On Thursday 5 December 2019, Landbay emailed all of its retail investors to announce that effective immediately, the platform would be closing all retail investor accounts.
Landbay was widely regarded as one of the safest peer-to-peer lending options, with all loans were backed by residential buy-to-let mortgages.
The email sent to all investors quoted:
I am writing to tell you that we have decided to stop operating the retail P2P part of our business with immediate effect.
Since launching in 2014, we have never failed to provide the investment returns we promoted, as our loan portfolio performed with a 0% default rate. We’re hugely proud of this and the fact we’ve been able to provide you and our entire retail customer base the earnings you expected.
As you know, your investments funded buy to let mortgages for professional landlords. This market is getting more competitive and whilst ever borrowers want lower rates and you want good returns, it simply does not make commercial sense for us to run this part of the business, which only accounts for around 3% of our funding. Landbay will continue to grow on the success with large institutional funders.
The email goes on to state that all retail investors funds would be returned to them, as the loan book has been acquired by a UK bank.
A blog post by John Goodall (CEO) expands on the rationale to close the platform to retail investors:
Over the last five and half years, interest rates have fallen sharply within the mortgage market. When we launched, our rates for borrowers were around 5.5% and now our average is less than 3.5%. As we have reduced our rates for borrowers in order to remain competitive, we have had to reduce rates for retail investors. We have also reduced our fees so that Landbay has effectively absorbed some of that rate cut each time, thus squeezing our margins beyond tolerance, which is not sustainable.
Institutional funders now account for 97% of our business and our lending operation is gaining real traction. A few weeks ago we were named as BTL Lender of the Year for the second time at The Mortgage Introducer Awards, beating some of the largest banks and lenders in the space. We announced a new £1bn institutional funding deal in the middle of the year and have increased our staff by over 60% to 100 people this year alone. We see huge potential to grow the business and we continue to meet institutions that want to work with us and fund prime BTL mortgages enabling us to improve our proposition for Landlords across the country.
As a result of this deal, Landbay will no longer need to comply with the new FCA regulations on appropriateness tests for retail investors in peer-to-peer lending.
Additionally, the transition away from peer-to-peer lending means that the business will no longer retain its association with the Peer-to-Peer Finance Association.