Taking risk seriously
We have some of the best due diligence and fraud detection systems in the market.
LendInvest is a responsible property lender and we take risk mitigation, due diligence and underwriting very seriously. Our experienced team of lending professionals have over 75 years of mortgage underwriting experience between them. They understand the property market and how to assess and manage the risks involved.
LendInvest is a lending business that’s building technology to make mortgages better. When it comes to understanding credit risk, you need hands-on, real-world, lending experience and at LendInvest we have that.
What are the risks to investors?
As a new industry, it’s important to us that our investors understand their investment and the risks involved with online lending. That way, you can make an informed decision about investing.
When you invest in one of our loans, the payments of interest and capital you receive are made to you by LendInvest out of the payments that we receive from the borrower. If the borrower fails to make those payments to LendInvest, you may not receive your repayment from us. As such, your capital is at risk and repayments are not guaranteed.
We take a number of steps to mitigate the risk of borrowers failing to repay their loans. Before we lend to a borrower, our experienced team of mortgage lending professionals undertakes a rigorous assessment on the borrower and we only lend where we believe the borrower will meet their repayment obligations. Each loan is required to be secured by property. This means that in the event that a borrower fails to repay, we would seek to recover any shortfall by selling the property and passing the proceeds on to investors. The secured nature of the loan does not, however, mean that repayment is guaranteed; your capital is at risk.
Sometimes, a borrower requires a bit of flexibility. For example, they might warn us of an issue that could make them late on an interest payment (perhaps a sale of a flat has been delayed by a month; or, for example, a delay in planning permission from the council has tied up their cash flow for longer than anticipated). If, having assessed the facts and the evidence provided to us, we are comfortable with the delay, we may allow the borrower to defer payment to a later, agreed date. After all, we are in the business of supporting the UK property market, not stifling it unnecessarily.
In this situation, we may pay our investors the monthly interest due to them from our own funds, in advance of the borrower paying us what it due shortly after. These situations are always at our discretion and up to a maximum of six payments. If the delay then materialised into an actual non-payment by the borrower, or we have paid the interest upfront to investors in this way for six months in a row, we would let investors know and would look to recover repayment as usual.
Property market risk
The value of property goes up as well as down with economic cycles, which can be hard to predict. If the value of a property to which we have lent falls, the borrower may find it difficult to meet their repayment obligations, particularly if they try to refinance their loan based on a reduced valuation. We plan for this risk by never providing loans worth more than 75% of the total property value. In fact, our loans on average don’t exceed 65% loan-to-value ratio (LTV). If a borrower comes to us and asks for an extension on their loan, we will commission a new independent valuation of the property. This means we can be sure the loan remains within our required LTV ratios. We always recommend that our investors diversify their investment between a range of loans on our platform. This way, if one property falls in value and the borrower defaults, you have spread your risk across a number of loans.
A benefit of investing across a platform like LendInvest is that you never have to deal with borrowers directly. LendInvest does all that for you. An associated risk of this, however, is that if LendInvest was to fail, investors would not have direct access to borrowers to recover their money.
No FSCS coverage
If you suffer a loss via our platform, you will not be entitled to compensation from the Financial Services Compensation Scheme (FSCS). Repayments of interest and capital are not guaranteed. Your capital is at risk.
Mitigating these risks
Security proceeds held on trust
We hold all our investors’ money in a segregated client account with Barclays Bank plc, so that your money is kept separate from our other assets. Any amounts which are due to you from the proceeds of a sale of property (or any other security) will be held on trust for you and paid into the segregated client account. If LendInvest were to become insolvent, an insolvency practitioner would be appointed and would distribute the funds in the segregated client account back to investors. Investors’ money in the segregated client account would not be distributed to our other creditors.
LendInvest is well capitalised having raised £39 million of venture capital investment, which is well in excess of regulatory requirements.
A key part of this plan is our appointment of a back-up service provider. We have appointed Capita as our back-up servicer, so that in the unlikely event that LendInvest were to stop operating, Capita would step-in and run our business as if we were fully operating. This is designed to minimise any potential disruption to you and give you confidence in your investment.
