Full transcript: Christian Faes on London Real
2:25 Dave Asprey when you’re out in LA for me. We love those guys. On to the show. Our guest today is Mr Christian Faes, who is the founder of LendInvest, a P2P lending platform focused on the property industry in the UK, I think it’s specifically London. I believe you guys require a £10,000 minimum investment.
2:44 We do, yeah. And you guys offer, at sometimes, up to 12% annual returns on short-term mortgage finance. It’s more like bridge loans. It is. I think you’ve completed about 67 million in loans, according to your up-to-date website, secured against about 20 million pound of real estate.
3:01 You were previously a City lawyer with Clifford Chance and Deutsche Bank. Christian, welcome to Silicon Real. Thank you very much. Yeah, how’s my intro? I’m getting SP on.
3:09 I’m getting to be pretty well known for my intros. I think it’s the passion that I deliver, gois. Is it really? I try to get, break it down. You know, I work on it.
3:19 You know, before we jump into the specifics of LendInvest, you know, Fintech is London’s pride and joy. We’ve been talking about this for the last year. We’ve had kind of the who’s who of fintech on here. We’ve had TransferWise, MarketInvoice, OpenGamma, Seedrs, Dill, we invited Wonga, but you know, I think they’re just too scared to come on. You know, I respect that.
3:39 I did invite Wonga, but you know, open platform here. Yeah. I mean, this is before their latest kind of bad press, but who knows, maybe they’ll come on. But I wanted to know just a bit about you before we jump into the company. You were in the city.
3:50 Now you’re in a fintech play. Do you miss the old times in the city? When you left in ’08, were you really thinking fintech, or there wasn’t really the tech yet to go with the fintech? No, tell us about your background real quick. Yeah, definitely.
4:02 So, I mean, yeah, City lawyer. Did all that sort of stuff. In-house with an investment bank as well, so I sort of saw the finance side of things, so that was good. Um, I guess we’re a little bit different in the sense that we’re a tech startup, but actually we’re a lending business first. So you know, we set up in late 2008 a mortgage lending business, and that’s what we were, and sort of it’s later that we came on to the tech side of things.
4:28 Right. So it was finance company first, tech later. Yeah. Okay, okay. And do you miss those days in the city?
4:33 I always bump into my old city colleagues. They’re always grumbling. No one grumbles about a pay cut like a banker in the city. I don’t know if you ever found this. It’s never like it used to be.
4:42 I don’t know, do you miss those guys at all? No. Okay. Did you expect me to say yes? No.
4:47 I don’t know. I mean, yeah, I mean I think what we’re doing is a good intersection between the two industries, but yeah, definitely. You know, London is the centre of fintech, we think, globally, and I think it makes sense for that, and most people that are operating in that space are pretty excited about it, and you know, it’s an exciting place to be in that sort of business at the moment. Talk to us about your company. It was interesting.
5:10 You talk about some of the rates of return, and they get people jumping out of their chairs, and then you know, you, it looks like you provide financing when people can’t get it. I don’t want to ask you this in the wrong way, but are you the Wonga of mortgage finance in a weird way, because you’re providing loans in like two weeks’ notice sometimes to get these projects done? I mean, that’s real value added, right? But then on the other side, people are saying the rates are too high.
5:34 So, well, I mean, it is expensive finance, but it’s short-term finance. So you know, yeah, we lend at 12%, which is a high interest rate. If it was a 24-year mortgage, yeah, sure, that’s going to be an expensive rate of interest, and no one would take that sort of mortgage, but the average duration for us is like six months, and the thing is, you know, to get a mortgage in the UK is very difficult, you know, for property developers and property entrepreneurs, who are our sort of core know, target group.
5:59 It takes, it can take them six months to get a mortgage, you know, where the market’s moving too quick for that, so they’ve either got to have cash or, you know, have investors that back them, and we sort of see ourselves as almost being investors that back them, but we provide quick capital, so using technology to try and get efficiencies in terms of what we’re doing, and we can provide funding in a couple of weeks. So it’s expensive, but a lot of these guys are faced with the prospect of either not doing the deal, you know, they miss the opportunity or taking slightly expensive funding. When I hear rates like 12%, even on short term, I, there must be a bubble there, or a big growing economy, because we know the property market in London is up, what, 20% year on year.
6:40 London market’s strong. It’s very strong, which means that there’s a lot of things happening and they need to happen fast, which makes you very valuable, and means guys will pay 12% because there’s a lot of moving parts and they can make, and there’s always a commercial need for the funding. You know, so we’re definitely not placed as a lender of last resort. You know, so we’re not funders that provide funding where the borrower can’t get funding. It’s really where they just can’t get it quick enough.
7:06 So, you know, typically the bank will take us out at the end. So we’ll provide the quick funding, they can secure the project, and then the bank will take us out. So, their bank-quality loans. It’s just the banks are too slow. How’s business?
7:18 It’s good. Yeah, it’s very good. I mean, I think the London market’s very strong in terms of, you know, the residential property market, but I think countrywide there’s a real sort of, it’s just simple supply and demand economics. You know, there’s not enough new housing in the UK and we’ve got a rising population, so I think you know, it’s going to be strong for, for a long time to come. Do you ever work with, like, you know, small guys?
7:43 Like you, or I, just buying a half a million pound house or whatever, and they actually want to maybe do a longer-term mortgage, or is that completely not your game? It’s not at the moment. So it’s very focused on the short-term stuff, but in terms of the profile of borrower, yeah, sure. I mean, we phrase them as property entrepreneurs. So it’s guys that are sort of doing this full-time.
8:03 They’re not sort of amateurs, but, um, yeah, I mean, a lot, a lot of our borrowers are individuals that are sort of, that’s what they do. They buy flats, they renovate them, and they sell them on, and you know, they make a very good living doing that, even with, uh, you know, relatively expensive funding. Right. Are property markets going up or going down? Take us forward one year.
8:22 Are we up 10%? Are we down 10%? I don’t know if we’ll be up 10%, but I’m pretty certain we won’t be down 10%. Okay, and I think the London market’s cooled off the last little while, and we’ve got the election coming up, so you know, people will understandably be a little bit nervous about that. You’ve got the Labour Party with their sort of mansion taxes and all these sorts of policies that are being proposed.
