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HNW Lending Review
This review is substantially out-of-date, so please drop back here another time
While the review is suspended pending update, see HNW Lending Loses Major Court Case.
When did HNW Lending start?
HNW Lending has completed £138 million across more than 500 loans since 2014.
Most of its loans are property loans, although it also completes loans against expensive cars or other items.
What interesting or unique points does HNW Lending have?
At least one HNW Lending director co-lends in almost every loan, now taking the first loss of 10% in most loans, dropping down a bit in just a few loans.
If a loan goes bad and it can’t be fully recovered, the first thing that will happen is that the directors lose their share before anyone else suffers any consequences. Its founders and shareholders currently lend over £2 million in the same loans as everyone else, which is a large amount of skin-in-the-game.
Furthermore, it’s not unusual for a director to buy out a lot more of a loan that is currently in trouble, again taking first loss on that share, to show confidence in their ability to recover that debt.
HNW Lending frequently offers loans that are a fraction of the valuation of the property security. 4/10 loans are for less than half of the property valuation. Lenders who spread their money equally across all of these loans are earning 8.25%.
Lenders get unusual personal service: you can ask for updates on your own specific loans by emailing kim@hnwlending.co.uk.
How good are its loans?
I’ll split this into three sections: “Your security”, “The chances of loans turning bad”, and “About the borrowers”.
Your security
Security is something owned by the borrower that you’re usually able to forcibly sell in order to recover a bad debt.
On average, borrowers borrow just 51.30% in the property that they put up as loan security for lenders.
While a large number of loans have gone bad, most have an exceptionally high prospect of full recovery. This is because of the property used as security on your behalf, which is where HNW Lending focuses its risk controls.
The overall quality of HNW Lending’s security has been proven time and time again. Five full cohorts of loans (annual “batches” of loans) have matured. Each time, HNW Lending has swiftly gone after all of the bad debts and the security, recovering almost all bad debts for lenders.
HNW Lending can be loose in how it approves some loans, where it appears that property or items are clearly worth a lot more than the loan. This helps it find more loans for lenders that will pay decent interest rates.
To offset the additional risk, the expected valuation of the property compared to the loan amount usually needs to be considerably higher than normal.
The chances of loans turning bad
Many of the borrowers have been wealthy “high-net worths” that tend to have a lot of property and other expensive possessions, but not always a lot of cash.
We have had the impression in the past that some borrowers weren’t always especially willing to meet their obligations if it doesn’t suit them, which means unnecessary legal action.
Historically many, many loans turned bad (before being recovered, with additional interest, thanks to the security).
At the end of 2020, HNW Lending tightened its lending standards further to reduce the number of loans that turn into bad debts in the first place. The impact of that still remains to be seen; more on that later.
It’s now 2024 and we can evaluate the benefits of their new standards, as just 12 loans since then have turned bad. That’s far fewer than we would have previously expected at this point. HNW Lending was great, but now it’s even better.
About the borrowers
The borrowers typically have a lot of properties, vehicles and other wealth through possessions, but little actual cash in the bank. That’s why they are borrowing from HNW Lending. But this does shape the profile of these loans in terms of high numbers that resist repaying their debts.
The borrowers often fight tooth-and-nail to hold onto their properties, which does lead to very long legal battles. However, the large amount of property backing these loans and the law ultimately mean that HNW Lending recovers most bad-debt amounts. Lenders earn interest until the day the loans are finally repaid.
Where is it on the risk scale?
HNW Lending has consistently made a lot of money for its lenders. For example, 91% of all loans issued in its first eight years up to 2021 already repaid in full with excellent prospects on the remaining loans from that entire period.
On those loans, lenders earned around £13 million in interest and suffered losses of £500,000.
The P2P lending industry as a whole has been resoundingly profitable for lenders every year since it started in 2005, in stark contrast to the stock market.
Despite this, the financial regulator remains stubbornly cautious about it, still forcing P2P lending companies to write warnings like “This is a high-risk investment.” You’ll see this on HNW Lending’s website and all the others.
Read more about this vast discrepancy between regulation and reality in Peer-to-Peer Lending Vs Other Investments and Why Is Low-Risk P2P Lending Labelled As “High Risk”?
