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CrowdProperty Review
Development lending as a low risk, attractive-interest rate opportunity
CrowdProperty's Bridging & Development loans received an Exceptional 3/3 4thWay PLUS Rating.
This account has recently been paying lenders 10.12% interest after bad debts.
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When did CrowdProperty start?
Established in 2015, lenders have lent £425 million to nearly 300 different borrowers.
What interesting or unique points does CrowdProperty have?
CrowdProperty is mainly focused towards the lowest-risk kind of property development lending to experienced developers, offering first-charge lending only against developments that already have planning permission.
Since early 2019, it’s also offered short-term (bridging) loans to developers, e.g. for purchasing land or property.
CrowdProperty has told us that its own experienced founders will step in to run development projects to completion, if necessary.
How good are its loans?
Some basic percentages for you:
The average loan is for less than 70% of the hoped-for sale price once the development is completed, which is a reasonably standard maximum.
CrowdProperty will consider funding up to 100% of the construction costs, which is higher than usual. An 80% maximum is more standard.
CrowdProperty accepted its first bridging loan in early 2019 and it’s now done around 100 of them. The vast majority are already repaid and just a small number of them are late or being chased for bad debts.
The maximum bridging loan allowed is as much as 75% of the property value. That’s not too high, but it’s higher than we’d ideally like in the lowest-risk lending.
Its loan quality is currently needed…
Over 12 months ago, I wrote: “The quality of the loans CrowdProperty has been approving in recent years hasn’t noticeably budged, despite CrowdProperty’s growth. Usually, we expect to see risks rise as platforms grow quickly, because they can no longer be so super selective any more.”
Since then, the poor economic and market conditions of recent years on CrowdProperty’s very particular borrower and loan profile has finally shown itself in the data. At the least, some existing loans – if not new ones – are requiring more work to recover the full amount and all interest.
One of the main points I want to make on that is that it makes it unmanageable for 4thWay to separate its current lending standards from the impact of the environment on its loan data.
However, CrowdProperty’s steady hand up to this point means there’s no reason at this time to think it has weakened its lending processes. Indeed, it’s more likely to tighten them on newer loans in this environment.
Other points on its loan quality
Unusually for these kinds of loans, CrowdProperty takes a quantitative approach, learning from data and relevant numbers. This will aid high loan quality as more years tick by.
Sometimes developers borrow all the money they need at the start and have it paid out to them as they prove they’re keeping up with development works. This is ideal.
However, developers don’t always borrow all the money they need right away; sometimes they raise it in tranches through CrowdProperty.
That’s pretty common in P2P development lending, but it’s not optimal. It means there’s a small risk that funding will dry up part way through a development project, that the developer can’t complete it, and that lenders are at a slightly greater risk of not getting all their money back.
How much experience do CrowdProperty’s key people have?
The key people at CrowdProperty have clearly demonstrated the talent and deep experience needed to properly assess complex development projects, monitor them, keep them on track, and take steps when things go wrong.
I believe they are fanatical about maintaining quality and that their development experience counts well in its stead.
CrowdProperty review: lending processes
CrowdProperty has talked us through its near 60-step lending criteria and it has convinced me that it constantly improves its already excellent processes.
It is critical of the progress of projects throughout. It has also talked through what steps it took historically on some of its loans that fell substantially late. It has typically found elegant solutions to ensure lenders received all their money and interest in the end.
How good are CrowdProperty’s interest rates, bad debts and margin of safety?
CrowdProperty massively ramped up lending rates by about 1.5 percentage points last July, in order to stay ahead of still-high inflation and higher savings account interest rates.
At the same time, borrower rates are roughly the same, so CrowdProperty is currently paying the increase to lenders out of its own pocket.
This brings lending rates back to where they were when CrowdProperty launched.
Over the long run, especially as inflation and savings rates fall, expect to see rates come down again. Because lenders will be willing to accept lower rates due to CrowdProperty’s continued good record.
Looking back, a lot less than 0.1% of the total amount lent through CrowdProperty has been written off after all recovery attempts were completed.
That tiny loss has been more than made up for by additional penalty interest earned by lenders on loans that turned bad and then were recovered. Indeed, instead of earning a little under 8%, as lenders were targeted to do on those loans, they actually earned slightly over it.