8:43 So, is that going to happen, the mansion tax? I mean, I think if the Labour Party get in, they’re going to try for it, definitely. Tax, is it kind of like a luxury tax? Is this an annual tax? It’s an annual tax.
8:54 So if you own a flat or a house worth more than £2 million, then you’ll pay an annual fee, and it could be like 40 grand a year, so it’s like prohibitive, 2% or 1%. It’s very prohibitive. Wow, that’s just not based on any income or wealth. There’s, I think that exists in California. Someone was telling me recently, of all crazy places, you wouldn’t expect something like that.
9:16 Because there is a tax for, like, foreigners who buy sort of luxury properties. Is there not? If you buy it in a foreign company. Okay, yeah, yeah. It’s like, it’s really expensive.
9:26 It’s like 15% stamp duty, is it, if you buy a property, you know, over a certain bracket. I think it’s like £2 million. So they’re already putting in those sorts of things which is having a cooling effect, and that’s good. I mean, if the market sort of cools off, then it’s more sustainable long term. Yeah, as opposed to, you know, just 10%.
9:43 It can’t go up 10% every year. That’s fine. We prefer it to go up incrementally at a sensible pace. That’s better for long term. I think you’re right about the property market.
9:52 I mean, it’s been amazing to watch it go up, you know, 15, 16, 20% in the last six or nine months, and in London it’s crazy, and you know, the supply is so limited, and then the lack of good supply is a whole other question. So in any bull market, you get all the jokers coming out too, and, uh, some of the stuff you see, a picture of, and you’re like, what? It’s literally like, you know, this is my cardboard box on the corner of this, and I need a half a million, but I don’t see it coming way off, even like a 5% dip or 8% dip.
10:18 There’s buyers out there, who we kidding? And now people have been conditioned that things are worth 1,200 square foot, even where you live, probably 13,000 a square foot in Notting Hill. And I remember I almost bought a property in Notting Hill around ’07, right when the crash was about to happen, and then afterwards I was like, oh, you regretted it? I was, I was happy for a couple years, and the prices through there. So you, you mentioned a company in one of your talks called Lending Club in the US.
10:41 It’s a huge peer-to-peer lender. It’s got serious board members like John Mack, you know, formerly Morgan Stanley, Credit S, that’s got some, you know, Google’s a major investor. Yeah, I didn’t even know about this. I mean, this must make you bullish on the market over here. What, what is going on with the US when it comes to peer-to-peer lending?
10:58 So in the US, it’s a bit more a restrictive market, so there’s a couple of main players. Lending Club and Prosper are the sort of two dominant players in, sort of, peer-to-peer lending, um, and yeah, it’s massive in terms of the volumes they’re achieving. It’s surreal. I mean, Lending Club is lending sort of 3 to $400 million a month. Um, is that secured lending or, and that’s unsecured lending?
11:18 I, to my friend, or I lend to a business. Well, you can lend to a business. It’s typically sort of people buying a secondhand car, or they’re consolidating their credit cards, or, you know, just traditional unsecured consumer finance. So what’s the cost of that? Uh, that’s relatively expensive, but I mean, it’s, yeah, it’s probably similar to what’s better than credit card rates.
11:38 Right, right. But it’s good. It’s a really good model, and it’s sort of, it’s really showing the potential for peer-to-peer. And, um, I was at a conference recently, and it was a good explanation of sort of the Lending Club model, and I guess what we’re trying to do with peer-to-peer is, you know, everyone in the room would have a credit card, but, you know, not everyone and everyone probably pays a fairly similar rate, but actually everyone in the room is probably quite a different sort of credit quality, true borrower.
12:03 But you know, with peer-to-peer you can assess the actual individual borrower better, and you can determine rates, and the peers can sort of, you know, it’s democratizing finance, really. As a foreigner, I hate it coming over, you know, over here, my credit can’t transfer over, and it’s so, so annoying. Like, I can’t get a mortgage. I tribe ex. It’s a big issue.
12:22 Yeah, and that, and that’s, that’s, that’s a big market for us, actually. Foreign nationals, that you know, they could still put in 40% equity in a purchase, but they can’t get a mortgage. I mean, I’ve got a friend who’s a banker in the City, and he’s just, just bought a house in Chiswick, um, trying to get a mortgage. He’s been employed with this bank, top-tier bank, great credit rating, but he hasn’t had a credit card for the last two years here, so he can’t get a mortgage.
12:44 It’s like, yeah, it’s just, there’s, there’s no real sense to the mortgage process, and these are some of your clients. Are they expats? Or, yeah, they’re expats. So they’ll come to us. We can bridge them while they can sort of sort out their affairs, get a credit card for a while, and get, you know, start borrowing some debt, so they get a credit rating and get on the system here.
13:01 But again, there’s no real sense to that. So with peer-to-peer, we’re trying to sort of, you know, let the peers determine what is sensible, because you know, for me, on paper, he’s a good borrower, right? But, you know, but the bank doesn’t think so. So it’s a real sort of tick-box mentality with, with bank land. You know, with fintech we always like run around and talk about fintech, but it’s almost like credit tech, because the success story is like Wonga, MarketInvoice.
13:24 We had Damian from Dil on last week. I mean, the edge they have is because they’re running these great credit checks, these real-time credit checks, and that, no Wonga is really good at that. I’m guessing you guys are good at that, definitely. That is the tech. It is the credit tech.
13:37 It is credit tech. The first one to use that term. Yeah, it’s good. I’ll, I’ll, here, someone’s probably got it by now. Um, live, it’s live.
13:45 You had to say it live. Um, yeah, I mean, I think the idea is not like we’re saying not to be a lender of last resort, but to actually be a better lender than the banks, you know, to use technology that they don’t use. So, um, so with our mortgage lending business, um, we’ve got a bank funding line, and part of that, they came in and did a full audit of what we do, and actually one of their senior credit guys said, you actually do more than what we do for borrowers.
14:11 So we, we take that stuff really seriously, and actually it’s trying to be at the cutting edge of better credit underwriting, as opposed to just sort of providing easier credit. And what do you guys do? Yeah, what do you do? So I mean, some of the things we do, we’ll, um, we’ll get all borrowers to take a smartphone photo of their passport, and then we can run it through this system that will analyse the font sizes, the watermarking, you know, just a full digital analysis of the passport.
