When you invest in loans, it's always a possibility that some of them won't be paid back or might lose money and this could lower your overall investment return or may even lose you capital.
To help manage this risk, we don't lend to just any third party borrowers in the way most other peer to peer platforms do. Instead we lend to special purpose companies set up specifically for the purpose of investing in property via the Assetz Exchange platform.
We also vet every property that you invest in and any decisions to make about those properties going forwards are made by you, the investors who funded that property. So you're in control of your own investments, not a third party borrower. With first charge security over the properties you are as secure as possible.
Nonetheless, the price of property can go down as well as up and even with the special measures we have taken to protect you capital and income there could still be special circumstances where a property loan could have a problem. We therefore list our loan performance to date below.
Authorised and regulated by the Financial Conduct Authority
When a special purpose company takes out a loan from Assetz Exchange to invest in property , they agree to many conditions that they have to stick to. One of the simplest conditions is that they'll make their loan payments on time.
If they breach any condition of their loan, we'll monitor that loan more closely and more often (the loan is in 'Monitoring'). If there's a material breach of the terms of the loan, we classify that loan as having had a Credit Event.
If a loan has had a Credit Event, it can go back to being 'performing' if the borrower fixes the breach - by catching up on payments, for example. If they don't fix the breach, or if there's information that casts sufficient doubt over whether they can fully repay the loan, we classify the loan as in Default.
Losses might happen after a Default, but not necessarily every time. If a Default happens and the borrower can't solve the problem, we can take recovery and/ or legal action to get the money back from them. If it turns out that they don't have enough assets or security to recover the money, that's when a loss might happen and a lender could lose some or all of your investment.
If a loan has a Credit Event or is in Default, we'll suspend trading in it, which means nobody can sell or buy a share in it. We might also suspend trading if the loan is in Monitoring and we need a Lender Vote to decide what action to take.
'Credit Event' could amongst other things mean:
- The loan is more than 60 days past its expiry date and hasn't yet been fully repaid.
- The loan repayments are more than 60 days overdue, or the borrower is more than two payments behind ('in arrears').
- There has been a breach of the terms and conditions of the loan such as failing to pass a covenant test.
'Default' could amongst other things mean:
- The loan is more than 180 days past its expiry date and hasn't yet been fully repaid.
- The loan repayments are more than 180 days overdue.
'Loss' or 'Bad Debt'
This is the actual or expected loss, if any, on a loan in Default, after any money we've been able to get back from the borrower. To keep losses to a minimum, we take security on all loans. So, in many cases, defaults don't automatically lead to a Loss or Bad Debt, as we can use the security to get some money back. This means the 'Default' rates might often be high, but the 'Loss' or 'Bad Debt' rates can be lower.
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Loans Originated: The total loans originated in the calendar year, to-date if a part year. The current data is correct as at 30th November 2019.
Lifetime Default Rate : Loans where a payment of capital and/or interest has been overdue for more than 180 days, as a percentage of the total loans originated in that year.
Expected Default Rate at Origination: The expected lifetime default rate as a percentage of the total loans originated in that calendar year.
To date, all loans have paid the expected rate of return. One of the reasons for this is that our loans have a flexible interest rate, that is the interest paid is the net rental income received by the borrower from their property rental activity after property management, fees and repairs. This means your interest return can vary over time and is expected to go up with inflationary effects on rents over time, but rental income can also go down and there can be voids (empty periods) between tenants where there is no rental income and an income cannot be paid to investors. Some properties have leases or contracts in place for income from corporate providers and is this was to default then alternative tenants would need to be found for those properties.
When invested, your capital is at risk and not covered by the Financial Services Compensation Scheme (FSCS).