When I spoke to Gray Stern, co-founder and chief commercial officer of Landbay, he was in Barcelona, at an mortgage-backed securities conference.
“It’s more interesting than it sounds,” he chuckles down the phone. “mortgage-backed securities providers know how to party,” I deduced.
A New Zealand native with a banking background, Stern set up Landbay – a peer-to-peer mortgage lending platform that is challenging the status quo of the old guard – with co-founder John Goodall, back in 2013.
“What is a peer-to-peer mortgage lending platform?” I hear you ask. For the uninitiated, it works like this:
On the investor side, an individual looking for reliable returns deposits their money with Landbay, which is added to its portfolio. On the other, a buy-to-let landlord, looking for a mortgage on a property, approaches Landbay. If the mortgage is approved, Landbay uses the money in the portfolio to back the loan amount, et voila: one person to another, via Landbay as an intermediary, the mortgage is funded, and the investors are paid interest on their deposit.
It’s not just retail investors – private individuals – however. “We act as a marketplace that matches investors and they can be retail, investing their ISA allowance, or institutional investors, hedge funds, or asset managers looking to find a return on their money.”
Peer to peer
The platform is one of a handful of peer-to-peer lenders to receive FCA approval, due in part, to the safety of investing in buy-to let mortgages. “We put a lot of time and effort into finding an asset class that has performed well through cycles. And while everyone’s heard of the issue of poorly written mortgages, and the subprime crisis in the US, with Landbay you’re lending prudently to landlords who have means – with a good quality credit risk. And so far we’ve been very proud to have zero defaults, zero late payments – not even one.”
Since its founding, impressively, Landbay has lent £45m against £65m of property – a figure Stern says is a “a drop in the ocean compared to what the banks are doing.” He adds however, that “the volume that has gone through is proof that we can originate and fund mortgages in a highly efficient online fashion.”
I ask him why someone – either lender or landlord – would use Landbay over a high street bank. “That’s a good question,” he says. “A few reasons: one is that we’re a specialist buy-to-let lender. With recent tax changes, it’s made buying as an amateur landlord, who just dabbles, really quite difficult. It’s actually far more efficient to own a property professionally through a properly run portfolio, as opposed to being an armchair landlord.
Stern also mentions the announcement last year from the Prudential Regulation Authority (PRA), that increased expectations of firms’ underwriting standards in the buy-to-let market. He adds: “the lending on our platform is more complex than what banks can handle through simple yes/no computer systems and algorithms. That’s the market which is the fastest growing part of the sector, given tax and PRA changes, and one where the big guys aren’t playing. If you’re a professional landlord, you’re looking to guys like Landbay – and in that sector, we’re competing against challenger banks.”
Landbay is currently going through its seventh crowdfunding campaign on Seedrs – at time of writing raising well over the £1.5m it required, at £2.3m. “It’s quite exciting,” says Stern. “What we’ve done is re-design the plumbing for funding and underwriting mortgages, and that’s something we’re quite proud of, we’re competing against banks with traditional funding mechanisms that have never really been changed or reinvented. The framework we have is innovative, many don’t appreciate what’s happening beneath the surface from the outside looking in – this year we’ll get to a point where we can fund people’s mortgages almost in real time – we can do some really quite sexy things in the mortgages space.”
I ask whether Landbay is a “disruptor”?” I think most people would say that ‘disruptor’ is one of the most overused terms. Most of the businesses that call themselves ‘disruptors’ are just improving what’s already there, and competing against old traditional businesses that don’t need to streamline their process. They already make good money, why disrupt the status quo?”
He says that Landbay is competing against banks using a whole new infrastructure. “Finance and mortgages are an incredibly important part of housing ecosystem, and being able to provide people with money for property investing is quite a responsibility. So we’re starting to look at ways we can help investors provide a quality product. But not just investors, also the landlords who take the money, and their tenants. It creates a nice virtuous circle for investors, in a way that everyone feels that they’re getting a fair deal. A lot of people dislike buy-to-let – ‘generation rent’ is contentious, so we’re spending a lot of time thinking about how we use our influence to improve the service for all stakeholders.”
Elliott Haworth is business features writer at City A.M.