How we manage risk
Fraud in the UK remains a constant threat and one we take very seriously. We always carry out a comprehensive set of searches on all the loan applications we consider that is designed to protect against any potential fraud being perpetrated by a borrower (or a borrower’s solicitor). Protecting investors against fraud is at the forefront of our risk assessment and whilst no lender can guarantee that fraud will not be attempted we are confident our approach is focused, robust and will stand up to scrutiny. There are many enquiries, procedures and technologies we use to limit the risk of fraud. For example, we use photo-analytics systems to verify the authenticity of a borrower’s passport and to check passport references. We also run geo-location searches on potential borrowers, through techniques like mobile phone-pinging. We also make use of two leading UK fraud detection systems, SIRA & CIFAS. Most major financial institutions in the UK use these systems for a comprehensive and sophisticated defence against fraud. The systems provide access to a centralised database that cross-references borrower information across their network of participant members.
Real estate valuations and assessment
We obtain an independent third party valuation on every property that we lend against. We always require our valuers to visit in person and inspect the property. The valuer will then provide us with a comprehensive report on the property, which will include commentary on the relevant local market, show evidence of comparable recent sales for the property, and address any specific concerns we may have about the property and the local area. We only instruct RICS qualified valuers that have passed our internal due diligence and compliance procedures (including our requirements on professional indemnity insurance).
Searches on borrowers
We carry out extensive searches on a borrower before proceeding with a loan. These searches include everything from credit searches, court registry searches, through to searching the UN, EU, HM Treasury and offshore financial sanctions lists. Many of our searches are repeated using different information providers to ensure that there are no inconsistencies and nothing has fallen through the loop. For example, we cross-check multiple credit searches on every borrower using different credit searching agencies. If a borrower passes all our checks and we agree to provide a loan, we require the borrower to meet personally with their solicitor and to sign the loan documentation in front of them. This helps us get comfortable that the person we’ve run all our checks on is actually who they say they are and is actually the person who is signing all the documents. As a responsible lender, it’s important to us that the borrower understands their repayment obligations under the loan. We require the borrower’s solicitor to confirm to us that those obligations have been explained and are understood.
We engage our own specialist external legal counsel for every loan that we provide and we never use the same lawyer as the borrower. In addition to the due diligence that we carry out ourselves, our solicitors also do extensive due diligence on the borrower, the security and the transaction. Our documentation has evolved during eight years of lending, and has been tried and tested in court many times. We have some of the best loan and mortgage documentation in the short-term mortgage lending market.
Other due diligence
As part of our general due diligence, we utilise a range of databases to verify or check information. These include Companies House, Land Registry, HMRC, along with various credit reference and other proprietary databases. We also use a trusted panel of external consultants that help us mitigate risk associated with any loan. These include real estate agents and field search agents who can go and meet with a borrower, or carry out background due diligence if there is information that needs confirming.
Borrowers always have independent legal advice
We require all borrowers to have their own independent solicitor to act for them from a law firm that has a minimum of three qualified principals. Our due diligence on a borrower extends to the borrower’s solicitor, and we will carry out a range of searches on the relevant law firm in each instance. We also require a copy of the borrower’s law firm’s current professional indemnity insurance before a loan will be advanced.
We have comprehensive fraud and crime, terrorism and contingent buildings insurance in place for the business, that also covers our loans. Should a loss be suffered on a loan as a result of a fraud or crime, we will, where possible, seek to claim on the insurance policies in an effort to return any shortfall suffered to investors.
Investing on an online investment platform
Investors should understand the risks associated with their investment. If you are an investor on another investment platform, you should ensure that you know exactly what it is you are investing in. You should ask:
- Is the loan I’m investing in secured?
- What happens if a borrower doesn’t pay back?
- What experience does the platform have with lending?
- What is the platform’s track record through the cycle?
Only then should you make an informed and considered decision.