These stress tests were conducted to Bank of England criteria and modelled how Landbay mortgages would perform in both a base and stressed economic environment.
Given that P2P lending is a relatively new concept and one that inherently involves risk, having deliberately designed itself as a low risk P2P lending offer, Landbay said it considered it appropriate to put its business model through the same rigorous stress testing that UK banks are required to go through by the Bank of England.
To ensure total validity and credibility, it has employed an expert independent analyst - MIAC - to carry out the stress testing.
In line with Landbay’s commitment to transparency – the lender also publishes full details of its loan book – the business is now also sharing the results of its stress testing, which are in summary:
1. BoE base case scenario – assuming the economic conditions expected by the BoE
= average expected loss rate of 0.03%, before interest payments
2. BoE stress test – assuming GDP down by 3.5%, unemployment rising to 9% and UK house prices falling by 20%
= average expected loss rate of 0.48% before interest payments
NB – Landbay’s contingency fund is currently maintained at 0.60% of loan book, and so would absorb all of these losses.
Notably, even if the stress test was made worse to include a 25% drop in house prices, the Landbay expected loss rate, before interest payments, would only increase to 0.52%.
John Goodall, cofounder and chief executive of Landbay, said: “These impressive results provide a firm vindication of our work to make lending at Landbay a low risk proposition –arguably the lowest risk of any P2P lending in the UK.
“For investors seeking better returns than those from bank savings accounts (3.5% and 4.4% currently) but without the radically higher risk of say funds investing in stock markets, Landbay is an ideal solution worthy of serious consideration.”
Joe Macklin, director of MIAC, added: “MIAC believes the approach to generating key assumptions in this exercise has been prudent and has therefore resulted in conservative estimates of future portfolio performance.
“Despite this caution, given the adverse nature of the stresses and sensitivities we have applied in line with the BoE scenarios, Landbay’s existing portfolio, and its anticipated future portfolio, performed with impressive resilience.”
