Wellesley & Co’s peer-to-peer lending offering is a no thrills, asset backed investment, which is easy to understand, particularly for first time peer to peer investors. Established in November 2013, Wellesley, focuses on connecting investors with borrowers who require property development or bridging finance.
Lending a total of £321 million to date, Wellesley & Co is the 5th largest UK peer-to-peer lending platform, achieving success by combining traditional values with technology. Additional comfort is provided to investors by Wellesley investing their own money alongside investors in every loan facilitated by their platform.
Unlike other P2P platforms, where your money is matched directly with borrowers, the Wellesley platform combines investors’ money into a central pot, which is divided once per week, across all borrowers on the platform. This means your investment is continually diversified across the entire Wellesley & Co loan book and you start earning interest from day one.
Wellesley & Co Returns
Investing in Wellesley is simple: deposit your funds, pick your investment term and select whether you would like your interest paid monthly or on maturity.
Currently on offer Wellesley have three investment terms, however rates change regularly so it’s worth signing up to the Orca Money email list to receive updates on the Wellesley products.
Wellesley & Co Performance
The table below demonstrates that Wellesley outperform their targets every year with an impressively low default rate, evidence of a robust credit sanctioning process.
Wellesley & Co have a number of security measures to protect borrowers
Investors funds are secured by the assets of borrowers
If a loan was to default, Wellesley & Co would look to recover any potential capital losses by selling the asset held as security. Currently the size of the Wellesley & Co loan book is £230 million, while the value of the assets securitising the debt is £348 million. This equates to a loan to value (LTV) of 66%.
Providing the asset held as security can be sold for at least 66% of the original valuation price, the defaulted capital will be recovered. This 34% buffer is important to account for property market fluctuations and to counteract any overvaluations.
A provision fund provides further security
If for whatever reason Wellesley & Co were unable to sell an asset which secured a defaulted loan, they do have a provision fund to act as a final layer of protection. The provision fund currently totals £4.1 million, 1.7% of the total loan book size, and pays out only at the discretion of the Wellesley & Co directors.
So what is the principal risk…
With a well-functioning credit sanctioning process (low default rate), asset security underpinning every loan and a provision fund acting as an ultimate fail safe, investors may ask: what is the main risk?
Investors may lose money if the following scenario unfolds;
- The Wellesley credit committee make a poor judgement on the quality of a large loan which constitutes a
significant proportion of the loan book. The borrower of this large loan defaults on their payments.
- The asset securing this large loan is overvalued, or the property market drops considerably, reducing the value of the asset. The capital recovered from the sale of the asset is significantly less than the original loan amount or the asset can’t be sold for whatever reason.
- The size of the capital loss is larger than the provision fund total (£4.1 million).
Diversification across the loan book mitigates this risk to a certain extent, as depending on the capital loss proportional to the total loan book size the effects may be minimal. Currently the Wellesley & Co loan book constitutes 115 loans, and if all loans were equal in size, investor’ exposure to one loan would be 2%.
Unfortunately, Wellesley & Co do not publish their loan book so it is unclear if lenders are exposed to one large loan and a number of smaller loans or if there is an equal split across the loan book. We do, however, know that in April 2014, Wellesley & Co announced a £8.3 million loan, which at the time was the largest made by a peer-to-peer lending platform.
Furthermore, as the loan book is not published we are also unable to evaluate Wellesley & Co’s borrower rate which could be another indication of a potential risk. For example, if Wellesley borrowers are paying 10%+ for their loans and investors are receiving max 3.75% there is a healthy margin for Wellesley, particularly when they are not holding the credit risk.
Who are Wellesley & Co’s Borrowers?
Wellesley & Co match investors with borrowers requiring bridging finance or property development finance. All loans are backed by tangible assets, generally property.
Wellesley & Co actively support property developers and builders seeking funding to buy new land, or a property requiring substantial redevelopment. Wellesley loans are either a personal one to the developer, or through the developer’s Company, in which case the developer is required to provide a Personal Guarantee. Wellesley & Co have a formal code whereby they only deal with experienced developers and all development appraisals must pass through the Credit Committee before approval.
A Bridging Loan is a short-term loan on a developed property, which in some cases may require minor redevelopment. The maximum loan to value (LTV) that Wellesley & Co offer on their Bridging Loans is 75% of the value as determined by their panel surveyor.
Wellesley & Co is a no thrills peer-to-peer lending investment, with an impressively low bad debt record. They have added comfort to investors by providing asset security and a provision fund. Their simple and easy to use website may suit first time peer-to-peer lending investors or those that simply want a no hassle investment.