How much experience do HNW Lending’s key people have?
Its key decision maker – who’s also the CEO – has a decade’s prior experience. His property background doesn’t hold identical skills and experience to those we’d expect. However, we’ve followed his learning curve over an additional ten years at HNW Lending and seen the improvements.
I would still like to see a wider variety of professionals working for HNW Lending, although even without other experience it has already managed to significantly push down the number of loans that turn bad while earning lenders a lot of money.
The CEO clearly works very hard to prevent lenders from losing money and he puts his money where his mouth is. With the biggest problem borrower in its first three years, for example, after recovering much bad debt, he ensured it was only him who had any money left on the line, with all P2P lenders repaid.
HNW Lending review: lending processes
HNW Lending’s processes have gradually improved and become more professional over time as it has learned from mistakes and eliminated them. I have become increasingly positive about how it assesses borrowers, and approves or rejects them.
HNW Lending mostly sticks to property or items it understands with a maximum loan of 70% of their value, which is a sensible limit.
It doesn’t always get independent valuations of property, vehicles or other assets used as security. This is unusual in this kind of lending and partly reflects why a higher proportion of these loans turn bad.
However, it skips those assessments only in lower-risk cases. For example, it will only consider doing so if the estimated property valuation is less than 50% of the loan amount.
Loans are usually real property loans, but sometimes they are secured on valuable items. When items are used as security, they’re stored securely and insured, borrowers pay interest monthly or in advance, and overdue loans are quickly spotted, rapidly acknowledged and acted upon. The latter is far from a given in peer-to-peer lending of this kind, but vital to ensure that ultimate recovery of bad debt is usually successful.
HNW Lending restarted offering a small amount of lending against properties in foreign countries in 2021. It still needs to build up a record here, but it did learn the hard way on some early problem foreign debts – which were fully recovered.
My assessment after extensive interviewing is that it’s now very cautious about selecting and checking overseas borrowers, while taking good account of the local situation and using local professionals. Neverthless, lenders should look to put less money in these loans.
HNW Lending’s bad-debt recovery processes have been proven time and again. It has chased late debts rapidly and pursued borrowers hard, which is necessary for these loans. Although it has shown compassion at times for specific cases, it pursues bad debts aggressively with a wide range of techniques.
How good are HNW Lending’s interest rates, bad debts and margin of safety?
History has shown that almost all loans that turn bad recover in full – complete with additional interest. For example, just £500,000 of the first £62 million lent through HNW Lending was written off (less than 1%). Just 1% of that £62 million remains outstanding.
HNW Lending repeatedly defies gravity. Each year has had high bad debts – often 20%, 30% or even 40%+. But it goes on to recover virtually all of the amounts due. There have been four or five waves of those rising and falling bad debts as the recoveries come in over several years. Lenders are paid interest for the entire period the loans were outstanding, including when the debts were bad.
In early 2023 I wrote: “From the end of 2020, after tightening its lending standards, I expect that those high amounts of bad debts that need recovering are a thing of the past.”
The latest data from early 2024 shows the picture is less clear than that. While a much smaller number of loans have turned bad than expected, the scale of the bad debts is similar to earlier periods, as it has been a number of very large loans that have turned bad.
That all said, it’s been a tough period for many borrowers of the type that HNW Lending lends to. We’ll have to wait and see whether there really has been a big improvement in lending standards and whether it’s just poor market conditions that have led to HNW Lending going through its tried-and-tested – but lengthy – recovery procedures on many loans.
At the very least, the data over the past four years shows the ride has become a lot less wild for many lenders. This won’t necessarily improve your returns, since recovery has always been so good, but it might be easier on your mental health.
The margin of safety therefore still looks fantastic, provided you spread your money out across a score or more loans to contain risks.
HNW Lending’s Auto Invest
Auto Invest currently pays 7% and spreads your money across at least 15 loans. When we have asked for an update on the number of loans, it has invariably been a lot higher than this. The spread across lots of loans is by the far the best feature of the Auto Invest account.
In addition to the hefty first-loss taken by one of the directors, some of the excess interest paid regularly by borrowers is held back for auto-lend lenders. This covers late repayments, missed interest payments, and ultimately makes up for bad debts that haven’t (yet) been recovered.
