The Brexit vote, stamp duty raises and the tax changes coming for buy to let landlords have all contributed to a challenging year. “A lot of things have piled on this year, which is making it difficult to see what is having an effect and what is noise,” says Thomas (pictured).
It’s a year which has refocused LendInvest on its key product range in bridging, auction and development finance. In June, it stopped second charge lending in the aftermath of Brexit and its articulated plan of launching into buy to let by the end of 2016 has been pushed back.
“Second charge has never been a big part of what we’ve done. There used to be a bit of a difference in rate between first charge and second charge but that’s less the case now,” says Thomas. He adds that second charge could be a distraction when “there is plenty of business in the first charge market”.
However, he says this is an interesting space for the future, as the team is now better set up for smaller second charge loan sizes and could launch products there again.
Buy to let is also some way off. “It has been an interesting year and with everything that has happened we aren’t rushing to get a buy-to-let product out the door,” says Thomas. He sees the increase in stamp duty for BTL landlords as a significant factor in dampening market enthusiasm.
“Hopefully in future we can expand into buy to let and different parts of that sector as well, but we’ve been trying to grow our core market,” he adds.
The market environment may be turbulent, but that’s not to say it has been a bad year. In March, venture capital firm Atomico invested £17m in the business, following the £22m invested by Chinese tech company Beijing Kunlun Tech in 2015.
LendInvest’s funding mix is now roughly a third from the online lending platform, a third from its own funds and the balance from institutional investors and banks.
Current assets under management total £279, with £92m of that from funds, £108m from the online platform and £79m funding lines. It is this final segment that is growing, says Thomas. In April it secured a dedicated funding line from Macquarie, initially adding £40m and taking institutional investment to £230m.
“We’re looking to do twice as much business next year as this year,” he says. “We have put a lot of the infrastructure in place over the last 12 months to be able to handle more business, and the distribution strategy to make sure we are reaching out to the brokers that are doing the kind of business we want.”
Instead of pushing into new product types, LendInvest is taking the existing range into new markets, hiring business development managers in the North and Scotland, and lowering its minimum loan level to £75,000 from £100,000 to take account of lower prices outside its traditional heartland of London and the South East.
The expansion of personnel outside the South East is a trend Thomas says will continue, with the regions offering good development opportunities and higher margins.
“Historically investors have liked the South East because of the liquidity of the market but I think that’s less the case now. Liquidity has improved in the regions,” he says. The short term nature of LendInvest’s loans means it can also adapt quickly to changing market conditions.
2016 has also seen LendInvest launch a development exit proposition, alongside the other bridging niches such as auction finance and refurbishment. “We see the benefit of being specific about deal types that we like. It is helpful to brokers because they can understand better what to send us,” explains Thomas.
Currently the split of business is 80% bridging and 20% development, but he says that will change over time. The loans are also “cleaner” than when LendInvest started, as the lower cost of funding allows it to compete at a different level.
If BTL is some way off then LendInvest’s ultimate aim of moving into home loans is a distant development. “You have to have a really differentiated and competitive product that will mean a cost of capital closer to the high street which isn’t where we are at the moment,” he says.
The pursuit of steady growth remains key for a business that is playing the long game.