14:37 Now, no bank is doing that when you go for a mortgage. Um, we’ll get the borrower’s mobile phone number and we’ll ping it, so, um, mortgage fraud is a big issue, and, um, you know, if they’re, they’re a borrower, they say they’re in London, they’re buying a flat in Notting Hill, then, but it pings back they’re in, you know, Afghanistan or whatever, you know, we’ll start to ask questions in terms of where they are, and, you know, can they come into the office and that sort of stuff. You know, just, just sort of overlaying all these sort of technologies that are available and sort of making that part of our sort of credit process.
15:08 So yeah, so those are great examples of kind of like eliminating fraud. But how do you determine, for example, if this guy you’re going to lend I’m assuming you turn some people down? Definitely. So, so how does, you know, is it a loan-to-value thing, is it, you know, looking at their credit history with guys like Dill? Maybe.
15:25 Yeah, yeah, I mean, it’s a bit of both. So for us it’s relatively short term, so we’ll lend out to three years in duration. Um, so the credit assessment is one of the borrower, which is primarily around fraud. As long as they say they are who they say they are, then, you know, we’re relatively happy to lend to them. You know, they’re not a terrorist or, you know, the usual sort of stuff.
15:45 And then it’s an, um, an assessment of the asset. So have we got that valuation right? Are they really putting in 40% cash, or whatever it may be? Um, and you know, just making sure. So it’s not just as simple as sending around a valuer to go through the property, which is what we do, but it’s overlaying data which is available from, you know, the on or Land Registry or Companies House onto that valuation, to make sure we’ve really got it right, and actually, then to be able to assess our book on an ongoing basis, so you know, yeah, we’ve got it right.
16:16 Now, where’s the market moving, and sort of how is that affecting our loan book? Do you use things like Zoopla or any of those, like information services? We’re starting to. Okay, I was checking them out the other day, you know, and they’re pretty comprehensive stuff. They’ll rate a neighbourhood based on average square footage, and they’ll put a price on it, and things that weren’t even available two or three years ago, and pretty sophisticated demographics about the sort of people in there, so you can match that up with the sort of developer that comes along and says, I’m going to buy this flat, and this is what my end buyer is going to look like.
16:46 You can sort of match that up. Is that fit the demographics of the sort of area that they’re developing in, and that sort of stuff? And your loan-to-value ratios are pretty high and skewed, so that protects you, as long as you’re happy with the asset. Yeah, exactly. What are the ratios?
16:58 Just for people that don’t even know the business very much, so we won’t lend higher than 75% of the value of the property. So every borrower is going to have 25% cash to put into the deal, right? Um, and historically, again, because we’re not chasing borrowers of last resort, it’s sort of historically, it’s sort of 60 to 65% loan-to-value. Okay, so it’s sort of, it’s probably guys that could do a couple of deals cash, but actually with a bit of bridging, bit of sort of leverage, they can do, you know, maybe twice as many transactions as what they do in a year.
17:30 Okay, so that’s why they come to you, because you give them a little bit of extra leverage that they couldn’t get in a bull market. It’s a no-brainer for you. Yeah. And then if this turns, do you start requiring more cash? Um, potentially.
17:41 Yeah, I mean, I guess we’re always sort of looking at the macroeconomic sort of situation of the market, and we take that into consideration. I mean, I guess we started lending in late 2008, which in hindsight was a good experience, but at the time, you know, wasn’t the best time to be starting a mortgage lending business, but probably the worst time, you know? But some people say that’s when great companies thrive, these and that’s the point, I guess, is that actually in these downward markets, or in a really depressed market, that’s actually when people really need funding, you know?
18:13 So actually you can get a better margin, and actually you can probably get better credit quality borrowers, because, you know, in that time the banks had just shut down, you know, you couldn’t get a mortgage so right, they just stop answering the phone. Yeah, yeah. Well, you guys started off, you started as a finance company, and now you’re kind of a tech play. You know, a lot of people we have in here started with tech plays. They already, they’re, they’re looking for the next £20 million, the £30 million, the series B, that’s going to the States.
18:37 They’re ramping up. Uh, are you guys doing the same thing, or are you a little bit more cautious in your expansion? Uh, no, I think we’re, we’re trying to be relatively aggressive. Um, we’ve been sort of doing the VC rounds and going through that process. I guess we’re fortunate in that our business is profitable, so we can sort of be self-sufficient and grow.
18:56 Actually, we can get to where we need to be. We think self-funded is a good position to be in. I guess it’s a bit of a land grab at the moment. You know, everyone’s sort of trying to be the biggest and the best platform, and, you know, accelerating their sort of development of their technology, so I think that’s really what we’d be quite keen to raise money for, but, um, yeah, but we’re not cautious with our expansion plans, but at the same time we don’t want to take over the world.
19:22 I mean, um, really for us the UK mortgage market’s, you know, £200 billion a year. It’s a big enough market, just to sort of, if we can scratch the surface of that, then that’s going to be a phenomenally successful business, so we don’t have to go and sort of go into other G, you know, G jurisdictions, and that sort of stuff, and stick to the short-term stuff. Well, the broader vision is to be a mainstream mortgage lending business. Okay, and just peer-to-peer is just peer to, it’s really an online lending business.
19:47 That’s the way we see it. You know, the process of getting a mortgage is so frustrating, it’s so time consuming. If we can use technology to make it a really cool and good, easy experience, then we’ll be a winner. So the fact that we’re funded by peer-to-peer is just sort of that’s offering that as an investment asset class for investors. Yeah.
20:05 If you could globalise credit, do you know, for foreigners like me, to buy a place when you land here? Yeah, because again I’m not high risk and I shouldn’t be here, and if you can fix that problem, exactly. That’s a huge market. Market, right? Massively overlooked, and it doesn’t make any sense.
