidity to pre-fund loans so that our borrowers can be comfortable that we will fulfil our obligations.
We are focussed on getting to the point where brokers and their borrowers judge us purely on our lending products, rate, speed and service - just like they do of other lenders - and so begin to take little heed of the lending model itself.
FR: How will regulatory changes continue to influence the market?
The direction of travel in our industry is toward further regulation, and we strongly predict that the introduction of conduct and prudential regulation across all areas of lending will become the norm.
Appropriate regulation is nothing to fear. We are members of the P2P Finance Association - a selective trade body - that has lobbied hard for regulation in the last few years. Anything that drives better outcomes for borrowers and investors is something we will wholeheartedly support.
FR: What else can we expect to see from LendInvest in 2016?
Whereas 2015 was a year of transformation for LendInvest during which we secured £22 million in funding, were rated by a European credit rating agency and reported our second year of profits in two years’ trading), 2016 will be one of scale. We have lent over £525 million since summer 2013 and have every ambition to lend several million more pounds before the end of 2016. To do this, we want to scale our products taking us into the mainstream buy-to-let market.