Are the hands of your watch moving as slowly as mine? And pure irony, isn’t it – as soon as Boris tells us to stay at home, it stops raining and out comes the sun?!

The vast majority of us are adjusting to home working and getting on with ‘social distancing’. Those businesses that are allowed to work as ‘normal’ are getting on with that too. Except the construction industry has come under intense fire for keeping building sites open. At the beginning of the week, the media’s attention was focused primarily – if not wholly – on London. Candid shots of a crowded Tube and big, tight construction sites in the Capital’s centre featured high on news editors’ agendas alongside calls from the London Mayor and Scotland’s First Minister to halt construction altogether.

Thankfully, the Government has held its nerve, for now at least, and hundreds, if not thousands, of SME housebuilders are continuing to do their level best to keep the home fires burning. And with safety at the top of the agenda.  We’re going to come through this some time in the not too distant future and in the meantime it’s imperative that we fight hard to keep as much of the economy going as is humanly possible. The point is made very persuasively here by Jamie Blackett of the Telegraph. Those keyboard warriors who have been sniping at small builders would be better off directing their ire at the hordes of ‘long distancing’ walkers descending en masse to the same locations and the parents who allow their kids to roam unchecked. They are the ones posing a real danger to everyone else’s efforts to #flattenthecurve.

Some of the national housebuilders have stopped building but there’s a suspicion the shutdown is more to do with the ability to sell finished product during a lock down than the working practices on site. The Construction Leadership Council is all over the latter like a rash. It, and other professional bodies, have circulated comprehensive site operating procedures. Certainly, all the contractors on sites we are funding are on the ball. Site meetings are virtual, hosted on Skype or Teams or Zoom with monitoring surveyors conducting site visits outside normal construction hours. It’s sensible, measured, meets Government guidelines and is safe. There is certainly no more risk than doing the the supermarket shop.

This Insider article about a regional housebuilder serves as a fine counterpoint to the stance being adopted by some of the nationals as reported in Property Week. By the way, access to Property Week online is now free until 19th April in case you want to read more.

Disappointingly, some of our borrowers are reporting difficulties with the supply chain. Builders’ merchants and timber factories going into lockdown isn’t helping and will only serve to push out build programmes. We’ve reviewed and remodelled all our deals to take this into account.

I’m going to finish this blog with a link to someone else’s on the basis it’s good to finish with something more upbeat. Earlier this month, Savills revisited the housing market forecasts they penned in November last year, concluding that market fundamentals continue to underpin their medium term view. They subsequently published further coronavirus opinion after the lockdown in which they expect short term price falls in the order 5% – 10%. You can read more here.

Oh, and anecdotally, it’s interesting to note that since this kicked off, we’ve had just one investor looking to sell a loan participation in our Secondary Market (that’s a rare event given most choose to stay in for the whole ride). It was posted late yesterday and went under offer this morning. Make of that what you will, but I think it’s a strong sign of underlying confidence.

Stay safe.

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CapitalStackers is authorised and regulated by the FCA. Investment through CapitalStackers involves lending to property developers and investors. Your capital is at risk. Investments through this and other peer to peer lending platforms are not covered by the Financial Services Compensation Scheme. Unless otherwise stated, returns quoted are annualised and gross of tax.
Call us on: Office: 0161 979 0812 | Steve: 07774 718947 | Sylvia: 07464 806477

Total transparency has always been a core function to us at CapitalStackers, but in the current climate, just like handwashing, this element of normal housekeeping takes on critical importance.

We’re fully aware that our investors will be looking to us to keep them informed as the COVID-19 crisis unfolds. Of course, detailed information has always been available in the individual deal rooms on the platform. But for those investors who may not go looking for this, there’s a chance they could miss important information.

So to be clear, we’ll be reporting even more regularly to you – both in general terms, and on a deal-by-deal basis. We’ll give you all possible detail on how conditions on the ground are affecting the specific projects that you’ve invested in.

Clearly, we can’t predict how things will pan out, but by continuing to give you regular, exhaustive progress reports on each project – both from the borrower, and from the independent surveyor – we hope to give you all the information you need to assess the ongoing safety of your investments.

If you’re investing through a pooled platform – across a variety of consumer and SME loans – your capital is more likely be affected in the immediate to short-term. If you’re able to, you might want to withdraw your funds quickly because the situation is volatile and information hard to come by, but this may no longer be possible.

On the other hand, when you lend direct on a property development scheme through CapitalStackers, the situation is going to be played out over a longer term (excepting projects where completion is imminent), so the need to move quickly is not quite so crucial.

Of course, you’ll want to keep a closer eye on the situation – but you’ll also have an ongoing, detailed rundown of every key element of the investment. As we say, this is available on the platform at all times, but over the coming months we’ll go further and interpret it more frequently so that you don’t miss a thing.

And while the current situation could never have been foreseen, our standard due diligence builds in some fairly significant downsides for every scheme because we have always felt it prudent to do so. This, therefore, leaves you a fair amount of headroom before the virus infects your capital.