20:22 No, it’s stupid that you can’t transport my credit history from Canada, um, and over here, who’s, you know, who’s easier? Where’s the, the hiccup in your business? Is it hard to find borrowers, lenders, or are both of them pretty easy to find? Well, it’s interesting. I, going back, when we set up the business, we were always capital short, so we always saw way more borrowers than we had funding, and that was why we sort of actually set up the peer-to-peer business, because we looked at some of the other peer-to-peer players, and certainly saw what was going on in the US, and obviously there’s a huge swathe of savers out there that are getting nothing for their money in the bank, so we sort of thought, if we could set up, or essentially wrap, what we do in an online platform for investors to invest in, then it would be hugely popular, and actually it has become hugely popular, but not only for the peers, but also institutions are now coming to us, you know, and they’re really keen.
21:15 So banks are looking, you know, we’re talking with banks actively for them to lend through our platform. Sure, you know, so because it’s cheaper for them to actually use our technology to deploy capital for them. So I think, as time goes on, it’s really trying to broaden our borrower base as opposed to our capital base, but it’s a fine balance. So it’s a marketplace model. Well, will banks actually use you?
21:37 Because, you know, typically a lot of banks just, you want to use their own in-house systems, and they don’t want to deal with other companies when it comes to lending. You’d be surprised, really, because you’re showing them the rates and the yield we can achieve, and also what we’re doing in terms of our credit underwriting. They’re sort of saying, well, and it’s not necessarily UK banks, the sort of where we’ve found a lot of traction is perhaps a small European bank, and they say, yeah, we’d love some exposure to the UK mortgage market, but we don’t want to have to go and employ 20 people to set up a mortgage desk and try and originate deal flow and learn that market, we can just go on your platform and get exposure to it, and that’s sort of, that’s quite attractive to right.
22:14 So NatWest and Abbey National won’t be banging your door down? I mean, I think probably out of pride alone, they never would do that. Right. Well, you see, Funding Circle’s just done a deal with Santander. Okay, so I think you, you will start to see those sort of UK high street banks get involved.
22:29 Can you transfer your model to Germany, to France, to Italy? Uh, regulation is the big issue. Yeah, so Europe generally is quite a regulated market, so it does become quite difficult. Yeah, yeah, it’s, I mean, it’s something we’ve had a few companies like yours, I guess, MarketInvoice and Dil, that it’s basically it’s all about Companies House, you know, for a lot of that info, and without that relationship then it’s not like you can transfer that business model to another country easily.
22:57 Damian was saying going to the US is tough because you’ve got the states. Well, it’s a, you know, and in the US there’s people kind of doing what you’re doing, kind of, although, you know, Lending Club isn’t a bridge financing, no, but there are some bridge finance operators doing it. So yeah, but actually with those businesses, from what we can see, the large, the large value for them is actually going through the regulatory hurdles of getting licensed in, you know, all the states and all that sort of stuff, so as opposed to necessarily the tech.
23:25 But yeah, you still lending money. You were doing some London, right? Yeah, I did. I did some Funding Circle stuff just to sort of test it out. Um, yeah, I thought it was really cool.
23:35 I thought, um, so you guys minimum £10,000 investment? It is £10,000 at the moment. We’re going to reduce it. Right. Yeah.
23:42 And, you know, how long do I have to have it invested before I can pull it out? Are there any limitations? Well, it matches the underlying loan, so there’s a sort of six-month loan, so that’s sort of the period you’d have it locked up for. So there’s no secondary market, not yet. Yeah, so we’re building that.
23:56 Yeah, we’re just trying to get the tech right to open gates, and, you know, 100,000 that get disappointed. Rather, keep it small, get it right, and then lower the minimum. Yeah, that’s what I, I put some in, and then I tried, and then I tried the secondary market, and it didn’t work. Yeah, it wasn’t great. It’s pretty liquid.
24:15 How long ago was that? Maybe it was about six months ago now. Um, you couldn’t get out for a decent yeah, if I couldn’t get out for really much of any spread, to be honest. I got out at a premium on yeah. I’m just, and uh, who’s impressing you right now in fintech when it comes to London?
24:33 Do you even see other companies where you were like, I would love to grab them or partner with them, or, I don’t know, what do you see in the space? Uh, yeah, I mean, I think companies like Funding Circle. I think they’re an awesome business. You know, they’re backed by the best VC operators out there. The management team are really switched on and sort of going for it.
24:51 Um, and some of the other peer-to-peer players. I think Zopa, you know, is a long-standing fintech business. They sort of got things right. Um, yeah, other than that, we sort of just focus on what we’re doing really and sort of just plug away. But I mean, there’s tons of good businesses here.
25:07 I mean, you know, TransferWise, um, you know, doodle, all those, all those companies. Even, you know, I mean, I think they’re a phenomenal business. At the end of the day, I think they’re a great business. I mean, I think they get the, what do you call it, the Daily Mail, heat, or, you know, this kind of, what do they call it, headline porn kind of stuff, where everyone’s like, don’t do this, don’t do that. But before that, I, I think it’s a great business.
25:27 I think it feels a great need. But I don’t know, could they have done anything differently? I mean, okay, they recently paid some fines for what, charging people. No, no, for law firms, fake law firms, to hunt them down. Okay, shouldn’t have done that.
25:40 That’s, that’s, that’s, okay. But I mean, could they have done anything different, you know, with not really going into a sensitive area? Right, they’re always going to get heat. I think actually what they’ve done is they’ve gone into other jurisdictions, so they’re sort of, you know, they’re in various places around Europe now, and sort of plugging on with what they do. I think, you know, they might be perceived to be coming under a lot of heat, but I think it probably will continue to be a hugely successful business.
26:04 Sure, you know, they, they, as much as we don’t like to talk about it, they’re probably servicing an area of the market where there is, there’s a, there’s demand there. There’s people that do want quick cash to buy a pair of sneakers or, you know, whatever it is they do. Well, payday loans have been happening forever. I think, I think the real issue isn’t Wonga, it’s education. Do you know, I, I really, really think there should be basic financial, monthly budget and education in an early, early days in people’s, in people’s lives.
26:32 Yeah, I think it’s a market that’s been there since the beginning of time. It’s just, it’s, that’s been talked about, and it’s been pawn shops in America, and I know next to a lot of, you know, Army and Navy bases the payday loans are huge, and people just haven’t quantified, you know, the interest rates. And maybe this just puts it all in the open, and we can say, yeah, Wonga is having a hard time, but like, you know, like Christian saying, they’re just making mad money on the back.
