...the smarter way to invest in property

A Guide ToPeer 2 Peer Secured Loans

We offer you a way to make loans directly to property owners who want short term loans secured against their property (aka Bridging Finance).

It’s a proven way to earn a high interest rate on your money, whilst knowing that your investment is secured by the underlying value of the borrower’s property… If they default on the loan, we have the legal charge allowing us to take possession of the property and take steps to recover your money and any interest owed.

You make loans directly to the borrower and benefit from fixed returns that are generally much higher than you would normally receive from a bank.

Typical loan periods are 6-12 months.

So, if you think this could be more interesting than keeping your money in a bank, then read on…

Full due diligenceis undertaken

If everything meets our criteria, we accept the loan

You access the loan information and valuation

via our website and decide if you want to invest.

If you invest, you will receive your money back plus accumulated interest when the loan is redeemed

APPROVED

LOAN INFORMATION

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££ ££ ££

We receive aloan application

LOANWhat is a bridging loan?Short term finance secured against the borrower’s property.

Are there any fees to pay?The Borrower pays the fees not the Lender.

What interest rates do you pay?Between 7% and 10% p.a. net depending on the risk profile of the loan.

What is LTV?It means Loan to Value. The LTV figure is based on the existing equity in the property rather than the sale value. So, for example, if a property worth £1,000,000 already has a £250,000 mortgage. We will take a 2nd charge and the LTV stated will be based on £750,000.

What type of loans do you accept?We only accept loans:

On a commercial basis (i.e. no ‘retail’ owner/occupier home loans) Which are no more than 75% of the value of the asset (LTV) as certified by one of our selected RICS surveyors, thus giving a decent level of security Where there is a well-defined and realistic exit strategy for the borrower Where we can force the sale of the asset should the borrower default We can recover all interest up to the date of redemption 2nd charges are only accepted following formal consent from the current lenders, their up to date outstanding mortgage balances (together with ancillary fees and confirmation that they have no obligation to any further lending without our consent.)

What due diligence is done on each loan?All security valuations are obtained by independent, RICS qualified surveyors with the required level of indemnity insurance in place. The surveyors provide an open market value and a restricted market value (which is the price they believe could be obtained should the property have to be sold within 90 days).

Our solicitor reviews and approves all loan, mortgage, legal title and other documents to ensure all is in order and provides us with a report on title highlighting any issues.

What happens if the borrower does not repay on time?We either charge penalty interest – which you will receive a share of – or we can possess the property.

The agreements will always allow us to possess the property if we choose.

When is the interest paid?The loans are structured in such a way as to maximise the amount of interest we can pay.

The interest is therefore rolled up and paid along with the return of capital at the end of the loan period.

The process is as follows:

1) We review each enquiry received, and undertake an initial due diligence process to ascertain if it is viable and a sound proposition, taking into account our loan criteria.

2) Following review, we will issue an offer that ensures the interest rate charged is sufficient to meet the appropriate investment returns whilst being as competitive as possible in order to win the business.

3) If the borrower wishes to proceed, we process the application forms and draft a full overview of the opportunity for approval by our lawyer.

4) We then begin a more in-depth due diligence process, based on the security and the background of the borrower, which includes an independent valuation report obtained by a RICS qualified surveyor.

5) Once we and our solicitor have conducted due diligence and are happy with the findings we will instruct the solicitor to draft the documentation.

6) Our solicitor will provide a ‘loan agreement’ and further loan documentation for the borrower’s solicitor, along with any additional requisitions, all of which are designed to enable our solicitor to provide us with a final ‘report on title’ for review and a sound charge against the security with land registry. We insist that every borrower undertakes independent legal advice prior to the completion of any transaction. 7) Once our solicitor has provided us with the report on title and we have ensured the security and liquidity are as per our criteria, if we find it acceptable, we will transfer funds, and register the appropriate charge.

8) Following completion, we will remain in contact with the borrower throughout the loan term in order to ensure that the loan is redeemed in a timely manner. 9) On redemption, we create a ‘redemption statement’. This will be forwarded to the borrower’s solicitor who will transfer redemption funds, who will undertake to remove the charge from the land registry on receipt of a signed ‘DS1’ (the form required at land registry to remove a charge).

Risk Warning

A loan, even if secured against a property, contains risks. You may not get the returns expected and your capital is at risk.

Diversification

Any loans made secured against property should only be considered as part of a diverse investment portfolio which contains investments of different kinds and where you do not put too great a proportion of your capital into one particular type of investment.

Capital risk

The market value of property can go down as well as up and the return of your capital may be dependent upon the Borrower selling a property. This can never be guaranteed.

Default

Repayment of loans is not a certainty, and from time to time borrowers may default. THC try to mitigate this risk by having a full due diligence process to assess the project and the borrower before listing the investment on the platform. Unexpected things can happen and the due diligence process does not completely remove the risk inherent in lending. You may not receive all your capital back and the process to repossess and sell a property could alter the time your money is tied in.