For instance, if we’re (collectively) lending within our typical range up to a maximum 75% Loan-to-Value including interest, this means the sale price will have to fall by more than 25% from the appraised valuation before your capital is affected. However – this is also after we’ve allowed for potential construction delays, cost overruns and deferred sales.

That’s quite a lot of breathing time.

Then again, we’re not rejecting the possibility that property values could be hit hard in the coming months, but as you’d expect, we’ve considered this in our risk analysis too.

And without doubt, the most important thing you want to know right now is how all this could impact our deals, and your investments. We’re going to try to answer this question here, but please be aware that the answer will extend and adapt as the situation does.

 

What could the effects be?

This is new territory for everyone. The whole world has changed and seemingly changes again every time the sun comes up. Accurate prediction is nigh on impossible but here are our best conjectures about the immediate impact:

Project periods may need to be extended because:

  • Skilled labour supply might be reduced;
  • The supply chain could be interrupted;
  • Utility companies may decrease output or even go into self-imposed lockdown;
  • A blanket lock down on all sites could be imposed by the Government if on-site working practices on some sites fail to adhere to safe distancing rules.
  • Projects nearing completion will certainly be impacted by the current general lockdown. If people can’t view, they won’t be able to buy and so selling periods will become protracted.

We can expect longer construction periods to lead to increased costs and higher interest accrued through longer-than-anticipated loan terms.

In addition to the above, property values may fall due to a weaker economy.

These factors will eat into the profit margin and push up the Loan-to-Value ratio.

 

So what are we doing about it?

In short, we’re going through our daily downside sensitivity routine, but on steroids. We’re appraising each deal in the context of where it is now, assessing the possibility of a total construction lockdown, evaluating delays to construction and sales with interest continuing to roll up.

Through this exercise, we’re able to give you a progressive insight into how much values could fall before you are on risk.

Although the situation is unprecedented, we’re also able to draw from historical examples in our modelling, and this gives us some cause for optimism.

The last massive interruption to the market came in 2008 when the banking sector imploded and liquidity almost completely dried up. As you can see from the chart below, the market fell less than 20% in the eighteen months from the peak in September 2007 to the trough of March 2009. This, of course, is less than the minimum 25% headroom all CapitalStackers deals allow for.

Financial hygiene is even more important during the COVID-19 crisis

The banking sector at that time was less robust than it is now. Some banks collapsed, others simply pulled out – leaving the property sector in the lurch. It took a long time for the market to get back to where it was.

Today, banks have better capital ratios and their real estate exposure is significantly more conservative. The expectation and likelihood is that they will remain supportive while the market repairs itself, and that the repair should be quicker and more stable than last time.

So to summarise, as always, we’re maintaining close contact with our borrowers, senior debt providers, monitoring surveyors and estate agents – but everyone is on high alert and we’re fully aware of the increased importance of full and detailed information.

And as ever, we’re making ourselves fully available to investors. You’re used to that, of course, but now, more than ever, if you want to discuss the outlook either generally or specific to any deal, you’re welcome to call us at any time. Our contact numbers are below.

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CapitalStackers is authorised and regulated by the FCA. Investment through CapitalStackers involves lending to property developers and investors. Your capital is at risk. Investments through this and other peer to peer lending platforms are not covered by the Financial Services Compensation Scheme. Unless otherwise stated, returns quoted are annualised and gross of tax.
Call us on: Office: 0161 979 0812 | Steve: 07774 718947 | Sylvia: 07464 806477

We’re delighted to add a new layer of transparency on the CapitalStackers website.

On the new “Portfolio Statistics” page, members can find answers to general questions, such as how much cash we’ve raised in total through our investors, how much has been provided by banks and what the average investment is.

But it also allows them to browse through enlightening performance stats such as

  • Highest and lowest investor returns
  • Average return
  • Repayment performance
  • Risk and reward

Along with useful background information to explain any anomalies or unusual variations.

You may ask why we haven’t done this before. The simple answer is, until recently we haven’t had sufficient data. However, having reached the significant milestone of £60 million funding raised (that’s £45 million through banks and the rest through you) we feel the sample size is now robust enough to give you a meaningful set of statistics.

We’d like to take a moment to thank our investors and appreciate what a huge achievement they’ve helped to make possible – behind every statistic there is a viable, successful building project that would never have got off the drawing board if it weren’t for their collective support.

So now’s finally the time to stop hiding our light under the bushel.

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CapitalStackers is authorised and regulated by the FCA. Investment through CapitalStackers involves lending to property developers and investors. Your capital is at risk. Investments through this and other peer to peer lending platforms are not covered by the Financial Services Compensation Scheme. Unless otherwise stated, returns quoted are annualised and gross of tax.
Call us on: Office: 0161 979 0812 | Steve: 07774 718947 | Sylvia: 07464 806477

Is it any more than a coincidence that big players are pulling out of the retail P2P market at the very moment the new, tighter FCA regulations come into force? 

Both ThinCats and Landbay have publicly switched to institutional funding, citing the main reason as the dwindling cost-effectiveness of servicing individual investors. Both suggested that the retail sector was no longer commercially viable”. 