26:56 So it’s interesting. We met with one of the VCs that were early investors in Wonga, and, um, a guy from, you know, big investment banking background and all the rest of it, and he said it’s really disappointing. Our investment in Wonga, cuz for as long as I live, I’m never going to invest in a business as good as that again. So it’s sort of, you know, it’s, it’s hugely profitable. Yeah.
27:15 What do you see from the US? Do you, do you ever go out to Silicon Valley, or Silicon Alley in New York? I mean, you know, maybe you can’t move your business model there, but do you see things that they do better than we do here? Um, yeah, we go out there. So we’re in Silicon Valley a couple of months ago.
27:31 Um, there’s a big conference out there called LendIt for the peer-to-peer space, and um it’s about a thousand attendees. It was a great event, but um, in terms of what we see out there, we’re talking more to the investors, so you know, the VCs, and perhaps the institutions that are looking to deploy capital onto our platform. And I think we see that they’re more open-minded in many respects, and actually probably a little bit more aggressive, where what we find, the mentality seems to be a little, little bit in the UK, is it sort of finding an excuse not to invest.
28:02 Perhaps we’re in the US. It’s sort of how big’s the market, how do we attack it, um, how quickly can we penetrate, you know, x% of it. So it’s quite refreshing to go out to the US, actually. And would VCs use your platform to invest our money, or would you be talking to institutions, insurance companies, and things like that? Yeah, it’s institutions to deploy debt, right?
28:21 To debt, right? Okay, so less VCs, but just the VC is for equity for our business. Okay, right, to get involved in your business, right? Right, for equity players. And what do you think about the P2P equity plays here in the UK and in the US?
28:34 Uh, I think it’s interesting. So I think platforms like Seedrs are really good. You know, I think, you know, Jeff Lynn, I think, you know, they’ve got a good management team there. They’re getting good traction, they’re getting great PR, and I think that’s really good, and that’s really positive for the sector. I think, you know, as long as people appreciate when they invest on those platforms that there’s a high chance that they will lose their money.
28:56 And I think I’ve actually even heard Jeff say that at a conference, you know, majority of startups will fail, and so the majority of investments you invest perhaps on a platform through, um, you know, the crowdfunding sort of model, then they will fail. So as long as investors understand that, then that’s okay. I think the danger is that, you know, type of guys that are investing, you know, 100 quid here and there, perhaps don’t understand that, um, and that’s the big difference between crowdfunding and peer-to-peer.
29:22 You know, peer-to-peer is debt. You’re lending, so there is a real expectation you’ll get that money back, and that should be the case, but equity crowdfunding, yeah, I mean, there’s a few players that are getting that right. Your risk profile is significantly less, yeah, than an equity profile. We’re secured against property as well, so actually we think we’re, you know, even of all the offerings out there, we’re sort of as low as it goes in terms of the risk profile.
29:46 Have you had any flat-out losses? No, we haven’t. So in six years of lending, we’ve never lost a penny of capital. Have you had to liquidate properties? Yeah, we have, which is, you know, it’s not a good experience, but it is, in terms of experience for the business, um, certainly our first year of lending was the worst, and that’s probably our real concern with the industry as a whole, in terms of there’s a lot of sort of tech startups getting involved in lending, um, particularly if they’re lending sort of to three or five years in terms of duration.
30:15 It’s a fairly slow feedback loop. You know, it might take them sort of four or five years to realise how bad they are at doing it, and they’re doing it with other people’s money. So that’s a real risk for the sector. Um, where for us, we’ve been lending for a long time, short-term mortgages, six months. We sort of, you know, we’ve evolved our model considerably in terms of our underwriting processes, you know, over six years.
30:37 When you liquidate, does everyone’s money kind of freeze until that whole liquidation process is paid and everyone’s paid? Yeah, so we, um, we’re, we’re only, um, buy-to-let mortgages, so, um, we never lend against a property where the borrower is going to live in there. So, um, in our current model, the law is quite pro-lender, in that, in that helps you get them out of the property. Yeah, we can appoint a receiver, and the process is pretty swift. I mean, we can get repaid in a couple of months.
31:05 Okay, yeah. And there, I guess there’s no kind of securitisation of your mortgages, so no one gets paid off first. It’s just everyone loses kind of the same percentage of whatever you guys get hit. Although, on, on the platform, we’ve started tranching some loans, so we’ll do an A tranche, which is sort of like up to 50% LTV, and then from 50 to, um, 75, you know, you can be a tranche B, so you would sit, you know, second in the repayment profile. But, um, yeah, I mean, we do every loan with the expectation that we’re going to get it all back.
31:36 So yeah, I guess it’s interesting how your cycle is much, much quicker. So you talk about, like, Seedrs and some of these crowdfunding, you know, you may not realise for six, seven years before you start to see real data on how successful people actually are, and it’ll be, I’m, I’m interested to see the data. Yeah, it will be interesting, and it’ll be pretty transparent as well. Sure, can get all that data now. So yeah, yeah, yeah, it’s going to be interesting to watch, and just see, you know, if that goes where we think it’s going to go, you know, and if a lot of these places really get, you know, the two, 300% growth that we’re kind of expecting, you know, do you hire tech guys or finance guys?
32:13 Uh, both. Yeah, so we’ve, um, we’ve recently hired a data scientist, so we’re sort of big on that credit modelling and building tech into that side of things. Um, but yeah, finance guys. I mean, with mortgages there’s still a human element to it, so there’s a lot of, you know, we have human underwriters. It’s never going to be a fully automated process.
32:31 Um, so they’re finance guys, and then tech guys. Yeah, I mean, that’s what we’re keen to do. Shows like yours, to sort of get exposure in the tech scene, and really, cuz it’s hard to get tech talent in London, surprisingly, you know, really competitive. Yeah, it is. Yeah, and often perhaps they don’t want to work for a finance business.
