Lendy/Saving Stream Review – An Investor’s Perspective (Updated December 2018)

By | 4th December 2018

Summary: At the moment, I would consider Lendy to be uninvestable in any of its products. The self-select product is blighted with problem loans, and a lack of new loans on the market means that the only options are to invest in tranches of existing loans or other loans on the secondary market, the rewards for which do not justify the risk. Given Lendy’s poor performance on managing loans, I would have very little confidence in the black-box type product, and with long notice periods, no guarantee of getting the advertised rate and no real customer feedback, there are better alternatives for the money elsewhere, even if it means taking a lower interest rate.

Here is how Lendy compares to similar platforms with my real-life results:

PlatformLinkTarget Rate (%)My XIRR (%)Current (%)Live Rating
Review9-12%1.9% (est)0.58%0.5/5
ReviewUp to 16%-1.35% (est) 0%2/5

DECEMBER 2018 UPDATE: The figures here are absurdly low: my current equivalent interest rate is 0.58%. That reflects the fact that virtually all my loans are in default and do not pay interest. The XIRR is also at a low figure. Should I get my remaining money back at par value today, the XIRR would be 9.1%. However, it would be imprudent to use this figure as some of the underlying loans are in administration and unlikely to recoup the full loan outstanding, never mind the interest. I have impaired by current value by 70%, which gives an embarrassingly low figure. Some might say that looking at some of the outstanding loans on the loan book, that 70% is not a big enough provision, in which case, my all-time returns from Lendy would actually be negative.

So what is Lendy, anyway?

Lendy was formerly known as Saving Stream and offered peer-to-peer (P2P) investments to individuals secured on properties. Interest rates were high – 12% a year – and in the initial stages, demand for the product exceeded supply. Loans were pre-funded, which meant that Lendy fronted up your investment, and you repaid them back within 48 hours. The service was so popular that often one would not get all they asked for in an investment, and therefore the amount was scaled back. Or, if one bought too much of a particular investment, you could easily re-sell it on the secondary market, where it would be snapped up in seconds.

Here is a table listing some of the basic Lendy features:

Established2013
Advertised Returns9-12%
Loan TypesBridging/Development
Loan SecurityProperty, Debenture
Minimum Investment£1
DragMinimal
Secondary Market?Yes
FeesNone
Provision Fund?Yes (although dormant)
Auto Invest?Yes (via separate product)
Available in ISA?Yes
FCA Authorised?Yes
Active on forum?No
Sign-up offers?£50

Operating Model

Lendy’s operating model is fairly simple. Projects are introduced to the platform, for which monies need to be raised between the 22,280 investors. The range of project sizes is diverse – ranging from small houses, to multi-million pound developments, and the rate of interest varies from 8%-13%, but more commonly 12%. Once the money has been raised, the loan is drawn-down and the project begins. Investors are paid interest every month, with the capital returned on the conclusion of the project. Lendy monitor the project, and an update is put on the platform every month.

It sounds simple, but most projects are more complicated than this. As a measure of protecting lenders funds, many projects require additional ‘tranches’ of funding, as only enough money is provided to get the project to a certain milestone. These tranches are typically smaller than the initial loan, but are funded in the exact same way: through the platform. There is theoretically no upper limit to the number of tranches given, as long as the project is still performing.

How are funds protected?

Lendy has (supposedly) managed this in a few ways: no loan exceeds 70% LTV (loan to value), which gives investors a c.30% cushion if the worst comes to the worst and the security has to be repossessed and sold. Lendy also take personal debentures, which are guarantees from individuals promising to cover the shortfall. And last of all, there is a Provision Fund – a portion of every loan contributes to this, therefore building up a store of cash to be used to compensate losses on other loans.

Lendy Wealth: A new Beginning

In 2018, Lendy released a new product called Lendy Wealth. Initially aimed at the higher end of the market with a minimum investment of £50,000, this was quietly reduced to just £10,000 with the excuse that banking services had trouble transferring over £10,000. The selection of products is thus:

Basically give 60 days notice and you can get 6%, or a whopping 365 days notice and get up to 10%. With the product being so new it has been difficult to read any reviews on this.

Pros of Lendy

There are a few good points to Lendy. Some of them include:

Large loan selection: the mature platform means it should be fairly easy to diversify using the secondary market
Fast and easy deposits/withdrawals
Well-used platform: deals are likely to be well-researched by users

Cons of Lendy

Unfortunately, the bad things outweigh the good. At one time it would have been the other way around but things have changed quite a bit over the past few years.

Bad loan valuations – some of the loans have been valued extremely optimistically, and losses have been suffered when they have needed to be sold
Bad recoveries – the supposed enforcing of loan guarantors is not an easy or quick process, and is uncertain to what the recovery will be.
Bad management – many loans are managed poorly, and are well overdue. Sloppy excuses are accepted, perhaps because the only choice would be to repossess the property and sell at a loss.
Stuck Lenders – Loans that hit problems become unavailable for trading, therefore an investor can be stuck with a portfolio of loans which cannot be sold and do not pay any interest – a bad combination for any platform. The size of some of their projects means that it is likely that they will take years to play out.
Bad communication – Following the lead of other platforms such as Funding Circle, as soon as the going gets tough, they vanish. It is not easy to get straightforward answers from them.

The underlying factor here seems to be that just too many loans have gone bad. Had there been good ones to balance it out, the effect would be less noticeable – something we see on platforms such as Funding Circle and Funding Secure.

Why did Lendy go so bad?

