Wellesley & Co: peer-to-peer property lender offering fixed 7.5% return

Wellesley & Co. is an interesting new prospect in peer-to-peer lending, offering loans to residential property developers, and, so far, no idle money for lenders.

Wellesley & Co. is a new peer-to-peer platform offering lenders a return of up to 7.5% fixed, with a separate provision fund to pay bad debts. The minimum investment is £10.

It offers bridging loans and also financing for property development. The loans are secured, which adds to lenders' safety. Borrowers are UK based, and they're usually property investors or developers.

The loans are for non-owner-occupied residential properties, although some commercial properties may also be considered for both types of loan. Wellesley accepts higher-risk, higher-interest rate mezzanine loans, if the conditions are right.

Wellesley is still small, but it has already lent out £6.5 million on 24 loans and it holds £11 million in security. It is a member of the P2P Finance Association, a body that is convincing in its conviction to set high standards in peer-to-peer lending, which is a necessity if they want to continue to grow a good reputation.

What you can earn

You can earn 4.75% for lending for one year and 7.5% for five years, or a bit less if you want to be paid interest monthly. These are fixed rates after all costs and bad debt, not projected returns.

Clearly this is far more than you get in savings accounts. These rates are also good compared to the older, more established peer-to-peer lending platforms, with the bigger players offering a few percentage points less.

You can also lend for one month or six months, but the interest rates here are currently low at as little as 2.23% per year.

No idle money

Co-founder Graham Wellesley told me that, remarkably, up until now, there has been no idle lender money and he expects this situation to continue.

When lenders have deposited money at Wellesley, they have started to earn uninterupted interest on loans and reinvested loan repayments.

Wellesley has two processes in place to facilitate this. Firstly, it will lend its own money and then peer-to-peer lenders take the loan from them.

Secondly it parks loans at other institutions and takes them up as their own capital and peer-to-peer lender money comes in. That's why there are £15 million-worth of loans available to be drawn down with the contracts agreed and accepted.

Wellesley won't be a small player for long

There is another £8 million of loans that Graham Wellesley said are “99% agreed on”. The co-founder tells me that in around 8-10 weeks the firmexpect to be making £8-£9 million-worth of loans per month, which he says is close to par with RateSetter in terms of monthly acceptance.

He added that Wellesley & Co. is already number four in the UK peer-to-peer market in terms of monthly loans.

How your money is allocated

With Wellesley, as with several other peer-to-peer platforms, you don't get to choose types of loan or the credit profile of your borrowers. Borrowers are anonymous to you. Wellesley does all the selection in return for offering you a fixed interest rate.

Early access through trading existing loans

Wellesley offers you early access to your funds if another lender wants to take over your loan, if it is at all possible.

Wellesley also prioritises returning money to those who want to exit before making new loans. If there is extreme demand to exit, perhaps due to many investors suddenly needing their money elsewhere, Wellesley has around £5 million of its own money that it might use to release lenders early.

The provision fund

Like many peer-to-peer lenders Wellesley has a provision fund.

Peer-to-peer platforms with provision funds have a slight tax advantage in that you're not taxed on interest lost due to bad debts. On the other hand, it could potentially reduce your overall, long-run interest compared to a platform with no provision fund.

Wellesley set its provision fund up with £100,000 of its shareholders' own money and it adds to it as borrowers pay their fees. Graham Wellesley told me that for peer-to-peer loans they tend to credit around 2% of the loan to the provision fund, but it depends on their view of the risks.

Wellesley currently projects bad debts to eat up just 40% of the existing provision pot. No loans have defaulted as yet.

As with all provision funds, if bad debts rise dramatically then Wellesley's fund could fail. With Wellesley, you still have the property security as a back up.

What Wellesley makes

Graham Wellesley said that the average interest rate it charges borrowers is around 12%. This includes a 2% arrangement fee.

Typically the rate is higher for development loans than bridging loans. 60% of the money currently lent out is for development, although this changes regularly as new loans draw down and others repay.

Money invested by institutions

Financial institutions often invest in peer-to-peer too. They are already doing this through Wellesley & Co. – and that includes Wellesley itself.

The company's own money, and that of institutional investors, is not covered by the provision fund when they lend through the platform. It's entirely for the other lenders such as yourselves.

In addition, if a borrower defaults then peer-to-peer lenders get their money and interest back first, and Wellesley is at the back of the queue. So the founders and shareholders are taking a greater risk with their own money.

The costs

You don't pay fees directly, but the borrowers' fees mentioned above, paid to Wellesley, naturally impact your share of the deal.

You pay tax on your income at your personal income tax rate.

Lending criteria

Like other peer-to-peer lenders, Wellesley is putting risk control first and lends to high-quality borrowers.

At least four people on the credit committee must agree before a loan is made. Anthony Fane, joint CEO, said: “We only lend if we have security over a property that we believe could readily be sold to cover any losses.”

Wellesley only lends to a maximum of 70% loan to value (so a minimum 30% deposit).

Management team and independent trustee

As you'd expect for a member of the P2P Association, the management is of good pedigree.

Graham Wellesley is the joint CEO and joint chairman and he was the founder of IFX Markets, which was bought by City Index in 2005. Note that you don't usually put your own name on a company if you're planning to treat your customers badly.
Anthony Fane is the joint CEO and former corporate finance adviser and had many roles in senior securities and bonds at some large banks.
Co-chairman Colin Emson has had senior roles in property lending and investment for several decades.
Andrew Turnbull, director, has worked in derivatives trading as an investment adviser and sales manager.
Paul Cragg, director and chairman of the credit committee has been in property finance for three decades, including a secondment to the Bank of England.

It's reassuring that management lends its own money too.

The board has a supporting team with a lot of experience in lending and finance, and Wellesley has an experienced independent trustee, which is the solicitor that takes control of all security on a lenders' behalf in case Wellesley folds for some reason. I have contacted the trustee directly and confirmed through STEP that he's a registered practitioner.

Legal status

Wellesley is a limited company registered in England and Wales and it holds a consumer credit licence from the Office of Fair Trading. As with all other peer-to-peer platforms, your money will not be protected by the Financial Services Compensation Scheme, even after the platform becomes regulated by the Financial Conduct Authority in April. However, these services will be required to follow strict rules and to hold collateral in the event of problems.

What do you think? Would you be tempted to put some money into loans through Wellesley & Co.? Let us know your thoughts in the comments box below.

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