To date, lenders using auto-lend have always received the full interest due to them and all losses have been covered.
As of March 2024, auto-lends cash surplus is very small, even considering my assessment that the current exposure in auto-lend to possible write-offs of bad debt is small.
Neverthless, although the surplus rises and falls a lot as cash goes in and out, I currently expect that HNW Lending will ensure that the surplus is always there to do deal with any issues that arise, and that it has the means to do so. Yet it’s not obliged to top up the surplus with additional funds.
At current cash levels, I wouldn’t expect the surplus to take much of the edge off any additional downturns or property crashes, although that would in any event be a bonus on top of the excellent property security and the interest you earn in compensation for the risks.
The existing loans will also easily cover any worst-case losses multiple times over through the interest due to you.
The strong pipeline of new loans coming up looks healthy for auto-lend.
HNW Lending’s Manual Lending
Most money lent through HNW Lending is done manually.
When choosing your own loans, lenders might expect to earn around 9.09% after losses, which is more interest than auto-lend, at least in part because no interest is diverted to cover late payments or bad debts.
Even so, losses will be unevenly spread for lenders who haven’t adopted sensible strategies for themselves in spreading risk across lots of loans. With manual lend, the responsibility not to put too much money into any one individual loan is entirely yours.
Has HNW Lending provided enough information to assess the risks?
HNW Lending is transparent with 4thWay, sharing a great deal of detailed information and data with us. It’s quick to respond to our questions. Its history is deep enough for our full risk-modelling techniques (enabling us to assess it for a 4thWay PLUS Rating).
While 4thWay gets detailed information, HNW Lending should provide much more information and statistics on its website directly to potential lenders, particularly on the proportion of outstanding bad debts, so that lenders can better understand the types of loans they are getting into.
Information available to non-registered users of the HNW Lending website lacks clarity on such things as its first-loss cover, auto-lend interest rates and late loans.
HNW Lending does however provide detailed information on each loan to signed-in investors. It also shows them the current status of each loan, including late or bad loans that are held in the auto-lend account, as well as information on the first-loss paid for by an HNW Lending director.
Is HNW Lending profitable?
Unaudited accounts indicate that it was profitable in 2021 and 2022. We await 2023 accounts.
HNW Lending told us in 2024 that it has made over a million pounds in pre-tax profit for at least the past five years. This is highly plausible based on its lending volumes, its low staff numbers.
What is HNW Lending’s minimum lending amount and how many loans can I lend in?
If you want to use auto-lend, , this currently spreads a minimum of £10,000 across at least 15 loans, and typically over 40 loans, with a maximum of 10% of your money in any one loan. If you use the IFISA, the minimum you can put into it is £5,000.
If you prefer to pick individual loans yourself, it’s very exclusive, with a high minimum of £10,000 in each loan you lend in. This reduces to £5,000 per loan for HNW Lending’s IFISA.
What more do I need to know?
Be prepared for a wait to receive your money back
Manual lenders can have a long path to getting all their money back when loans turn bad. You do earn interest while you wait perhaps six months to two years (sometimes longer) for legal procedures to be completed.
Auto-lend lenders potentially face that same issue, if lots of lenders want to sell at the same time, although more typically you’re able to sell the loans and get your money back.
Regulatory and legal structure
Finally, HNW Lending approves nearly all loans using the most typical, standard P2P agreement, which is regulated by the FCA. It also approves other loans using other structures that simulate the P2P, direct lending structure. Both structures are common.
It’s unusual for there to be a blend of structures, but the reasoning is straightforward: the regulator requires that HNW Lending’s IFISA uses P2P agreements, while the alternative structure sometimes used in its P2P lending account is easier and incurs fewer costs for HNW Lending.
Independent opinion: 4thWay will help you to identify your options and narrow down your choices. We suggest what you could do, but we won't tell you what to do or where to lend; the decision is yours. We are responsible for the accuracy and quality of the information we provide, but not for any decision you make based on it. The material is for general information and education purposes only.
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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.
The 4thWay PLUS Ratings are calculated using objective criteria that can be measured and improved on over time, although no rating system is perfect. Read more about the 4thWay® PLUS Ratings.
