Summary: Starting late in 2018, Loanpad are a relatively late entrant to the market at a time when many investors may be realising that platform risks are as big (if not bigger) than the investment themselves. Their proposition is interesting and offers investors daily interest on theoretically less risky property loans, with interest rates to match. So far this approach seems to be going well and there have been few problems publicised, although this is still early days.
Here is how Loanpad compares with my other investments. Note that these comparisons are not strictly as valid, as Loanpad loans differ slightly from other P2P property-backed platforms as we will become evident.
|Platform||Link||Target Rate (%)||My XIRR (%)||Status||Live Rating|
|Review||Up to 16%||-5.4% (estimate)||CLOSED||1.5/5|
|Review||Up to 7.2%||7.23%||OPEN||4/5|
|Review||Up to 11%||5.72%||OPEN||4/5|
|Review||Up to 13%||3.90% (estimate)||CLOSED||2.5/5|
|Review||Up to 8.5%||4.46%||OPEN||2/5|
|Review||Up to 8%||TBC||OPEN||3.5/5|
Loanpad’s site initially looks like it deals in personal loans – with just two products to invest in there are some parallels with Lending Works. However, after reading a bit more it is apparent that your money is invested into property-backed loans. While the end user has no choice on loan specifics, the loans are typically bridging or development and backed by the underlying property.
Here is a table summarising Loanpad’s features:
|Cash Drag||None (subject to change)|
|Provision Fund?||Interest Cover only|
|Available in ISA?||Yes|
|Active on forum?||No|
|Sign-up offers?||Up to £150|
Is Loanpad profitable?
Loanpad Limited has been incorporated since 2015. The last annual accounts filed cover the period to 31 December 2018. These show an implied loss of around £400,000 in retained earnings, although this is fairly common for newer companies. This loss has been financed by the issue of shares which appears to have happened again this year.
Sign Up Bonus:
Currently there is a good signup bonus, which is one of two option: either get £50 when you invest £1,000 for a year, alternatively you can get £150 if you invest £10,000 for the same period.
Click here to sign up. You will need to invest money in your Premium account within 14 days of signup to be eligible for the bonus.
Much of the Loanpad site has been designed to reduce the effort involved for investors: it seems a very hands-off affair and aimed at virtually everyone. The minimum amount of deposit (and loan) is low: £10 and can be credited to the account by bank transfer.
Once this is done, you have a choice of two different investments to divert your money into: the Classic Account or the Premium Account – these pay 4% and 5% interest respectively and credited daily. The key difference between the accounts is that the Premium account currently requires 60 days notice to access money, and the Classic is instant access. This is a tiny bit below Assetz (currently 4.1% instant access, 5.1% 30-days).
Unlike many other P2P platforms there is no specific loans to choose to allocate money. Any investment into the accounts is automatically diversified across the current loanbook. This is not to say that you cannot see what you have invested in, as Loanpad provide details in the ‘My Account’ section of the entire loanbook specifics together with more detailed statistics such as average loan to value, loan size and expected future losses and current queue times to buy or sell.
The aggregate pooled investments means there is little need for a secondary market to sell individual loans, you can simply put in a withdraw request from the relevant account. It is important to note that the notice periods are not guaranteed and are subject to market conditions. In the event of many people wanting to leave, expect a queue.
How are funds protected?
There is no provision fund at Loanpad, although the structure of the loans arguably gives investors more protection than other similar sites. Loanpad originates its loans from its own network of originators who typically take a ‘junior’ tranche of the loan, currently at least 25%, in many cases more. The loans provided by P2P investors runs ‘senior’ to this, so in the event of the assets needing to be sold, P2P investors get paid first.
We have seen in the case of many property platforms such as Funding Secure and Lendy, that even though they set their maximum loan to value (LTV) at 70%, this was insufficient as in many cases the asset was overvalued. So in theory Loanpad’s offering gives investors a greater margin for error.
Loanpad also offer an Interest Cover Fund which is responsible for covering the daily interest received and is funded by borrowers. This is discretionary and does not cover principal in case of losses.
Pros of Loanpad
There are many things to like about Loanpad, who have offered something a little different.
Greater degree of safety: With loan partners taking a first loss, in theory this benefits investors in the event a loan goes bad.
Low minimum investment: The minimum investment starts from £10.
Automatic diversification: Any investment is allocated across the entire loan book, which takes out the risk of only being concentrated in a few projects. The loan book is growing and there are many projects on the go.
Daily Interest: Interest is credited daily and is not contingent on projects finishing or borrowers paying (subject to the Interest Cover Fund functioning), useful for those that are investing for income.
Hands-off approach: The site is simple to use, and with auto-invest put on requires very little maintenance.
Cons of Loanpad
There are also a few things to be wary of:
Lower Interest Rates: Interest rates are low and are comparable to personal P2P loan sites which do have provision funds attached such as Ratesetter.
Risk not eliminated: The loan partner taking first loss reduces risk, but does not put it out entirely. In the very worst cases of P2P loans we have seen almost 100% losses for investors after recovery costs are taken into account.
Harder to track loans: Individual loans are listed as PDF files on the website, and unlike other sites such as Moneything updates are not announced specifically unless you download the file.
Lack of track record: With Loanpad only being in existence for over a year, this may not be enough time to really review how it manages its loans, or whether the quality of origination is high. So far there have been no investor losses, but the same was the case at Lendy for some time.
Property market correlation: Many properties are based in the South of England, so a market crash in this area of the country would hurt investors.
A hybrid model: the way forward?
Loanpad seems to represent the direction that P2P is heading in. This site probably would not have worked if they offered lenders property development loans at 12%-16%. In many cases we have seen that investor interests are not aligned with the borrowers and platforms are too small to really effectively monitor loan progress or fraud.
So effectively a larger part of the responsibility is transferred onto the loan originators who then have more skin in the game, and they reap the bigger interest payment. This was quite similar to how Kuflink worked, until they reduced their stake to a small 5%, presumably in order to fund more deals.
We are thus left with a platform that seeks to pay investors a much smaller return in return for a greater level of security of funds, and time will tell if this works.
My Loanpad Investing Strategy
It is worth repeating again that I regard platform risk as the biggest one nowadays. Poor performance on individual loans may see investors lose out on interest and in the worst cases, some or all of their capital but a platform insolvency puts all money at risk.
Despite many platforms having a ‘wind-down’ procedure, I remain unsure whether this is sufficient. We have had three high-profile failures in the past year (Collateral, Lendy, Funding Secure) and in all cases it seems as if investors will lose a good percentage of their cash. This is because administering these contracts is a long, complex process and it is also expensive, with administrators charging extremely high rates. These costs ultimately are recouped in front of investor returns.
With this in mind I have sought to take money off the table in certain platforms, reduce overall exposure to P2P and spread the remainder around. So my points:
Modest investment size: Only invest what you can afford to lose. There have been no losses, but it is still early days.
Split between products: I quite like the pros and cons of both, and am happy to invest in them.
Regularly check account and re-invest: I have turned off auto-invest and manually allocate funds as they return.
Loanpad offer a different approach – indeed, they claim they are the first P2P hybrid platform. This approach in theory quite demonstrably reduces the risk for investors at a commensurate reduced rate. It is still early days though, and a track record has not been built up, but for now it looks like it is working and viable.
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).