32:48 You know, it’s not perceived as being necessarily that trendy, but I think that will change, definitely. Um, so yeah, it’s a, yeah, it’s a full spread to sell them on the upside and where you’re going, and the scalability. Yeah, a little bit. Yeah, got to sell them on the dream, and particularly, you know, if they’ve got an experience of going for a mortgage, which often people do, and then they just like flabbergasted at how bad it is, and then sort of you show them what we’re trying to do, and then doesn’t take long for them to sort of get on board.
33:16 Is are mortgages and the property market the last bastion of illiquid markets in the world? Would you say, uh, the ones that are constantly exploited? Yeah, potentially. I mean, are they? Yeah, I mean, I don’t know if it’s the last one, but it’s definitely one that is right for disruption, right?
33:33 I mean, for an asset class it’s so big. It’s something everyone has to be involved in: buying, selling, lending. The bid-offers are ridiculous. The amount of information used to be shocking, dealing with Foxtons agents. Yes, I said it.
33:45 It’s shocking. I can’t even get a phone call back in the property market. They won’t even call you back. Like, I want to buy a property, we don’t even call you back. Yeah, it’s, it’s crazy, and I just, I, so I bank with HSBC, right?
33:58 I have accounts in Canada. I feel sorry for you. I know. I have accounts in Canada and I have accounts in the UK, and I can’t get, I can’t get, I can’t get a mortgage. You, about your mortgage again.
34:09 Broken record. Well, you put down 65%, it’s like, oh sure, let me just go into my, you know, my yacht. Yeah, the stories we hear are surreal. I mean, you know, if you go into your bank, you’ve been banking with HSBC for 10 years, you go in and apply for a mortgage, the first question they’re going to ask you is, what’s your address and what’s your date of birth? It’s like, dude, yeah, how do you not know that?
34:30 I mean, and you’ve got to sit there and fill it out on a form. I mean, how ridiculous is that? When do they change, you know? We’re changing it now. It’s when Transis and these, them.
34:40 Yeah, exactly. Yeah, and that’s why the government’s behind peer-to-peer and fintech and all that stuff, cuz I think they’ve got to the point where they can’t make the banks lend anymore, so they just create an environment that’s hugely competitive. Right, you know, so groups like us come along, and actually the banks say [expletive], we do have to. I don’t know if we can swear here, but you know, um, yeah, we just have to get our act together. We don’t have to, you know, now you’ve got to go through a three-hour interview in the branch to get a mortgage.
35:05 Right, serious? Do they still have huge margins in, like, the banks and the big building societies here, and the mortgage businesses? Is that still big, is that their prime money maker still? I think it’s a, it’s a real, it’s a big money maker. I mean, it’s obviously heavily subsidised by cheap money from the Bank of England, which, which is why we’re focused on the buy-to-let investment mortgage market at the moment, cuz it’s where there is typically a much greater spread, so for investors it’s a, it’s an attractive proposition as well.
35:31 Okay, can you explain that, as opposed to someone who’s buying to, what is it, buying to live or buying to just hold the property? Just explain that nuance. Yeah, so, so the, the easiest way probably to explain is, if someone lives in the property, then it’s a home loan. Um, if they don’t live in the property, then it’s a buy-to-let investment mortgage. So we only land where they don’t live in the property, so it’s property landlords.
35:55 They’re typically buying flats, buying and flipping, you know. Um, they’re property entrepreneurs in that sense, speculators in that sense. Yeah, yeah, speculators. Yeah, exactly. Entrepreneur, entrepreneur is better.
36:06 It sounds way better. I, I love seeing tech grab all these markets, like we see TransferWise. I mean, you know, I was talking with my bank the other day and had a similar experience, where it was like, why don’t you fill out your address? And you’re like, are you just joking? I was trying to transfer money from my dollar account to my sterling account, and it was like, and I kept saying to the guy in the branch, have you heard of TransferWise?
36:25 And, uh, the guy was like, oh, I think I heard of that. I’m like, I could do it on my phone, and you’re, and you’re, he’s like, I have to fax. He said fax. I need to fax this over, and I was like, and he was a young kid, and I was like, homie, did you hear what you just said? Facts?
36:38 This isn’t like, this is 2014. There’s an app here where I can do it, and he was like, I know, but he’s like, this is the way it is. Yeah. Um, they’re institutionalised. Yeah, and the credit stuff, I mean, you said, is their credit, um, analysis, really, really, are there big gaps in it?
36:53 Is it, is it? I, I mean, I don’t think it’s particularly poor in the space. I don’t think we’re sort of building an argument on that. I think we can definitely say we do more, and by doing that, then actually it should get better. Um, and we’re, you know, trying to use big data and all those sorts of solutions to increasingly get better.
37:12 So, um, you know, the defaults over time should get less. Um, not to say that the banks don’t do that, but um, yeah, it’s for us, it’s more about making that experience better. At the end of the day, it’s, it’s, it’s providing a mortgage online that’s, you know, makes sense and it’s easy. What are the goals for you guys, like, next 12 months, next 24 months, what are you trying to do? Uh, just be doing what we’re doing, bigger and better, I guess.
37:38 Um, we’re sort of, so we will lower the minimum investment amount to £1,000, so that will sort of broaden, now, um, buzz and PR appeal, I guess, um, and hopefully sort of build the brand. Um, but then continue to do what we do. Um, we sort of going to slowly go out the duration, so we’re sort of trying to lend more three-year product than a six-month product. Um, and then sort of get more investors onto the platform, do, uh, do some deals with some institutions, get them on there, which sort of shows confidence to the market in terms of what we’re doing, um, and continue to build out the tech.
38:12 So tech’s actually the hard part, as opposed to sort of getting investors in money. But um, when you going to let foreigners on to get me a 20-year, you know, 20. Yeah, hopefully in sort of next two to three years we’ll be doing that. Yeah, sort of a mainstream home loan product, right, as opposed to just a buy-to-let, like a home loan product, and that would really open up. Is that a huge market?
38:35 Yeah, I mean, yeah, it’s, it’s 200 billion a year is the UK mortgage market. The buy-to-let market’s about 30 billion, so we think we’re attacking still a pretty big market, but the tech’s the same. It’s just changing, you know, how we do it. Right. And do you really need those small investors, of, like, ,000 each, or do you really need the institutions to come on board, and the tech to be better?