However, since others clearly continue to find it viable, the timing suggests other factors at play. The FCA’s tightening up of the rules  including appropriateness tests and investment limits imposed on Restricted investors was intended to remove the bad actors from the industry, to clean out the stables and bring the crowdfunders into the mainstream. And of course it will do that. 

However, as a couple of fairly significant babies are sluiced away with the bathwater, we’re left to wonder whether more of the good operators will be putting up the shutters and thinking it’s too much like hard work to try and boost the portfolio of Mrs Miggins.   

This would be an awful shame.  

At CapitalStackers, we’ve always welcomed tighter regulations. Since our own working practices have always been well above the regulatory minimum, we’re happy to have the playing field levelled to the highest degree possible.  

Let’s make no mistake about it – this is a great moment in our industry’s history. A defining moment. Where common sense finally anchored the helium-filled headlines. 

It’s not as if the new rules are particularly onerous. They boil down to “don’t sell things to people who don’t understand them”. Which is a pretty basic principle for organisations trusted with Mrs. Miggins’ life savings. 

As a responsible platform, we don’t want to be inviting investments from people who don’t fully understand the mechanics of risk and reward. Our business model is not, and has never been, dependent on catching the unsuspecting unawares.  

We actively seek people who understand that reward is an inter-related function of risk. As with the stock market, it generally follows that the higher the risk you take, the more chance there is of losing some or all of your money – but the higher the reward. However, athe fly half targets the flailing prop in midfield, sometimes a mismatch can lead to success. In some instances, a surprisingly low LTV ratio can bring a double-digit reward.  

The key is information. Monitoring and reporting. The P2P “outlaws” that have gone by the wayside have largely been characterised by a lack of both. Anyone investing in a CapitalStackers scheme, on the other hand, will have access to an Aladdin’s cave of information on the deal, the developer, and all the peripheral contributing factors that explain the terms of the deal. Not just before they invest, but throughout the life of the deal. 

Of course, it’s a shame that regulations had to be imposed from above to force the cowboys to stop shooting up the town. But it’s equally sad that a couple of decent operators have now felt all this is now beneath them, and that the game is not worth the candle. 

Landbay cited their need to “compete” with the banks. Founder John Goodall lamented that other P2P platforms were lending at higher rates while Landbay was looking to compete with banks whose mortgage rates are lower. 

“Our margins were being increasingly squeezed and we would have had to cut investor rates to compete,” he said. 

This is something that has never exercised us at CapitalStackers. The market is plenty big enough for the banks and P2P platforms not to tread on each others’ toes. We happily work in close partnership with banks on the same deals, sharing information and underpinning each others’ due diligence. Operating at different levels to push the same deal over the line, and our respective rates are set accordingly 

Most deals need the banks, and they need us, too. Some banks have even started to bring deals to CapitalStackers for us to help them make it happen. They’re comfortable that tightly-run P2P is a great enabler – and the small investor derives comfort from the fact that the bank is involved, because they know bankers understand risk and reward more than most. 

So it will be a great sadness if the regulations designed to remove the bad choices for investors also thinned out the good ones. There’s room for all of us, and educating our investors is not so big a burden, is it? 

We sincerely hope more operators who know what they’re doing enter the market as the regulations become the norm. 

But in the meantime, if any jilted investors are looking for a place to grow their stack of capital, you know where to come. 

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CapitalStackers is authorised and regulated by the FCA. Investment through CapitalStackers involves lending to property developers and investors. Your capital is at risk. Investments through this and other peer to peer lending platforms are not covered by the Financial Services Compensation Scheme. Unless otherwise stated, returns quoted are annualised and gross of tax.
Call us on: Office: 0161 979 0812 | Steve: 07774 718947 | Sylvia: 07464 806477

What is it about CapitalStackers deals that sees them sold out so quickly to those in the know? 

 Anyone who’s ever tried to invest in a CapitalStackers deal knows you have to be quick on the draw to get a piece. They’re known for selling out fast – sometimes in minutes, and rarely more than a few days. 

 So in a market where even astute investors have been so publicly burnt (viz: Lendy and FundingSecure lenders), what is it that gives people such a voracious appetite for this particular property-based crowdfunder? 

 Certainly, interest has stepped up since they were dubbed the Safest 20% Returns in P2P Lending (https://www.4thway.co.uk/candid-opinion/the-safest-20-returns-in-p2p-lending/ ), but to be fair, deals were oversubscribed well before that.  

Of course, the mere scarcity of deals may sharpen the appetite of some. Since deals have to be very watertight indeed to withstand the buffeting from the CapitalStackers Due Diligence Team. Very few make it through – perhaps understandably since the CapitalStackers directors invest in every single scheme themselves – to the tune of £1.7 million at present (and almost £4 million in total to date). 

But then, seasoned investors are not swayed by mere rarity value. They tend to get down to the nuts and bolts.  

They’ll notice, for instance, the fact that CapitalStackers hasn’t set itself up to operate, as others havepurely as an alternative to the banks.  

