Investment in short-term lending can be a lucrative business by nature, but is not without its risks.
As with any investment, your capital and interest is at risk along with capital repayments that are not guaranteed at any point during the lifespan of a loan. We manage risk in a number of ways, including rigorous underwriting and maintaining a conservative loan-to-value (LTV) ratio. However, it is important to remember that the chance of loss is still present. That is why it is important that investing should only be done as part of a diversified portfolio.
It is how we deal with issues as they arise that remains a crucial part of what we do. There are various performance cycles that a loan goes through. We have a defined set of performance statuses’ a loan may go through at LendInvest. We have detailed a few of important stages below.
Loan extensions are common, and a fact of the market we operate in. Approximately 70% of our investments repay early or on time. This is comparable against the industry given that short term property finance is highly susceptible to extensions.
An extension can be a result of a variety of issues from planning applications taking considerable time to obtain, to delays in refurbishment works, to waiting to exchange on contracts where a sale has been agreed. Naturally, extended loans are managed closer than those that are still with the original term, and a loan will only be extended if the borrower is cooperating with LendInvest, it meets our requirements of credit risk, and are actively working to exit the loan.
When we agree to extend a borrower’s loan, this will be indicated in the loans’ activity tracker on an investor’s platform. The status of the loan remains ‘On Schedule’.
Sometimes the borrower may fail to make interest payments. Where this happens twice or more consecutively, LendInvest will record this as an account in formal arrears. At every stage of the loan cycle, however, LendInvest proactively works with the borrower to recover any interest payments that have been missed and our dedicated Loan Servicing team contact borrowers within 5 days of a late interest payment.
Loan is out of term or the loan agreement has been breached
This can occur when:
- The borrower has failed to repay the formal arrears due; and/or
- Has failed to repay the loan within the prescribed term and no extension has been agreed by LendInvest; and/or
- The borrower has failed to comply with material terms relating to the mortgage conditions, including but not limited to non-occupation, condition of property or alteration without consent.
In these circumstances, our Loan Servicing team will work with borrowers more intensely and will look at the borrower’s circumstances to work towards the most appropriate solution that presents the right outcome to the borrowers, our investors and LendInvest.
This is the final stage in which legal action is taken against a borrower through our solicitors with a view to taking possession of the property and/or recovery of all amounts outstanding under the loan. As a responsible lender, it is our policy to avoid enforcement or initiating receivership proceedings when an amicable solution can be met, and a borrower can provide substantiating evidence that all of the loan (plus all arrears) can be met.