38:54 In your mind, we don’t need either, but I think it works better with both. Um, so interesting, like with Lending Club it is largely institutions now, so they almost go full circle. They started sort of community lending platforms, and then the institutions take over. I think for us it’s quite important to have the crowd. Um, property particularly, as well, it’s got sort of a social element to it.
39:16 There’s a lot of people that are perhaps left off the property ladder, they can’t get on, but they can invest in a mortgage in that area, so perhaps that’s a way for them to get exposure to the asset class that perhaps they couldn’t have got before. Um, so, and that, that’s interesting. I think that’s, that, that sort of is a useful part of the investment process. So I think it’s it’s individuals through to institutions. I would guess that, you know, the chances of someone using the service lending is probably more likely to use it as a borrower too, right?
39:44 Feel more familiar with the form, and just understanding from A to B, which actually is like the Lending Club story. If you look, you know, underneath the bonnet, it’s really important to have a crowd there, cuz people feel, well, actually, I might take a mortgage from them. It’s a, it’s a slightly more expensive product, but actually I’m borrowing off the crowd. It’s a really simple, easy process online. I’ll take a mortgage with them.
40:06 So you sort of get brand, um, loyalty through that. I’m just visualising the day when, like, you know, young kids with bank balances will be going on with their apps and choosing, oh, I, I can get a half a percent if I do Bank of England, or I can get, and throw, you know, 20% of my portfolio over to these guys, and get this return, and then it’s like, all there with the ratios and charts. I mean, why not, right? As opposed to everybody having like the same risk profile as a borrower and as a lender.
40:32 Well, I mean, you put your money in the bank on deposit. What do they do with it? They go and lend it out, and they lend it out with leverage, and, um, you know, put it into the mortgage market predominantly, right? So sometimes enough to crush the bank. You won’t even get to Northern Rock.
40:46 What was Northern Rock doing with your money that you couldn’t have been doing? Right, yeah. What about the property market? I mean, like, how can any, I, I, I describe the property market as like it’s an ego crushing experience no matter where you are in the socioeconomic spectrum. I’m sure Abramovich, when he’s like, warh High Park, and he’s like, 140 million, I can’t afford that, I could get two players for that.
41:07 Yeah, but he’s in pain, and then like, your average person’s in pain. Everybody trying to buy property in this market. It’s just, how do you live in London in this property market, how do you exist? I mean, it’s, you know, it’s a macro question. I mean, it’s a property obsessed nation, you know.
41:22 I think it goes back to same in the US, same in Australia, where I’m from. You were sort of told from a young age that your goal in life is to own the family home, you know, cuz people feel wealthy, and they feel a sense of well-being or sense of security by doing that. So that’s everyone’s aspirational goal. Is that misguided, do you think? Do you think property ownership shouldn’t be something?
41:44 I think it is a little bit, actually, yeah. I mean, I think, um, the population generally is slightly more transient, well, probably a lot more transient than what it used to be. You know, if you own a property, you, that’s a serious investment, perhaps one that you can’t afford or shouldn’t necessarily be committing to. Um, and it’s one that’s, like you say, it’s hugely illiquid, so aspiring to that is maybe not the most sensible thing, but for a lot of people it is.
42:10 I mean, it depends, it depends on your circumstances. We saw the extreme of that in the US, basically in ’07, ’08, where everybody was overleveraged, and you know, we we hear everyone that cried afterwards, but then you had all these people that were just taking these huge loans out on these huge houses that they had no business buying, but it was part of the American dream, and it was kind of sold, uh, and I think it always will be that way. Yeah, there, yeah, I don’t think that’s going to change anytime soon.
42:34 No, I, I think you’re right. I think that sometimes people are, I, I was never a property buyer, which is why I’m poor now. Um, but I used to always tell people, they’re like, oh, I’m buying a house, and I’m like, you’re not buying a house, you’re buying 85% of a house, and the rest, you know, you are getting a loan on, and you’re paying interest on that. And people like, no, no, I own my own house. You know, I guess that’s a finance guy’s way of looking at it, right?
42:54 Yeah, yeah. I own back home, but, but here, here I have no, but to be honest, I think my rent that I pay now is probably less than I would pay to carry a mortgage in the UK. In the UK, really, cuz, yeah, you know, my landlord’s, she bought my place in like the early ’90s, yeah. Um, so she isn’t really sort of revalued it or lent against it. They’re laughing all the way to the bank, they don’t really care, so they’re like, you know, have a reliable tenant, long-term tenant.
43:21 Yeah, uh, you know, you should get a mortgage there. There we go. Yeah, oh man. Again, all right. Um, Christian, we ask everyone here a few questions at the end.
43:28 I’m going to hit you with them. Uh, if you could make a phone call to the, the 20-year-old, uh, Christian Faes, and give that young man a bit of advice, what would you tell him to do to go into tech early, to not, what were you doing at 20? Uh, I was studying law, um, which I think is actually a good, good sort of grounding for doing anything thereafter. Um, Jeff Lynn is a lawyer. Yeah, exactly.
43:48 You guys stick together, um, probably just do what I was doing, to be honest, but in reality, get into tech earlier. Yeah, I think, um, or study tech. Actually, I think, I think learning to program is something that I probably should have done. Can you do any coding now? Can you look at the code?
44:05 Well, when I was younger, I could do like HTML and that sort of stuff, but very basic. You should learn very basic. Maybe you should learn it, it might actually help you in your business. Yeah, I got a lot of spare time. Code Club.
44:16 Yeah, exactly. Lot of spare time. Um, uh, on that same note, what’s, uh, best advice you’ve ever received, business or personal? Uh, there’s no substitute for hard work. Spoken like true American.
44:29 Wow, who told you that? My parents, really. Okay, Australian parents. What did your parents do? Uh, there were, uh, entrepreneurs as well.
44:38 Yeah, I think that’s great. Yeah, hard work. It’s no, no free lunch, no shortcuts. Shortcut, yeah. Yeah, it’s funny, cuz we’ve had some people on here that say, we had one guy that said, he, he, uh, leads by example, as in he’s not the guy that makes everyone work till 8:00 at night.