And for very good reasons. 

Owned and managed by former bank property lending specialists, CapitalStackers is actually the only P2P facilitator that works in close partnership with banks, on the very same deals, sharing information, each doing their own independent due diligence and – crucially – allowing the bank to bear the ongoing liquidity risk in full In this way, it ensures all construction funding is in place before a sod is cut and any investor parts with a penny.  

This is deeply reassuring for investors, since they know that the success of each venture is fully self-contained and never has to rely on attracting funds from new investors to finish the project. It’s equally reassuring for them to know that banks are unlikely to wade into any deal this deep without serious confidence that it’s going to bear golden fruit. 

Anyone looking at the deal history will have been further reassured by the sheer volume and frequency of information. From the basics – conservative Loan to Value ratios; often lower than 50%, never above 75% – to what some might call pedantic; historic flood risks in the general area of the construction site (which actually proved its worth in a project in York a few years ago, which escaped the floods that deluged the city and returned an impressive 22.4% per annum to investors). In between, a huge volume of information is provided on the site’s dashboard for each deal, from the business history of the developers, surveyor’s reports, micro and macro risk analyses, builders’ inside leg measurements… 

And unlike some notable P2P platforms, whose interest rates are seemingly set as “headline” rates to attract investors, CapitalStackers’ return rates are calculated specifically through detailed analysis of all the above factors. This is the key to investors’ confidence. They know that the risk they sign up for is fairly and accurately priced into the return they will get for it. 

This meticulous scrutiny has produced an enviable record of returns to investors of between 8.5% and 22.5% with no losses (although as a prudent platform we would always point out to investors that one can never say never. However, since they personally have a lot of skin in every deal, it makes sense that the directors of CapitalStackers operate at an extremely high level of diligence and reporting).  

Hence, many investors, on being repaid, immediately reinvest in the next CapitalStackers scheme. Having begun investing with the confidence that they’re lending alongside the CapitalStackers directors who are lending alongside the banks, their confidence has been nurtured by a wholly positive, fully-informed lending experience and a fruitful result.  

And it’s why, if you do hear of a CapitalStackers deal coming up that you’d love to get a piece of, these are the quick-fingered competitors you’ll have to beat to get your bid in. 

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CapitalStackers is authorised and regulated by the FCA. Investment through CapitalStackers involves lending to property developers and investors. Your capital is at risk. Investments through this and other peer to peer lending platforms are not covered by the Financial Services Compensation Scheme. Unless otherwise stated, returns quoted are annualised and gross of tax.
Call us on: Office: 0161 979 0812 | Steve: 07774 718947 | Sylvia: 07464 806477

Before the rotten practices of FundingSecure (and prior to that, Lendy) stink out the entire P2P barrel, allow us to offer a free professional opinion: we could have told you so. 

The FCA’s new, tighter regulations (https://www.thetimes.co.uk/article/peer-to-peer-lenders-given-last-warning-32tc32h2rwill certainly help clean out some of the bad crowdfund operators, but will clearly come too late for some investors.  

Of course, well-run P2P industry is a crucial cog in the post-modern economic machine. It gives good businesses access to funds that banks can no longer supply, and it gives investors access to opportunities that have erstwhile been closed to them.  

Stuart Law, the Chief Executive of Assetz Capital, made this point in the Financial Times recentlywelcoming the fact that “it is a fact of life now that these businesses have much tighter prudential standards and regulations to live up to.”  

We agree, of course. However, when he goes on to speculate that “smaller platforms” may struggle with consolidation in the sector, we take issue with him. 

“P2P lending is…now a highly regulated market”, he says, “which is good for investors with larger, well-funded platforms such as ourselves but makes things very difficult for under-resourced businesses,’ adding that “The smaller players are clearly struggling to keep up and the badly-run businesses are being scrutinised by the regulator.” 

This is clearly an over-generalisation – and the uncharitable amongst us might suggest it is made with mischievous intent. The phrase equating “larger” platforms with well-funded” ones is a non-sequitur. As is the suggestion that smaller ones are “badly-run”Anyone who knows their investment onions will be aware that size is no guarantee of good operation, or of sufficiency of funding. In fact, a major part of FundingSecure’s problem was its appetite for growth even in areas outside its experience. 

A report in The Daily Telegraph as recently as June 2019 pointed to spiralling defaults and repeated extension of loan terms. The platform, having been forced to sell a majority stake and address investors’ concerns by “reassessing” the entire loan book and promising “timely and meaningful updates” on loans, clearly saw no reason to ease off on growth and wait until its house was back in order, but issued a further 36 loans in May alone, adding £2.2 million to the mounting bonfire, and attracted 134 new investors. 

These investors joined despite the fact that anyone with a couple of idle fingers could have Googled reports like that on profitwarning.co.uk back in December 2018, which flagged, among other things: 

Increased defaults: Many property-facing platforms have suffered problems, particularly those whose loans rely on further development. The site seems to have shifted over the years to become more property focused, which explains this.
Poor Management: The nature of some of the defaults give rise to the doubts of the quality of monitoring given to loans by FundingSecure – perhaps they might be stretched too thinly staff-wise.
Poor Communication: There are no fixed times for updates to be given to investors. Often updates are not given at all, or when promised, missed out altogether. 

