Blend Review
Lending returns 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 8.24% 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 £82 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?
Most of this section is now substantially out-of-date as my colleagues and I have not had a chance to interview and check out Blend’s loans for some years, even as its team has evolved and improved. That said, I would now expect the following to be a “worst-case scenario”.
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 a 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. BLEND currently tells borrowers that over half of its loans are for 65% to 75% of the expected sale price.
As of 2024, the average loan size is probably in the region of £500,000 – although there are multiple loans for each development project. It appears that development funding requirements can easily hit £3 million to £5 million.
Still today, Blend only does lending where you are first in the queue to get your money back, in the event the borrower is unable to repay and the property needs to be forcibly sold.
How much experience do Blend’s key people have?
We haven’t had access to interview key people for a long time, but it doesn’t appear to lack talent in development, development lending, credit risk, surveying and legal expertise.
Blend’s team has been stable but also growing in recent years. Its managing director joined in 2022. While I haven’t interviewed him or conducted follow-up background checks, he apparently has a few decades experience that is highly relevant.
In 2024, Blend added two new important hires, padding out its internal team further. One is a lending director who we know has substantial experience and who also used to work with the managing director. It is uncertain how many hours he devotes to Blend, but his experience is nevertheless likely to be valuable.
Another former colleague was taken on as head of credit and he too appears to have substantial experience, although again we have not interviewed or background-checked him.
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.
Developers receive their money in stages, only get chunks of cash after a monitoring surveyor has assessed progress on the development. That is essential in this kind of lending to contain the risks.
However, the money is also raised from lenders as-and-when needed, not up-front, which can lead to unforeseen difficulties in funding the development to completion. The risk is that developers might suddenly be unable to raise later tranches to complete a development and sell for the expected price. For example, if lenders suddenly became doubtful of the quality of loans through Blend.
How good are Blend’s interest rates, bad debts and margin of safety?
4thWay is unable to conduct its own assessment of the risks today or in the event of a serious recession and property crash, as we receive no data and little information. Therefore, there is not a lot of substance that I say.
While we can’t attempt to verify this, Blend indicates on its own website that just one development turned bad by its own definition and just another three went over 180 days past the initial completion date. Presuming that these were average sized development projects for Blend, it would be a great record.
No loans are currently in bad-debt recovery and lenders have received pretty much every penny they expected in interest and loan repayments. Lenders currently expect 8.24% after allowing for potential losses in normal times of about 1% of loans.
In recent years, BLEND has been forecasting losses of 3% of loans issued each year as its “best estimate” of eventual losses. However, I think this is in fact either a conservative guess or it is the estimated losses on what Blend calls its “category D” loans only, which are the loans it approves that it considers to be riskiest.
Has Blend provided enough information to assess the risks?
Blend doesn’t currently provide 4thWay with information, data or access, so we can’t do a proper assessment of the risks or the risk-reward balance. It does, however, sometimes respond to our ad-hoc questions.
Blend provides some information through its public website on its people, processes and results. Blend’s statistics table for individual lenders who are browsing its website offers perhaps a nice little summary, but it leaves unanswered questions.
For example, it sometimes refers to number of loans and other times number of developments (aka “projects”). Since there can be many loans per project it can potentially hide important facts.
There is also insufficient information to see how much of the lending is short-term bridging lending instead of development lending or whether loans have been refinanced in order to hide problem debts, for example.
For each loan you might lend in, Blend provides full borrower information, including valuation reports, direct to lenders.
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?
My feeling is Blend absolutely should be good and the longer it goes on with no cracks appearing the lower the chances that something dangerous is lurking under the surface. 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. Maybe even just 5-15 per year.
That means you’ll need to take time to spread your money across enough opportunities.
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 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, as you’ll lose your place in the queue if you have no cash available for the next loan.
Blend in a wind down
Blend provides some information of what will happen in a wind down and this changed substantially by the end of 2024. The most notable change in recent times is that Resolution Compliance is no longer appointed to take over in the event Blend closes.
If Blend chooses to close, it will run its own 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, but it claims to have sufficient amounts set aside for an orderly wind down.
If Blend were to go bust, owing substantial debts, it’s unclear how orderly the wind down would be or whether sufficient money is set aside to cover it. It has a manual to assist any administrators that would be appointed to take over from Blend, but their costs will be high and they might not have the regulatory approval required to ensure that lenders keep all their protections.
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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