2020 – Proplend year end review

Proplend Summary 2020

There are decades where nothing happens; and there are weeks where decades happen.’ Vladimir Ilyich Lenin

The opening sentence of my 2019 review was “There’s no ducking it, 2019 has been a tough year for the P2P sector”, little did I know what was in store for us all in 2020.

January, February, March, Covid-19, pandemic, unprecedented times, panic buying, facemasks, hand sanitiser, social distancing, R rate, lockdown 1.0, furlough, work from home, home schooling, online shopping, clap for the NHS, staycations, CBIL & Bounce Back Loans, Zoom meetings, track & trace, essential retailer, Tier 1,2 and 3, Lockdown 2.0, is a Scotch Egg a substantial meal, did someone say Brexit, who is in your Christmas bubble, Lockdown 3.0, TIER 4 lockdown and Xmas is cancelled (edited at last minute and depending on your location) & New Year’s Eve.

Proplend P2P industry summary

• it’s been a difficult year to get a true handle on overall lending volumes, whilst many platforms closed to new lending for most of lockdown, several went down the route of becoming CBIL accredited lenders. But rules surrounding CBILs loans, meant that they could only be funded by institutional and not retail investor money
• Funding Circle are probably the biggest CBIL lender, stating that they have completed c20% of all CBILs loans in the UK and boasting underwriting decision time of 9 seconds!
• whilst CBILs and Bounce Back loans have been a life saver to many SME’s, I am seriously concerned about the scarily high levels of defaults being cited (40%+), as any lender platform or otherwise is going to have a monumental task on their hands managing the loan default workouts
• 2020 has been a tough year for platforms, Borrowers and Lenders with several platforms ceased new lending, closed their secondary markets, gated cash withdrawals, reduced their expected returns and charged additional Borrower and Lender fees
• platforms struggled with existing Borrowers and depending on the loan types were forced into offering clemency on interest payment due from Borrowers to pay lenders
• Zopa launched their bank offering
• Ratesetter was sold to Metro Bank
• Wellesley, who started life as a P2P platform, entered into a CVA following the FCA rule changes on the marketing of Mini Bonds

  Proplend Property market Summary

• commercial property covers a wide range of property classes, 2020 has proved great for some asset classes but terrible for others
• retail stores / vendors have been hardest hit, 2020 cleared out a plethora of tenants (namely private equity backed, debt laden high street brands, who never made the online transition) who were already hanging on by their finger tips
• hospitality service providers were next in line, bars, hotels, restaurants, theatres, cinemas, sports arenas and concert venues will for the most part reopen. This could be under new ownership or in reconfigured ways, which in itself will create new work and opportunities
• as the vaccine rolls out, and more workers return to their offices probably on a three day in the office, two days at home basis. These offices will be reconfigured, providing specific working arears for specific working requirements, again these reconfigurations will create new work and opportunities
• little did I know when I wrote this article on Demand is growing for Cold Storage , it would be to keep the Vaccine at -70°C
• the online shopping market-place will continue to grow, onshore manufacturing and supply-chain, logistics, distribution, storage and last mile delivery benefitting most
• the smaller regional office market should see an uptick in response to working locally, as opposed to working from home or from head office
• this will not be the first commercial property evolution, nor will it be the last, the important thing to remember is that commercial property is a broad asset class and new businesses will create new job openings and commercial space requirements as the world re-adjusts
• The Centre for Economic and Business research reports that, there has been an inflow of almost £197 billion of savings since January 2020, most likely saved from lack of non-essential shopping, holidays, dining out and socialising. This creates a huge pent up demand which will hopefully be released back into the market in 2021
• we have been closely monitoring commercial property auctions throughout the year, they very quickly and successfully moved from live auctions to virtual online auctions.
• the final Allsops commercial property auction of the year in December, raised a record £63m with 59 lots being sold achieving a success rate of 82%. 19 lots, of which half were retail, sold for £1m+
• since the start of the year, Allsops commercial property auctions have generated sales of £424m compared to £437m in 2019, showing that even in the toughest of market circumstances, there is still very strong appetite within the commercial property sector
• Acuitus commercial property auctions also note that in the first three quarters of 2020, the volume of UK commercial property sales at auction was down only 5% on the comparable period in 2019, citing strong demand across all asset classes (especially retail) from private investors