Or numerous Trustpilot reviews, such as this one from May 2018: 

Their recklessness with lenders’ money is criminal. Their valuations defy credulity and the resulting defaults end in catastrophic losses for investors with the company denying all responsibility for their dangerous lack of due diligence.  

And this one from November 2018: 

After lending now for over 9 months it is very clear that they are misleading investors…out of 40 investments that are due to be paid back with interest, 85% have not been??!! Updates are very poor and they are not making any attempts to…get back money for investors….They are taking on way too many loans and making their turn out of it to care about the lenders…avoid! 

This growth-at-all-costs attitude betrays a contempt for the fundamental obligations of handling other people’s money. FundingSecure moved away from what they knew – funding not-always-secure pawnbroking loans (in one notorious case loaning money secured on valuable paintings, and not realising the paintings had been sold partway through the loan term) – to (some equally dicey) bridging loans (which we’ve discussed before, in reference to Lendy). 

It’s not hard to see why it stopped giving full disclosure to its investors some time around April last year according to the investor complaints on Trustpilot 

It should be an irrefutable requirement of holding another individuals investments that before investors part with a single penny, you:  

  1. Rigorously scrutinise every fine detail of the deal;  
  2. Undertake a forensic examination of the borrower’s background (which FundingSecure publicly did not);
  3. Take clear, detailed soundings of the wider market; and,
  4. You continue to do all the above regularly, thoroughly and consistently throughout the whole of the loan term. 

And it is no less crucial that you give frequent, comprehensive and transparent information to the people whose money you’re holding. At CapitalStackers, these are fundamental principles – we have no interest in growth for growth’s sake. 

CapitalStackers is not a big organisation. Growth, we know, will come naturally if we maintain our diligence, choose our deals wisely and safeguard the trust of our investors. This is how we came to be named “the safest 20% returns in Peer-to-Peer lending” (https://www.4thway.co.uk/candid-opinion/the-safest-20-returns-in-p2p-lending). 

We’re not suggesting we’ve eliminated risk, but we do all we can to ensure that we, the platform, don’t become part of it. Of course there is risk involved in property lending  that’s what the interest calculations are based on (or should be) – but we take a huge amount of care to ensure our investors have all the information they need to clearly understand those risks and get good value for them. 

We also ensure investors’ understanding is predicated on full and clear disclosure of the facts – that is, the risk is priced into every deal. Over the years, our 120+ active investors have come to trust our risk assessment, which has produced not a single loss in £55 million raised since we first opened the doors. 

Now, that’s not to suggest we haven’t unearthed problems from time to time – but with our directors’ extensive banking backgrounds in specialist property lending teams, we have in place established procedures for tackling those problems promptly and efficiently, while all the time keeping our investors informed of how or whether the risk is changing. We’re experienced debt advisors – our lending skills having been fine-honed in our former lives. We know when to turn the screw, and how to help borrowers out of whatever hole they might find themselves in, and turn it into the foundations of something better.  

What’s more, our investors are not cast alone on the choppy waters of risk – the unique positioning of CapitalStackers is that we work in close partnership with banks on most projects. Allowing the banks to absorb the ongoing liquidity risk and ensuring all the funding is in place to complete the project before any CapitalStackers investor parts with a penny. This means we’ll never be dependent on bringing new investors down the line (a big no-no in our book), because every project is fully-funded from the start 

Consider the alternative. If a platform takes money from investors to start (and continue to build) a project on the expectation that further funding can be attracted from new investors as it progresses, then it’s taking a huge gamble with the initial investors’ money. There’s no guarantee that new investors will be found, and there is no lender of last resort. So if something goes wrong, it will be virtually impossible to finish the build, or to sell a part-built property. And imagine how easy – irrespective of the size of the platform – it would be for investors to get spooked by some unforeseen event, throwing the entire loan book into jeopardy. 

This is why we don’t take our investors into any deal unless we can see a clear, profitable exit. 

Furthermore, the point about partnering with banks is a fundamental point of reassurance to our investors. Not because we rely on their due diligence. We don’t. If anything, our own due diligence is stricter, not least because our own money is often involved. But because we analyse the deal together, price the risk together, raise money together and monitor the investment together – but then we take up different investing positions, complementing each other.  

And perhaps on a basic level, it’s reassuring for our investors to consider that banks only get involved in deals that they feel will return their investment. 

In fact, not only are we growing a steady reputation for funding deals that the banks like the look of – some banks have even started bringing deals to us to help get them off the ground.  

This sort of belt-and-braces risk management goes far beyond the proposed new regulations. But we don’t do it for compliance, we do it to protect our investors.  

So we don’t fully accept Stuart Law’s assertion that P2P is “now a highly regulated market which is good for investors – it’s not. It igetting there, but there’s still a long way to go.  

