With the new year now fully underway, and the self assessment deadline now thankfully in the rear view mirror, we consider what 2024 has in store for peer-to-peer lending and the broader property finance industry.

Incorporated in 2014, LandlordInvest turns 10 years old later this year. World events have treated us to an interesting ride but we’re as excited as ever for the next 10 years.

First, let’s take a look back at 2022/2023

Source: LandlordInvest

The rate paid to investors rose by 8.09% last year, as would be expected in the higher interest environment, but the LTV decreased by 18.01%, a sign of LandlordInvest’s prudent underwriting approach in turbulent times.

The amount lent through LandlordInvest in 2023 was significantly lower than in 2022, however the total interest paid to investors rose 12.41% from £338,772 to £380,804 year on year. The small average rate increase explains some of this, but the figure also includes penalty interest distributed to investors when previously delinquent loans were repaid. Also, given the economic climate and our duty to both borrowers and investors to seek positive outcomes, we will, where we feel it is safe and prudent, offer extensions to some loans which means investors will continue to be due interest without the platform having technically originated new lending.

* Past performance is not a reliable indicator of future results. Returns are not guaranteed.

Being in the property finance industry we like to keep an eye on related financial instruments.

UK Commercial Property REIT (LON: UKCM) rose 4.49% in 2023, which will offer some solace to investors for whom 2022 held a loss of 21.54%. Likewise SEGRO (LON:SGRO) had a bounce back in 2023 with a gain of 11.62%, but having dropped a whopping 43.26% in 2022 it will offer little comfort to investors who had taken an earlier position.

Looking outside of specific REITs, a similar story can be seen in the iShares UK Property UCITS ETF (LON: IUKP) which was down 32.37% in 2022 but closed up 3.18% in 2023.

Looking at the broader UK economy the FTSE 100 and FTSE 250 gained 2.4% and 2.9%, respectively, in 2023.

Of course, outsized gains (or losses!) may be had by investors who were fortunate enough to buy and sell at favourable times, but there is of course a large element of risk to this approach, which just underscores the volatility of equity markets vs relatively more predictable property-backed private debt.

At LandlordInvest we must not only consider where investors' funds might otherwise be lent, but also take the temperature of the broader property industry, as it affects our underwriting process including if and to whom we are willing to lend.

Sentiment towards UK house builder companies is currently on the rise as the market appears to predict that rate increases may have reached their peak. Note the large drops in stock price for the sample of house builders below in 2022, which could be seen as a bellwether for the slow down in progress of property developments and new borrowing enquiries that lenders saw play out last year. We can see that a positive sentiment (or at least a stabilising outlook) returned in house builder stocks over the course of 2023 and we hope that is a sign that property building, borrowing, and lending will see an increase in 2024.

Source: London Stock Exchange

Looking ahead

So far, 2024 has held a lack of quality borrowing enquiries, a trend foreshadowed by H2 2023. H1 started relatively positively, before the real impact of inflation and interest rates began to be felt in the summer. A large portion of LandlordInvest’s 2023 loans were for developments that were already underway rather than for new projects.

There appears to be a lot of uncertainty amongst developers and property investors as to if and when to pull the trigger on new projects. Higher interest rates also reduced residual values, developer’s profits and general viability of many development projects.

Borrowing enquiries have increased throughout January, however 9/10 of all enquiries received by LandlordInvest have been rejected at the initial stage of underwriting due to poor risk adjusted returns for lenders.

This is a trend that we’ve seen mentioned by industry peers time and time again on LinkedIn and in a recent interview with Bridging Loan Directory, D’mitri Zaprzala of Avamore Capital acknowledges that “the pressures from uncertainty over house prices, interest rates and build costs impacted our borrowers” and notes “borrower apathy and a lack of urgency to get deals over the line”, something that the team at LandlordInvest can attest to.

As we progress through 2024 there are a number of risks for LandlordInvest and other lenders to navigate. There is a lot of uncertainty surrounding the possibility of a recession or stagflation and potential unfavourable changes in the market values of properties.

The real estate and construction industry is the industry suffering the most insolvencies, a trend that is likely to continue and before it improves. In some ways, this downturn is even worse than in 2008/2009.

LandlordInvest maintains regular contact with our borrowers and are aware that some are facing a more difficult time refinancing or making a suitable exit from their projects than they had originally planned. We do for the first time in our history, since we began trading in 2017, believe it’s possible that lenders may suffer capital losses. However, we are currently unable to quantify what they may be.

Ablrate, a peer-to-peer lending platform, maybe only the first to go into administration this year.

Around the time of the demise of Ablrate, the Financial Conduct Authority (FCA) issued a “Dear CEO” letter to platforms increasing the regulatory requirements around wind-down plans, how they might be triggered, and liquidity monitoring. The requests are sensible but they show how the industry is very much under the microscope at present, and we are braced for further changes to requirements that may make it harder to do business.

The peer-to-peer industry has suffered from various bad - or in some cases, and more generously, incompetent - actors whose actions have not only caused financial pain to their investors and damaged the reputation of the industry, but are also forcing the hand of the regulator to increase their requirements of the remaining platforms. Changes to regulations can increase the costs and complexity of running a platform.

Platform viability is a risk for investors in 2024. Larger, less efficient platforms have high overheads and require regular high income to cover their costs. The interest on many platform’s loans is rolled up and only received when (or if!) the loan is repaid, this puts pressure on those platforms to write more new loans as the arrangement fee is their only short term income generator - given the current slowdown in quality enquiries, it begs the question whether underwriting standards will suffer, especially in a period where there are fewer viable projects. Others will raise new debt or funding, but rather than being to supercharge growth it will be to “keep the lights on” which is a far from ideal use for those funds. Relying on debt as means of funding is risky when the interest rates are at their highest level in decades, and adds additional cash flow pressures on a platform as they need to service the debt.

LandlordInvest holds a cash reserve, covering more than 12 months of its expenses (and assuming no revenues are generated) and does not need to rely on any external financing.

It is not all doom and gloom, however. P2P lending still has an important place in the UK investment and property finance ecosystem. LandlordInvest has to date paid investors £2,014,932* in interest, funding properties with a combined value of £81,392,950, supporting UK property investors, developers, and SMEs to grow.

* Past performance is not a reliable indicator of future results. Returns are not guaranteed.

The P2P model, when executed diligently by responsible actors, is a proven one - offering investors the valuable choice of more than low returns from savings accounts or the volatility of equities.

The last 10 years has included much economic turbulence which has spelled the end of many platforms but at LandlordInvest we’ve tried to expect the unexpected and avoid a business model that relies on a goldilocks economy.

Our blogs are for information purposes only. This content is not financial, legal or tax advice. Should you require any advice in relation to the earnings you make from LandlordInvest we recommend seeking independent professional advice. Links to other sites are provided for your convenience but LandlordInvest accepts no responsibility or liability for the content of those sites or of any external site. The information in this blog is correct at the time of posting.