Wellesley Product Update
Launched in 2012, Wellesley & Co fast became an established name in the peer-to-peer lending (P2P) market within the UK, lending to asset-backed property developers. Wellesley & Co is a subsidiary of the Wellesley Group (Wellesley) which has lent almost half-a-billion pounds, but recently announced some changes which affect investors in the P2P side of Wellesley.
Wellesley & Co is currently redeveloping its peer-to-peer lending product-set having paused this side of the business at the end of May, forecasting a Q3 re-launch. To remain informed, investors can submit their details to the Wellesley website.
Below is a review of Wellesley's current offerings, including a look at the platform’s loan book and performance.
The Wellesley Group structure is displayed below, illustrating the relationship between subsidiaries and responsibilities of each.
Wellesley Group Structure
NB: Wellesley Secured Finance Plc is not part of the Wellesley Group.
Wellesley Property Bond
The ‘Wellesley Property Bond’ issued by Wellesley Secured Finance Plc offers competitive fixed returns of up to 4.2% per annum (p.a). Funds that are invested into the bond are used to acquire loans made by Wellesley Finance which are secured against tangible assets, consisting mainly of residential property.
Min investment: £1,000 (with denominations of £1,000 thereafter)
Max investment: No max
To invest, investors must open an account with the Share Centre, who provide administration and custody services.
The Share Centre Limited is authorised and regulated by the Financial Conduct Authority (FCA) and is a member of the London Stock Exchange.
Wellesley Property Bond Offering
Investors can select from two years or three years’ terms when investing in the Wellesley Property Bond. It’s important to remember that capital is not protected by the Financial Services Compensation Scheme (FSCS).
Below are the terms and returns on offer from Wellesley’s 4th bond issue closing end September.
|Term||Annual Interest (paid monthly)||Closing Date|
|2 Years||3.50%||28th September 2017|
|3 Years||4.20%||28th September 2017|
- Loans originated and managed by Wellesley Finance Plc, separate to bond issuer Wellesley Secured Finance Plc
- Irish stock exchange listed:The Wellesley bonds will be listed on the Irish Stock Exchange (ISE) on the listing dateWellesley bonds are transferable securities that can be either sold or transferred to another third party. It’s important to note that there are no restrictions on sale or transfer, this alone does not guarantee that investors will be able to exit their investment early and there must be a willing party available to purchase the bond in such an instance.
- ISA eligible:Once an investor has opened an account with Share Centre, they can hold their bond in a Share Centre S&S ISA, gaining tax-efficiency on investment.
- Interest paymentInvestors will earn a fixed rate for the full length of the bond termInterest will begin to accrue from the listing date, after the subscription period has closed.
- Asset-backed securityAll property loans made by Wellesley are asset-backed, at a loan-to-value (LTV) rate of 66%.
The ‘Wellesley Mini-Bond’ is available to a limited class of persons, namely: certified ‘High Net Worth Investor’; certified ‘Sophisticated Investor’; self-certified ‘Sophisticated Investor’; or certified ‘Restricted Investor’*. The Mini-Bond provides investors with the opportunity to invest in and back the Wellesley business. As stated on the Wellesley website, investors can contribute to the ‘ongoing success by providing additional operating capital for business expansion and to fuel further growth of Wellesley Finance Plc’s property lending business.’
Min investment: £100 (£10 deposits thereafter)
Max investment: No max
*For more on who can invest in the Wellesley Mini-Bond, visit https://www.wellesley.co.uk/bonds/the-wellesley-mini-bond/faqs/
Wellesley Mini-Bond Offering
The Wellesley Mini-Bond returns investors a fixed rate of interest, paid monthly or at Maturity, together with the full return of their original capital with no deductions or charges.
Figure 1: Wellesley mini-bond investments
- Issued by Wellesley Finance Plc, a subsidiary of the Wellesley Group
- Multiple choice of termsWith three terms, from 2 to 5 years, investors can invest for short-to-mid-term or longer term, aligning with their strategy.
- Interest payment flexibilityInvestors can take interest payments monthly, or roll up and receive at Maturity.
- Strong track recordWellesley claims on its website that it has never lost any investor funds since being in operation.