The current average lending rate of 10.12% provides a high margin of safety for lenders who put a small proportion of their money in any one loan…
Returns and risks in the current environment
That margin is especially useful right now.
Three dozen loan facilities, which are mostly developments funded in more than 70 separate loan tranches, are currently technically in default or are otherwise very late. That’s approaching £40 million out of about £160 million outstanding loans.
The situation for CrowdProperty and its particular borrower profile is that the past couple of years has been what we’d call a highly stressed environment.
While there has been no recession or severe property crash, other bad market and economic conditions have combined, which have very much been stressed conditions for CrowdProperty’s particular borrowers.
It’s therefore no major surprise to me that CrowdProperty’s exceptionally low number of problem loans over most of its history is not currently being displayed.
It’s for situations like these that lenders lend where there are multiple safeguards. CrowdProperty’s loans usually have the benefit of having few problems in the first place, which is the only safeguard its loans often need.
Right now, that’s not happening, but Crowdproperty continues to charge strong interest rates, including additional penalty interest to offset problems. It continues to have good protection in the form of valuable property security that can be sold.
And it offers the last backstops that it uses its experience to find creative solutions to get the development sold, including CrowdProperty’s own capable directors completing developments themselves, if necessary.
I currently assess that the margin of safety provided by lending rates and safeguards will easily protect CrowdProperty lenders who hold historical loans from making losses in this environment.
Nevertheless, it’s a good reminder that lenders in P2P should be spreading across a good number of loans to lower personal risk. No risk assessment is useful to anyone, if you don’t take personal responsibility to do that.
CrowdProperty retains the top 4thWay PLUS Rating of 3/3, “Exceptional”, meaning that we expect that lenders will make money even when impacted by a severe recession and property crash.
More fittingly, lenders will continue to do so during this time of market issues with these kinds of development borrowers, recent high inflation and disappointing house prices.
Has CrowdProperty provided enough information to assess the risks?
CrowdProperty provides 4thWay with all the data and direct contact we need, and also volunteers a great depth of information before we are even able to ask for it. It’s provided more than enough information to assess it, and has committed to doing so in the future.
Is CrowdProperty profitable?
A little history on its profitability.
CrowdProperty roughly broke even in the year up to March 2018 and March 2019 and turned profitable after that.
In 2021 it chose to again operate at a loss, in order to spend more to grow more.
Neverthless, while it continues to put a lot of money back into the business to grow it further, it still managed to make a profit again in the year to March 2023 – a larger one of about £1 million.
CrowdProperty has exclusive access to a large, direct market of property developers, so it doesn’t have to pay fees to loan broker, which can be very expensive. In my opinion, CrowdProperty is probably already a stably profitable business.
That said, its massive increase in rates paid to lenders from this summer onwards appears to be an unfunded increase, meaning borrowers aren’t paying much more to maintain the spread that CrowdProperty earns between borrower and lender rates. This will certainly hit CrowdProperty’s bottom line, so it must be seriously looking to keep growing in size for some time to come, even at the cost to its bottom line in the short term.
What is CrowdProperty’s minimum lending amount and how many loans can I lend in?
If you choose loans for yourself, the minimum you can lend per loan is £500. If you use auto-lend, you can lend as little as £50 per loan, although you must contribute at least £500. I believe it could take six months or so before your money is lent in enough loans, so you might want to drip your money in over that period.
Does CrowdProperty have an IFISA?
CrowdProperty’s lending accounts are available as IFISAs.
CrowdProperty: key details
4thWay PLUS Rating
3 PLUSes is best. What does the 4thWay PLUS Rating tell you about the risks and rewards?
Interest rate after bad debt
Here we show the P2P lending site's own estimate (or 4thWay's if theirs are not appropriate)
4thWay Risk Score
Lower Risk Scores are better. How is this different to the 4thWay PLUS Rating?
Description
£425 m in development property lending & short-term property (bridging) loans since 2015, with optional auto-lend & auto-diversification. IFISA available
Minimum lending amount
Exit fees - if you sell loans before borrowers fully repay
Early exit is not guaranteed. Usually, other lenders need to buy your loans
Do you get all your money back if you exit early?
Loan size compared to security value
Reserve fund size as % of outstanding loans
Company/directors lend alongside you/first loss
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