However, we do believe that the more astute investors are starting to be able to tell the good nuggets from the fool’s gold.  

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CapitalStackers is authorised and regulated by the FCA. Investment through CapitalStackers involves lending to property developers and investors. Your capital is at risk. Investments through this and other peer to peer lending platforms are not covered by the Financial Services Compensation Scheme. Unless otherwise stated, returns quoted are annualised and gross of tax.
Call us on: Office: 0161 979 0812 | Steve: 07774 718947 | Sylvia: 07464 806477

Last week, the FCA sent a necessary and not-before-time letter to 65 peer-to-peer platforms whose operations they felt were not up to scratch. We welcome it being sent but suspect the same can’t be said for the recipients.

Now, we haven’t seen the letter at CapitalStackers because we’re not one of the 65. But we do have a vested interest in the FCA raising the bar to a level that excludes all but the most scrupulous. Not because it removes competition – the more the merrier – but because every bad actor in the market reflects badly on the rest of us.

We can’t stress too strongly that the charlatans, the incompetents and those who take risks beyond their expertise need to clean up their acts or clear out altogether. When you’re dealing with other people’s money there is no room for half measures.

So we welcome wholeheartedly the points noted in The Times (who have seen a copy) that the FCA have asked those firms to address in their 7-page missive.

Their criticisms include weaknesses in disclosure of information to clients, opaque charging structures and inadequate record keeping.

Let’s just take a moment here to shake our heads. These are fundamentals. Up there with restaurants not keeping pet rats and remembering to wash up every now and then. A financial institution should not need to be reminded that a flow of regular, detailed and accurate information from the borrower to the lender is an obligatory part of the deal. Verified by an independent party where appropriate. Those whose money is on the line need to be kept fully informed of the risks they’re taking. As former bankers and (current) accountants, the directors of CapitalStackers are lettered all through with this, and to us, it beggars belief that any financial platform can carry on without such prerequisites.

The FCA has also identified companies who advertise “headline-grabbing returns” that might lead consumers to take on “considerably greater risk than they appreciate”. There are two parts to this. One – return is an inextricable function of risk. They go together like the moon and the tides. A promise of big interest on its own should rightly ring alarm bells. An interest rate with an appropriate risk level is an invitation to do business. It’s what sophisticated investors look for – “How much will I make? Is that worth it for the risk?” – and that’s how they decide whether they’re in or out. The second part is, “Why are some operators selling risk to people who don’t understand it?” The new guidelines requiring all potential retail investors to complete a questionnaire assessing their knowledge of investment risks will certainly help – but only if adequate information is provided to them in the first place. Again, this is in our DNA at CapitalStackers. Investors visiting our deal pages will see detailed information on borrowers: their history, their plans, the up-hill-and-down-dale due diligence that takes into account everything from cost overruns to flooding forecasts to valuation sensitivity.

Which is another point brought up by the FCA. It highlighted an endemic problem in the industry with poor due diligence – not going deep enough into the background of borrowers; not monitoring the progress of developments closely enough, not being straight about default rates and recovery actions. Once more, we shake our heads. That anyone can run a financial platform without attention to these basics is beyond us. Default rates should be made clear. Of course, some would say that CapitalStackers is lucky to have incurred zero losses in our five years of business – but to paraphrase Sam Goldwyn, the harder we work, the luckier we get. Since nearly £2 million of our own money is invested in CapitalStackers schemes (and since we protect investors’ money as jealously as we do our own), we don’t mess around when it comes to due diligence before a deal is drawn down and then throughout its lifetime up to and including repayment. Even though we work in partnership with big banks on most projects, we don’t rest on their laurels. We accept their due diligence, of course, but we will have already looked into every nook and cranny of the deal, under every carpet and behind every curtain, before we’re satisfied enough to ask any investor for a penny.

As for the FCA’s point about some platforms displaying “Inadequate financial collateral and weaknesses in the handling of client money”, once again, with banking being in our blood, this is what we’d regard as a principal principle. Client money should be held in an independently adjudicated escrow account, the same way a solicitor handles funds paid into court. End of.

So yes, of course we welcome the FCA’s proposals. But it should never have come to this. Those who have played fast and loose with investors’ savings and the reputations of us all will get their come-uppance. And then the P2P industry can get on with its powerful and valuable purpose – supplementing the post-2008 banking industry to provide intelligent finance options to well-run businesses, and offering rewarding opportunities to well-informed investors.

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CapitalStackers is authorised and regulated by the FCA. Investment through CapitalStackers involves lending to property developers and investors. Your capital is at risk. Investments through this and other peer to peer lending platforms are not covered by the Financial Services Compensation Scheme. Unless otherwise stated, returns quoted are annualised and gross of tax.
Call us on: Office: 0161 979 0812 | Steve: 07774 718947 | Sylvia: 07464 806477

It’s still possible to earn double-digit returns from P2P without excessive risk. Look beyond the trends and big data and you can uncover some lucrative gems.  