Some of the Wellesley Mini-Bond proceeds may be used for the following:
- Co-investment in property loans alongside Peer-to-Peer investors
- In respect of Series 2 Wellesley Mini-Bonds issued on or after the Amendment Date, funding losses, i.e. to supplement the funds Wellesley Finance Plc has committed to allocate for the restoration of customer investments – on a discretionary, loan-by-loan basis – in the event of a default
- Inter-company funding, i.e. the provision of funds to wholly-owned subsidiaries of Wellesley Group Limited. This may include supplying working capital to Wellesley as a company which is a key differentiator to the Wellesley Property Bond.
The Wellesley Finance Plc Mini-Bond is a separate form of investment to Wellesley & Co Limited’s Peer-to-Peer product, with different terms and conditions. The Mini-Bond is issued by Wellesley Finance Plc, an unregulated and distinct legal entity from Wellesley & Co Limited. Both Wellesley Finance Plc and Wellesley & Co Limited are subsidiaries of Wellesley Group Limited.
Wellesley Property Bond investors have capital secured on tangible assets.
Wellesley Secured Finance Plc was established as a special purpose vehicle for the sole purpose of issuing asset-backed securities. The Wellesley Property Bonds are issued by Wellesley Secured Finance Plc. Wellesley Secured Finance Plc is not part of the Wellesley Group Ltd. As illustrated above, Wellesley Finance Plc, who issues the Mini-Bond, is distinct of Wellesley Secured Finance.
If a loan was to default in the Wellesley Property Bond, Wellesley would look to recover any potential capital losses by selling the asset held as security. Currently, the size of the Wellesley loan book is £279 million, while the value of the assets securing the debt is £464 million. This equates to an 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.
Wellesley Current Loan Book
|Loan facilities (£ million)||£279.48|
|Value of security (£ million)||£463.82|
|Weighted average loan-to-value||66%|
Wellesley Loan Book Performance
The table below displays the performance of the loan book by terms which define the status of the loan.
Here are quick, summarised definitions of the loan statuses. For more information, click here.
|Loans Performing Within Terms||Payments made on time, within approved terms|
|Performing Outside Original Approved Terms||Payments made on time, but an approved term has been breached – typically the extension of Maturity date|
|Non Performing – Full Recovery Forecast||Failed payments, loan in default, full recovery of capital and interest expected|
|Non Performing – Loss Forecast||Failed payments, loan in default, losses expected due to insufficient security coverage|
Figure 2: Wellesley loan book performance
As can be seen, 24% of loans are ‘Non-Performing’ – either Full Recovery or Loss Forecast – with 19% of all loans expected to have security liquidated in order to recover investor capital and interest. Almost 1 in 5 loans are expected to default, which should be strongly considered by investors when performing their research.
Wellesley promotes some form of provisioning to cover investor losses. On the website, this is explained to funded by equity capital, totalling £1.84 million. With 5% of loan losses equating to £14 million it is expected that this provisioning will be breached.
Positives & Negatives of Wellesley
Despite pausing the P2P lending aspect of the business, Wellesley is still attracting capital and increasing its lending. Investors can expect returns in the region 4% p.a investing in asset-backed professional property borrowers or interest over 5% funding the Wellesley business via the Wellesley Mini-Bond.
Benefits of a Wellesley investment include:
- Retail bonds are regulated more heavily than Wellesley’s other offerings
- Wellesley Property Bond is listed and transferable (but reliant on buyers)
- Property Bond can be held in an ISA
- The Wellesley Group has built up a history of lending with a historic loan book of almost £500 million
Some areas that are require greater consideration, however, include:
- Wellesley loan performance is worrying, with insufficient provision coverage for losses
- The regulation of the mini-bond product is a light touch and funds can be used for working capital within Wellesley
- To hold the Property Bond in an ISA, investors must open a new ISA with Share Centre
Wellesley Product Update Conclusion
Wellesley & Co was a quick grower in the peer-to-peer lending market when it appeared on the scene a few years ago. For P2P investors, it shouldn’t be long until the Wellesley P2P side of the business is re-developed, for now, investors can still invest in the Wellesley Group’s products offered by Wellesley Secured Finance Plc and Wellesley Finance Plc earning returns of 2% to 5% p.a depending on the product and term.
This article was originally published 3rd July 2016, we have refreshed it so it’s up-to-date with the most current analysis and information.