Proplend Summary 2020

• 2020 was to be our year of scaling but as the pandemic took hold, we quickly prioritised the stability and maintenance of the current loan book
• we were proactive and engaged early and heavily with our Borrowers, contacting them all and provided them with a help document, laying out what government was available to both them and their tenants and suggested that they start speaking with their tenants asap
• this early action has paid off, whilst there have been loans which have unfortunately run past maturity, we have worked hard to ensure that Borrowers maintain their interest payments enabling 100% of Lender interest payments to be made on time and in full
• where some Borrowers were unable to maintain interest payments, they were able to dip into the interest reserves we maintain on all loans and they have since replenished the reserves that were utilised
• while the market was writing off commercial property, at the height of the pandemic, 87% of Proplend Borrowers were still making their interest payments
• we attempted to be as transparent as possible with Lenders, we pushed out the Lender messaging system providing daily interest updates and loan updates, and turned the newsletter into a Lender Update and are working on ways to improve these
• there are several loans which have unfortunately gone past maturity, for which we apologise. Market conditions both sales and refinances have meant that we have let loan maturity arrears run further than we would have under normal market conditions. Our focus has been to work to ensure a full repayment of monies lent over appointing LPA receivers and selling properties into a softer market
• we have positive line of sight for repayment of the majority of these loans
• not surprisingly many Lenders made good use of our secondary market (PLE) this year, some to sell and access cash and others to buy loan parts in loans not previously available to diversify their loan portfolio. PLE volumes passed 2019 levels of £9.2m by mid-October and still continue to climb
• we continued to lend the whole way through lockdown, albeit at lower than expected levels and in late September we broke though the £100m milestone
• more important than the volume of loans made, we also broke through £50m of loans repaid and £11m of interest paid to Lenders, but this was soured by some Tranche B Lenders enduring our first loss of c£40,000
• AutoLend target remained at 5% in 2020 and for the third year in a row since inception, this has been exceeded. AutoLend in 2020 returned an average net return of 7.10% after fees but before any bad debt or taxes
• in the midst of lockdown we successfully raised an equity round as a convertible loan note, this was matched by the government’s Future Fund as part of the SME incentives
• most importantly we used lockdown to evaluate all of our processes and workflows, how could we be more efficient and improve our service and offerings to all Lenders across the platform, and which has been a very useful exercise and we hope that you will benefit from each small change over the coming 12 months

December Loan Book Performance
December has seen a flurry of year end activity with loans being funded, drawing down, being repaid early and loans past maturity finally being repaid.

We will issue a further brief email at the beginning of January to cover monthly loan performance, as of writing this, all Borrowers made their monthly interest payments.

Links to the final couple of Blog articles of the year

If this is the office of the future, I don’t want to work from home

Permitted Development Rights; Class E to residential

Proplend – Looking Forward to 2021

• as I write this, the Brexit outcome still hangs in the balance
• has 2020 fast tracked change, clearing out the dead wood and making way for new growth
• whilst some commercial property sectors struggled, others soared picking up the pent up demand of online shopping and demand at local level
• new planning rules around PD rights with change of use from commercial to residential becoming easier
• commercial property (basically everything not residential) touches us every day whether we realise it or not – commercial property is by no means written off
• we are working to bring a new product to market, a VAT loan, this is a loan to a property investor where the property being purchased is elected for VAT. The Borrower pays the VAT to HMRC and makes a simultaneous VAT rebate claim. This will be a shorter term 90 to 120 day product. More to follow.

We know how frustrating this year has been, with several loans going way beyond original maturity dates, thankfully after a lot of hard work, there has been a flurry of loan redemptions in this last few weeks amounting to nearly £6.7m across 6 different loans.

I hope that you and your families remain safe over the holiday period and finally, I would like to wholeheartedly thank every one of our Lenders who have continued to support and believe in Proplend through a tough 2020 and we look forward to re-engaging in the New Year!