The recent AltFi “State of the Market” report July 2019 had some sobering words for investors – particularly from BondMason’s CEO Stephen Findlay and the restructuring expert, Damian Webb. 

The report largely based its melancholy conclusions on the slackening growth in the Big Four – Zopa, Funding Circle, RateSetter and MarketInvoice – which gives you a summation that, while statistically correct, is incomplete and unhelpful to the investor. A bit like telling us all cars are unreliable because you once owned an Austin Allegro. 

Yes, the Big Four comprise the lion’s share of the market, but they also cover a limited field of vision – that is, they chiefly deal in unsecured loansor those not secured on easily identified concrete assets (with the exception of RateSetter’s property book) 

BondMason announced recently that it was pulling out of P2P due to these diminishing returns, but in this report Mr Findlay is keen not to appear a total Cassandra. 

Surveying the £6 billion world of peer lending from his vantage point atop a £54m loan book, he contended that net returns in the 3% – 6% range are achievable today at acceptable levels of risk and that the market is settling into a low-to-medium risk spectrum.  

“I still think there are some good opportunities to earn attractive risk-adjusted returns,” he shrugs, “but probably at the more conservative end of the market”. 

 

High returns aren’t the only yardstick. 

Had Mr Findlay looked a little further, he might have found reasons to be a little more bullish There are still opportunities for canny investors to make double digit returns without going on a white knuckle ride of high risk. Just because a return is high doesn’t mean you’re at the crazy end of the market. On the other hand, it’s equally possible to earn under 6 per cent and have the investment catching fire in your hands. High returns aren’t the only yardstick, although the way some commentators paint it, you’d think they were. 

It’s possible, for instance, to find platforms like CapitalStackers where you can lend to developers sitting on a reassuring chunk of equity and with Loan-to-Value ratios as low as 55% – and yet still make double digit returns in the time it takes to convert an old warehouse into upmarket flats.  

It’s also possible, to find platforms that are totally transparent and view regular and granular reporting as the duty of care it is, rather than an onerous and grudging requirement. 

The report overlooks opportunities like these and the nervous investor, led by pronouncements that lump together such diverse  “property lending” products as bridging loans, buy-to-let mortgages and development finance, might think that all real estate] P2P is going to hell in a handcart. 

Particularly those that read the section written by Damian Webb. Viewing Mr Webb’s comments through the lens that he is an insolvency practitioner, may offer a little perspective. Were it possible to rub one’s hands and type at the same time, one can imagine Mr Webb doing just that here. 

“The sector is becoming more and more fraught with uncertainty,” he laments. ““Many of the alternative finance lenders have focused on markets that are underserved by traditional lenders or in spaces where traditional lenders do not operate. Banks and traditional lenders retreated from these areas due to the issues and losses they experienced during and after the financial crisis and consequently regard them as high risk.” 

Nowhere does he suggest that it’s possible to invest in platforms like CapitalStackers that work in tandem with the banks, partnering on deals whose risk the banks have every confidence in, allowing the banks to take the liquidity risk, and also to benefit from due diligence that is tighter and more thorough than any bank aspires to. 

He laments that the elements of the business lending market he’s come across professionally are often characterised by limited data, which makes underwriting inherently difficult or challenging. 

He bases these insights on “his own experience of dealing with impaired business loan books” (although not specifying markets, connections or backgrounds), which is a bit like an undertaker giving us his opinion on who’s going to win the World Cup. 

He goes on to adumbrate about property lending in particular, whose yields “have fallen dangerously low during Britain’s long property boom”. 

“In Birmingham, for example,” he says, “five years ago it was possible to achieve residential yields of 7 per cent to 8 per cent. You would be lucky now to get between 4 per cent and 5 per cent. People are investing in development projects on the basis of these low yields.” 

Of course, the hearty chuckles of investors who’ve been comfortably pocketing 12, 18 and 20 per cent in CapitalStackers deals in recent months will be drowned out by Mr Webb’s ululations.  

Likewise, his complaints that P2P platforms don’t own their assets and loans can’t be sold to retrieve capital will be met with puzzled looks by CapitalStackers investors who trade their loans openly in the platform’s secondary marketplace. 

Yes it’s easy to look at big data and find patterns that frighten you. But big data leads to bad maths. And bad maths leads to poor investment.  

So rather than wring their hands about the bad operators in this market (and some of them were – and almost certainly are – very bad), the astute investor can find opportunities by looking through the leaden headlines to find the gold in the cracks between.  

Of course, there are risks in any investment market, and in property development the biggest risk – not necessarily the most likely, but the biggest – is the possibility of property values crashing more than 25%, burning through the comfort blanket and leaving lenders facing a loss. And of course, this kind of financial apocalypse is entirely possible – but then, all risk should be priced in by prudent platforms, and it makes sense to check this before investing. 

However, in property-based crowdfunding, fortune can still very much favour the lateral thinkerSo don’t be put off by the headline rates; don’t automatically assume that high returns mean high risk; and above all, don’t swallow whole what the “experts” tell you. 

Even when the whole world feels like it’s going to hell in a handcart, someone, somewhere is making money out of it. 

