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Blend Review
Interest rates look good, but important details, access and information are missing
Blend's Development And Property-Secured Business Loans are unrated, due to lack of information.
These loans have been paying lenders around 8.16% after allowing for potential losses in normal times of about 1% of loans.
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What is Blend?
Through Blend, you are lending to fund residential property developments. The amount lent on a development sometimes tops £2-£3 million.
Blend has also done short-term property (bridging) loans. I believe these are still rare, but we currently have few details.
With some loans you receive monthly interest and with others it’s all paid to you at the end.
When did Blend start?
Blend has completed £78 million since 2017.
What interesting or unique points does Blend have?
Blend takes a unique approach with its auto-lend option, in that it favours the most loyal and long-term investors. The longer you have had auto-lend switched on, the higher in the lending queue you’ll be. However, you need to leave enough money in your account to take part in a loan, or you will lose your place in the queue.
Blend is one of the few P2P lending companies to share at least some of the higher rate charged to borrowers when they fall late, if Blend decides to charge them extra. You receive the equivalent of approximately three percentage points per year over-and-above the rate you’re already earning.
Unusually, lenders selecting loans for themselves can question the borrowers directly.
How good are its loans?
Blend focuses on the quality of the property security as opposed to the quality of the borrower. This is typical of a lot of short-term lending.
Although I would have liked to have heard more unprompted enthusiasm about the record of the property developers it allows as borrowers, it does consider their experience in approving loans and setting rates. Its record of zero losses so far with a sound outstanding loan book wouldn’t likely be achieved if it didn’t take borrower experience seriously.
In loans such as these, lenders might normally see a number of bad debts among the loans they make, but they should generally expect that all or most of those bad debts will ultimately be recovered. So far, Blend has only been tested by one bad debt, which is recovered in full.
Blend ensures that the loans put you at the front of the queue if the borrower’s property ever needs to be repossessed and sold. When lending to property borrowers, this is where you should be putting most of your money, because the risk of large losses rise substantially when you come later in the queue.
Blend has not shared with us its latest criteria and so I don’t know if it’s currently maintaining standards. A few years ago, it appeared to loosen its criteria to 75% of the hoped-for future sale price when it comes to developments. I don’t know where the maximum is now, but hints suggest it could be a lot higher than this for a minority of loans.
We receive no data, so I don’t know what the average loan size is either. BLEND currently tells borrowers that two-thirds of its loans are for 65% to 75% of the expected sale price, which means that the average loan size has probably gone up on the last data we received some years ago.
Developers receive their money in stages, which helps to control the risks. On the other hand Blend approves loans to developers in tranches and doesn’t raise all the money for them in one go. This always comes with a small risk that some developers will suddenly be unable to raise additional money at the right stage to complete a development and sell for the expected price.
How much experience do Blend’s key people have?
We haven’t had access to interview key people for a long time, but its team seems to have continually grown over the years to include long, comprehensive experience in development, development lending, credit risk, surveying and legal expertise. It doesn’t appear from the outside to be lacking talent.
Blend review: lending processes
Since we haven’t had access and documentary evidence from BLEND for a long time, there’s not much I can say about their current processes.
Development loans are offered to developers in tranches, so that they get a chunk of the loan first, and then – crucially – only get further chunks after a monitoring surveyor has assessed progress on the development.
The money for each tranche is raised as-and-when it’s needed, not up-front. This can lead to unforeseen difficulties in funding the loan in full. This is one of the least likely risks, but the impact could be substantial.
How good are Blend’s interest rates, bad debts and margin of safety?
With just one loan that has officially turned bad and no losses to lenders, Blend should be hoping to continue to build a record of very low bad debts after recoveries. Lenders currently expect 8.16% after allowing for potential losses in normal times of about 1% of loans.
However, with no real access to Blend, its data, its people or its documentation, I am unable to conduct some of our most crucial checks that ascertain whether it is kicking problem debt down the road.
While I think it most likely that Blend lenders will continue to do fine, I’m also unable to conduct our stress tests to see how it might perform in a serious recession and/or property crash.
Has Blend provided enough information to assess the risks?
Blend doesn’t currently provide 4thWay with information, data or access, nor provide much information through its public website. It sometimes responds to our ad-hoc questions.
Is Blend profitable?
We have little information on Blend’s financial health, as it is not required to publish a large amount of audited information in its accounts.
It’s still new, so we expect it will take some time before it becomes profitable.
It appears to be growing at a fast, but not too fast, pace. Certainly in line with sensible growth. I currently expect it to become profitable at some point.
What can you tell me about Blend’s cybersecurity?
Our security information provider, Sucuri, conducted an arm’s length test and can find no malware or entries on blacklists, and it is rated clean by all major companies like McAfee and Yandex. All other checks, such as on security certificates, were positive.
Is Blend a good investment?
It’s too tricky to make an assessment. My feeling is Blend absolutely should be good, but without the access for ongoing, detailed assessments and so little contact for many years, I can’t form a solid opinion.
What is Blend’s minimum lending amount and how many loans can I lend in?
Blend has been approving maybe a couple of dozen loans per year for a while. However, with no information to the contrary, I would presume that each loan is actually a tranche of a development loan, and therefore the number of borrowers and developments you’re financing is actually considerably less than that.
You can choose your own loans or spread your money across multiple loans automatically. The minimum you can lend in each loan is £1,000.
When using auto-lend, you can choose the maximum you want to lend in any loan. Have patience, as it could take you quite a lot of months to spread your money around enough – and lenders who have had auto-lend on for longer will get into every loan before you. Top up your account as-and-when you need to.
Blend in a wind down
Blend provides some few details of what will happen in a wind down. If necessary a third-party provider – Resolution Compliance – will manage the wind down of your loans, which, like your cash, are segregated on your behalf. That’s the main thing.
I have no details on how much cash Blend keeps aside to fund an orderly wind down or whether those funds are protected from other uses or costs, how Resolution would be paid, precisely how their plan differs if Blend merely wants to shift strategy away from P2P lending, and other points.
Does Blend have an IFISA?
Blend doesn’t have an IFISA.
Can I sell Blend loans to exit early?
If other lenders are willing to buy, you can sell your loan parts for the outstanding amount and any outstanding interest, minus a 0.6% fee. You can’t sell loans that are late or that are nearing their repayment dates. Blend has discretion to prevent the sale of loans for other reasons.
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The 4thWay® PLUS Ratings are calculations developed by professional risk modellers (someone who models risks for the banks), experienced investors and a debt specialist from one of the major consultancy firms. They measure the interest you earn against the risk of suffering losses from borrowers being unable to repay their loans in scenarios up to a serious recession and a major property crash. The ratings assume you spread your money across hundreds or thousands of loans, and continue lending until all your loans are repaid. They assume you lend across 6-12 rated P2P lending accounts or IFISAs, and measure your overall performance across all of them, not against individual performances.
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