44:52 He’s not that entrepreneur, but we’ve had plenty of other people that’s sat there like, Dein is from MHI Monsters, that said, you know, you’ve got to be obsessed with this startup. You have to be in the shower thinking about your startup. Yeah, it’s a 24/7 job. I mean, but it’s not, it’s not a job in the sense of going and slaving away at a desk. I mean, it’s, it’s a lifestyle really.
45:14 Are your former colleagues jealous of you? Uh, yeah, I’d imagine they, pro, possibly. Are probably some people are cut out to be a lawyer, you know, to sit there and do documents all day. Yeah, exactly. Every account for every six minutes.
45:27 Some people like that. You, um, last part of that question is, uh, to 20-year-olds that are listening around the world, what would you suggest that they do if they want to get, you know, kind of involved in the tech business? I mean, you came around a roundabout way to this. What would you say? I mean, I think, um, with, with everything in life, just don’t over plan it too much.
45:46 Just do it. You can sit there and sort of have the perfect plan about what you’re going to do next year and the year after, and all that sort of stuff, but just, just go and do it. And if it’s a startup, just, you, you don’t have to have the most, a lot of people say this is not the right way, but you don’t have to have the most perfect business plan, cuz it’s always going to change anyway. I mean, you should have an idea of where your financials are going to go, and all the rest of it, but there’s no better way than just getting out there and doing it.
46:10 Yeah, everyone in tech is learning on the job, like they all are, even if they’re pretending like they’re not. So I think you could even argue that everyone in the world is learning on the job, but you know, a lot of people are like, I don’t know anything about tech, I don’t know who to call. And I, I agree, maybe you should just, just jump in. Yeah, and it’s always changing tech. You know, from what I understand with the tech guys, you know, the languages are changing all the time, the methodologies, the thinking behind it all.
46:31 It’s constantly changing, so you know, again, you can’t sort of spend 10 years studying it and not doing it. You just go out there and do it. Yeah, it’s not like your classic industries like law or banking, where having that 10 years and that firm, like, everything’s constantly changing, acquisitions. So um, did I miss anything? Um, no, I think that’s good, man.
46:51 I guess you know, are you guys hiring? You’re looking for borrowers, lenders, everything, all the above for everything. I mean, I guess if anyone’s interested, have a look at the site, LendInvest.com, and their bank, and they’re like, okay, I would never think about doing this, but should they think, well, maybe I should take what, 5% of my portfolio and put it in a uh, you know, property-based asset, maybe take advantage of the bull market without putting equity down and get an extra few per on your money.
47:27 I mean, I guess you’re trying to educate investors that way, right? Definitely. I mean, you know, of course they can’t provide financial advice, but and neither can we. Did I just do that? But uh, you know, for me it makes sense, and that’s sort of where we, that was really where we came to this initially, in terms of as an investor, where would we put our money, and we were looking at the other offerings and thinking, it’s just not really good enough.
47:48 So you know, lending secure against property, decent return, it’s, it’s a good proposition. It’s one that people should look at. One thing is, if you’re in the middle of this housing boom, and you want to, quote, unquote, get in on it, it’s basically impossible unless you want to be a speculator yourself, or you want to go find that property and go in all the due diligence, which nobody wants to do, but this is a kind of a great way of getting a slightly lower risk profile but still getting some pretty nice returns on your money, getting exposure to this market, uh, which I don’t think is going anywhere.
48:18 Personally, so what’s the average return for a lender? The average at the moment’s 8%, and actually a lot of our investors that are coming onto the platform now are buy-to-let landlords, funnily enough. You know, they’re sick of dealing with the tenant that’s not paying them, the plumbing issues, the sort of all the sort of issues that go with holding a property, saying, well, I can take 8% per month. I’ll, I’ll go and do that online. Yeah, because if they went to you to borrow, they have to make like 25% per month just to make their rate.
48:48 Right, stretch. That’s funny, man. I never thought about that. Um, interesting. And, uh, if people want to get in touch with you, what’s the best way, if they’re looking?
48:56 Uh, I’m on Twitter, Christian Faes, um, yeah, and your website for LendInvest, and, uh, excellent. I love it. Um, I just like seeing these kind of nuanced tech and credit tech, you know, kind of plays here going on. I hate the banks. You really brought out a bad, I know, it’s a bad day for it, too.
49:17 Your motorcycle got stolen again? What? No, no, I’ve been trying. I’ve been, I’ve been trying to move an investment account back home in Canada through HSBC, and it’s taking me a year. Next week we’re just, we’re just bad-mouthing everyone today.
49:33 HSBC. We got lots of enemies, so it’s real, at least. Right, grumpy today. Okay, good. Well, um, hopefully, uh, you know, Christian, you and other people can get this whole kind of credit issue and this global credit piece solved, because it’s like this glaring from a finance guy, like property and mortgages, of this glaring aspect, where I just think everyone gets taken for a ride, and it slows down GDP, having this big inefficiency here, and I don’t think it does anyone any favours.
49:59 And when that one day we get these liquid markets, maybe even gets to where we can invest in REITs or something like that for you guys, where you can really put your money in any asset class you want. Everyone’s going to be better for it. So I’m a big fan. Um, fantastic, love this stuff. Uh, episode 54, we got picked up for our third season on YouTube, apparently.
50:17 It’s, it’s good news. Um, they still allow us to upload the videos. Yeah, they, they love it. Um, audience is growing. Uh, the, the guests are getting better and better every week, so feedback has been fantastic.
50:25 Yeah, I know. Right. We, P-E. Yeah, it’s fantastic. We’ve got some great people working for us.
50:31 If you want to get involved in the party, uh, send us an email at [email protected]. If you’re listening on iTunes, come see uh, our extremely good-looking faces on YouTube. And uh, it’s great. I love, I love finding out about the people. That’s our slogan.
50:44 It’s about the people. Uh, Christian, all the best. Thank you, and lots of luck to you guys. Yeah, thanks for having us. Thanks all.
50:54 Right, guys, take care. Cool. Data isn’t as valuable as information, and to create information from data, you have to create context. We opened this up, and uh, that led to the revelations of Starbucks and Google not paying tax. It was huge.
51:13 Understanding who owns a company, and you know, uh, and who that is, um, is very, very important. This was something that could really change the world. Data is not the new oil.