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CapitalStackers is authorised and regulated by the FCA. Investment through CapitalStackers involves lending to property developers and investors. Your capital is at risk. Investments through this and other peer to peer lending platforms are not covered by the Financial Services Compensation Scheme. Unless otherwise stated, returns quoted are annualised and gross of tax.
Call us on: Office: 0161 979 0812 | Steve: 07774 718947 | Sylvia: 07464 806477

Investors hungry for more double- digit returns pounced on the latest opportunity from CapitalStackers – a block of 23 flats near Leeds City Centre.

CapitalStackers investors typically enjoy returns of between 10% and 15%, usually over periods of 12-24 months. The conservative Loan-to-Value (LTV) ratios, high level of due diligence and zero losses have attracted a wide range of investors, some putting in as little as £5000, many considerably more.

The Leeds development – called Abode – is a four-storey block of 15 two-bedroom flats and eight one-bedroom flats, bringing a return of 13.76% on an LTV of 68.4%. Prices range from £80K to £130K and interest has been sparkling, with six of the flats already under offer well before completion. In addition to first-time-buying single professionals and urban downsizers, the flats are also proving enticing to Buy to Let landlords with good demand and individual flat rentals ranging from £550 to £700 per month.

This is the second deal launched for the experienced developers, Demech Properties, by CapitalStackers. They’re also on site with 22 houses at Thorne due for completion in Autumn 2019 with 17 houses either exchanged, in legals or reserved.

Abode was already under construction when they approached the investment platform, looking for additional funding to meet additional costs and improve cash flow to enable more cost-effective employment of bricklayers.

Marc Black, a director of Demech said, “This kind of deal can be tough for developers to find funding for, as few investment establishments will deal with part-built schemes. However, since we already have a strong relationship with the team at CapitalStackers, they used their considerable property experience to assess the risks and we were happy to meet their ancillary demands.”

CapitalStackers considered the construction risk to be greatly reduced since the building is already up to the 3rd floor and all externals are complete.

The developer expects the project to be fully sold out by March 2020.

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CapitalStackers is authorised and regulated by the FCA. Investment through CapitalStackers involves lending to property developers and investors. Your capital is at risk. Investments through this and other peer to peer lending platforms are not covered by the Financial Services Compensation Scheme. Unless otherwise stated, returns quoted are annualised and gross of tax.
Call us on: Office: 0161 979 0812 | Steve: 07774 718947 | Sylvia: 07464 806477

Remember the high quality Chessett’s Wood development in Lapworth, which paid annualised returns of up to 13.8% after just 7 months? Or the luxury St. Bernard’s Road development in Solihull paying 14.06% on a very reassuring Loan to Value (LTV) of just 55%?

Well, for those who happily capitalised on those – or even those who missed out – CapitalStackers is pleased to offer a third opportunity to invest in the same highly respected developer – Avalanche Capital and their joint venture construction partner, HCD Developments.

It’s our strong belief that HCD’s distinctive quality of workmanship is a key factor in the early property sales on their previous schemes.

The current opportunity is to invest a total of £620,000 in the development of two large luxury houses, in an established and popular residential road in Solihull – just ten minutes walk from the prosperous town centre and its rail station with links to London and only six miles from Birmingham Airport. Target annualised returns will range between 10.44% and 14.33% for LTV ratios of 52% to 63%.

To be clear, this means that if Layer 2 investors were to suffer a loss, the property would need to

fall in value by 37%. For Layer 1 investors to suffer loss, the value would have to fall by 48% – making for highly attractive risk adjusted returns.

The bulk of the finance – £1.345 million for construction works – is being put up by NatWest and the Borrower has substantial “skin in the game” with its cash equity of £540,000. In addition, the boost in site value from the granting of planning permission amounts to at least £200,000.

The funding base case on which the deal and its risk ratios are structured, assumes both properties are built out and remain unsold for the term of the loan. This follows the usual cautious approach adopted by CapitalStackers. Our sensitivity analysis assumes that at least one buyer will be secured during construction, leading to one house being sold the month after completion – and the second house selling two months later, with the conservative as

sumption of both being sold at a discount of 15% to value. Even taking this into account, risk ratios remain conservative at 60% LTV for Layer 1 investors and 73% for Layer 2.

The site currently accommodates an unoccupied single property in need of substantial renovation, so the proposal is to demolish this and build two very high specification detached houses, on three floors with single integral garages and off-road parking.

Investors are invited to offer loans of £5,000 upwards when the bidding opens at noon on Monday 18th March 2019. This is expected to be an extremely popular auction owning to the quality and track record of the developers and the deal itself, so early participation is recommended.

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CapitalStackers is authorised and regulated by the FCA. Investment through CapitalStackers involves lending to property developers and investors. Your capital is at risk. Investments through this and other peer to peer lending platforms are not covered by the Financial Services Compensation Scheme. Unless otherwise stated, returns quoted are annualised and gross of tax.
Call us on: Office: 0161 979 0812 | Steve: 07774 718947 | Sylvia: 07464 806477