Liquidity

A Peer to Peer investment made through this platform is illiquid – there is no ability to transfer the benefit to a third party. Once the loan is made you are committed to it for the period of the loan.

Financial Services Compensation Scheme

Whilst your money is held in a segregated client bank account it will be protected by the Financial Services Compensation Scheme up to £75,000. However, there is no ability to make a claim under the Financial Services Compensation Scheme should the investment fail for any reason.

In respect of Peer to Peer investments, The House Crowd is authorised and regulated by the Financial Conduct Authority under interim permission number 665205 to conduct peer to peer lending activity in the UK.Investments are only available to certain specified persons who are sufficiently sophisticated to understand the risks. Investments in property and unlisted shares carry risk and you may not receive the anticipated returns and your capital may be at risk.

What does a typical deal look like?The deals below are all examples of actual deals that have been done over the last few years. We will be funding very similar types of deals.

Example 1.Overview

The borrower required funds for their business and to redeem a current 2nd charge business loan.

To exit the loan the security property was being sold, however the purchasers could not complete until 14 days after the redemption date. The borrower paid a default fee and default interest for 14 days until completion of the sale.

Client: Mr P

Purpose of loan: Raising funds for business

Amount: £328,000

Period of Loan: 9 months

Defined Exit: Sale of Security

Security: 2nd charge of borrower’s main residence in London. Value of security was £1,250,000

LTV: 61%

The deals below are all examples of actual deals that have done over the last few years. We will be funding very similar types of deals.

Example 2.Overview

The borrower required funds to refurbish and develop the security property.

The borrower refurbished the property and marketed for sale. The sale was completed 3 days before the redemption date which allowed for an early redemption.

Client: Mrs B

Purpose of loan: Raising funds for refurbishment of security

Amount: £149,000

Period of Loan: 12 months

Defined Exit: Sale of the Security

Security: 2nd charge of borrower’s main residence in London. Value of security was £500,000

LTV: 75%

The deals below are all examples of actual deals that have done over the last few years. We will be funding very similar types of deals.

Example 3.Overview

The borrower required funds refurbish some property within their portfolio.

The borrower secured term finance and redeemed the loan 4 months early.

Client: Mr W

Purpose of loan: Refurbishment of property portfolio

Amount: £343,000

Period of Loan: 12 months

Defined Exit: Refinance or sale of security

Security: 1st charge across two properties in Bristol. Total value of security was £500,000 LTV: 74.6%

The deals below are all examples of actual deals that have done over the last few years. We will be funding very similar types of deals.Example 4.Overview

The borrower required the loan in order to help expand his business.

The borrower needed an extension of three months to facilitate the repayment of the loan and paid three months default interest on the date of default. We began possession proceedings during the three month extension, however, the loan was redeemed three months after the date of default.

Investors monies whilst in the three month default earnt a rate of 12% per annum.

Client: Mr C Purpose of loan: Raising funds for business cashflow

Amount: £417,000

Period of Loan: 7 months

Defined Exit: Sale of business assets or refinance

Security: 2nd charge of borrower’s main residence in London. Value of the security was £2,600,000 LTV: 53%

How much bad debt have you had?

At present our bridging finance team have only experienced bad debt’ on a few occasions. No capital has been lost. Any ‘late’ redemption of loans is only late with our consent. Late redemptions, although never encouraged, do have a positive impact on investment returns due to the slightly higher interest rates charged if redemption of a loan should run beyond the original loan term agreed. you can view our loan statistics on our website.

What do you think the biggest risks are and how do you mitigate them?

Thorough due diligence is done on each property, the borrower, the exit strategy and the value of the property. Each loan is fully secured up to a maximum of 75% Loan to Value and we ensure we can always force a sale should we need to.

The biggest risk therefore is the property having to be sold and it failing to reach the price we were expecting. That can happen for 2 main reasons.

1. The initial RICS valuation carried out valued the property too highly. We use an independent highly experienced firm of surveyors. If they were negligent there would be a case against them and their insurers.

2. The market falls so far in the short space of time the loan is outstanding that it is no longer worth enough to repay the loan. We will only go to the maximum of 75% and only then if we are very confident about the valuation, the exit strategy and the borrower themselves. So whilst it is possible, for properties to fall in value, the market value of the property would have to drop a long way for us to be unable to recover the money owed. The likelihood of that happening is something you must assess for yourself and decide if you are comfortable with the risk.

3. The other main risk is fraud. We cannot say that this will never happen but we operate our practices to mitigate the risks.

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...the smarter way to invest in property

By phone: 0161 667 4264

By email: info@thehousecrowd.com

By post: The House Crowd, 91-95 Hale Road, Hale, Cheshire WA15 9HW