In my opinion, this was a bad combination of the market going against Lendy, as well as self-inflicted damage resulting in a massive loss in confidence in their platform. This has culminated in the Autumn 2018 bombshell that a borrower is suing Lendy investors – theoretically meaning that people could lose more than they invested.

In truth the decline was happening for a good year or two before that. In that period a good deal of changes went through, none of which were good for the investor. For example:

a) Loan contracts used to be between the investor and Lendy, this changed to be between the investor and borrower. This effect meant that interest on loans was now only payable if the borrower had prepaid it. If they hadn’t, the interest would accrue until the end.

b) Provision fund becoming defunct – the provision fund became unable to cope with losses and became redundant. With its use said to be discretionary, there is no mechanism for investors to claim against it. Lendy, perhaps fearful of setting a precedent, have not touched it recently.

c) Bad loan choices – some loans have ended up being disasters; the valuation on which investors relied being very generous. In theory the 70% LTV was meant to cushion investors, but some of the realised prices have been way out on what the valuation said they would be worth.

d) Lack of communication – Lendy started to engage less with investors. Updates used to be weekly, which then changed to fortnightly, which then changed to monthly. Many loans have hit default and progress to resolve them seems painfully slow.

e) Lack of humility – Lendy’s attitude towards investors has not been good. Even until a few months ago, their website proudly proclaimed that no investor had lost capital – a fact only true because no losses had been crystallised with many loans in a mysterious ‘legal claims are ongoing’ state. Some of them have been like this for over a year with nothing happening.

f) Inconsistency in loan recoveries – loans which go into default are sometimes put to a ‘vote’ – the choice often being whether to accept a settlement offer and cash out now, or to continue enforcement. But the way in which this is conducted is unsatisfactory. Often, insufficient data is presented to allow people to evaluate the offers, and the accompanying commentary seems to have a bias to one course. But votes are not binding, and on occasions, Lendy have gone against the vote, therefore taking away their point. On one particular loan, Lendy chose to forgo doing a vote altogether in an attempt to push through an amendment that would not benefit investors.

More recent developments are more worrying. As mentioned before, one big loan is currently the subject of legal action, no doubt giving some headaches to those invested in it. But even for those lucky enough to dodge it, there are other worries. The rate of new loans appearing on the platform has slowed to almost non-existent this year, meaning that further diversification is impossible for most (investing again into a different tranche of the same loan is doubling your exposure).

Rumours swirled around the discussion forums that members of staff, some senior, were leaving Lendy – not exactly the type of thing you see from a growing company. A cursory look at Lendy’s filed accounts for the last year showed that profits were decreasing, amidst increased operating expenses. It seems that this year will see that trend continue.

More seriously/hilariously depending on how you look at it was the gaming of Lendy’s Trustpilot profile. With a deluge of bad reviews against it, they were one of the worst-rated companies in their category. Instead of striving to improve this by treating the underlying cause, they chose to try to treat the symptoms instead. Therefore, bad reviews were flagged for deletion citing technicalities, and a number of suspicious 5-star reviews appeared, often with one or two lines of information.

Would I still invest with Lendy today?

No. Definitely no. There are just too many risks with not enough reward.

On the self-select side you are limited to purchasing secondary market loans – the vast majority of these are loan parts that other people don’t want. There are few new loans coming to the market.

Another option would be Lendy Wealth, if you have £10,000. But why bother? Their returns are not guaranteed, and for not much real difference one could invest in P2P loans at Ratesetter or Lending Works.

By far the biggest risk I see here is the whole platform. There is a long time before they have to file accounts, but with the P2P environment much more competitive than it was a few years ago, I would not be surprised if they were not around in a few years.

Lendy Investing Strategy

Despite my experience with Lendy being rather poor, I would say I have gained some valuable lessons in investing which can be transferable to other platforms. My Lendy investing tips would be:

Keep it small – Do not invest a large amount per loan, assuming that diversification will come later. In each loan only invest what you would be not bothered about losing, as it all adds up.
Avoid multiple tranches – Investing in two tranches of the same loan simply increases your liabilities (unless otherwise stated).
Do your own due diligence – Many of the valuation reports cannot be trusted. A better way would be to use your own instincts. Look at what the projects are building, go on Rightmove and look at prices of similar properties, especially the sold ones. The P2P forums often have people who are doing the same thing. Needless to say if you feel the valuation is too expensive, avoid the project.
Avoid second charges – Some loans are ‘second charge’ with this loan being paid back only after the first one. There are a couple of these on Lendy, typically paying only a premium of 1%. With a second charge, it is possible you could lose all the money you invested.
Avoid business valuations – some assets are valued as a multiple of the takings occupying them. These valuations tend to be more unreliable and you can bet the most optimistic side was presented to the valuer. At least one loan on the platform has run into problems because assumptions surrounding the business performance has ended up false.
Small loans are better in general – Complex projects offer a large range of excuses for things to be delayed, or costs to over-run, not to mention being harder to value. By contrast, a smaller residential project is more straightforward and the chance of a valuation being out by 50% is much less. Considering that these loans will often pay 12% as well, the risks are smaller. Unfortunately, these type of loans are quite rare on the platform.

SUMMARY

Past performance is not an indicator of future performance, and that saying cannot be more true when describing Lendy. Once the rising star of the P2P world and offering a decent interest stream to investors, problem after problem has hit its loan offerings with some bad losses that eventually will have to be crystallised in future. Whether the company manages to recover and emerge on the other side with its black-box product remains to be seen, but I can safely say that I will not be investing to find out.

Disclaimer: This article represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Typically P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) in the way bank deposits are, and there are no guarantees that you will receive the returns advertised (or even a return at all).

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