Every auction lot has a story to tell, none more so than lot 75 in the Allsop residential auction held today, 15 February.
Grade II* listed Westbury Castle in Flintshire, north Wales, boasts 12 lavishly decorated bedrooms in a three-storey 1820s mansion house, a west wing with nine self-contained apartments and its own chapel with a bell tower.
It was sold on behalf of receivers appointed by Lendy, the peer-to-peer lender, for £1.5m against a guide of £1.5m-£2m. Lendy’s loan was a five-month bridge of £3.4m.
Just how did a property referred to as the Welsh Downton Abbey end up in an auction room as a forced sale?
The story behind it sheds light on the UK’s fledgling peer-to-peer lending sector and what happens when a peer-to-peer loan goes wrong.
According to HM Land Registry, Westbury Castle was bought by Property developer Ian Ringwood in 2011 for £1.5m.
Ian Ringwood’s project
Ringwood is founder and chief executive of Ringwood Property Group, which was incorporated in 2014. Its website describes Ringwood as having “built a personal portfolio with a value of circa £17m spread throughout the North West of England and north Wales”. Listing Westbury Castle as one of its projects, Ringwood states: “I have converted the premises into a gated exclusive estate.”
When Ringwood approached Lendy about the project in 2016, the self-contained flats at Westbury Castle were at various stages from shell condition to completed to habitable standard.
Lendy’s own website, where it provides information to registered users on all of its loans, sets out the purpose of borrowing: “The borrower will be refinancing an existing bridge. The client has been refurbishing this property over the past two years, most of the works are now complete but the existing loan is due for repayment. The client will use this bridge to repay the current loan and use the six months to source term finance with buy-to let-mortgages.”
The exit strategy was to split the property title, creating individual leases and allowing Ringwood to refinance each apartment and the mansion house separately with buy-to let-loans.
Lendy describes Ringwood as an experienced developer with a large and proven property portfolio.
Lendy instructed Liverpool-based surveyors Keppie Massie to carry out a valuation, which gave an aggregated value for the house and flats of £4.9m. This included £1.7m for the mansion house, which has been operated as holiday lets and a special occasion venue, and values ranging from £177,500 to £250,000 for the flats.
The valuation was based on a normal 18-month marketing period – an important consideration given that “demand for luxury apartments in north Wales is modest” as Keppie Massie put it.
Lendy agreed to issue a 70% loan-to-value bridging loan of £3.4m at an interest rate of 11%, which was drawn down by Ringwood on 3 January 2017. Some 2,426 Lendy investors put their capital into the loan.
Investors called in
But within six months, receivers were being called in.
According to Lendy’s updates to investors, the borrower asked for the redemption statement in March and planned on redeeming the loan a month early.
In April it reported that the borrower was liaising with a long-term finance lender in order to redeem a substantial amount of the debt. By June, however, the proposed refinance was “no longer proceeding”. When Lendy appointed receivers the following month, it said it was “not willing to accept the partial redemption of the loan due to the increase risk profiling it would have exposed us to”.
There was more to come to ring alarm bells with investors in the loan. In September, Lendy reported that the LPA receivers had taken advice from third parties about the property’s value. This advice had given “adverse opinion as to the property value”. With the loan now looking more risky, Lendy suspended the trading of the loan on its secondary market. In other words, investors could no longer put their share of the Westbury Castle loan up for sale.
Vacant possession
Discussions with Ringwood continued. But with no signs of a refinance of the loan materialising, the LPA receivers pressed ahead with a strategy to obtain vacant possession and sell the property on the open market.
By the time it went under the hammer, the loan was 240 days overdue. Lendy’s investors are made fully aware that in the event a loan goes into default, their capital and interest will be payable only if Lendy recoups sufficient funds from the borrower or the sale of the security property. Indeed, all investors must accept a risk statement on Lendy’s website before being accepted to invest.
Nevertheless, the loss on the Westbury loan must surely rankle with those investing their hard-earned cash into the P2P platform.
EG contacted Ringwood, but he did not respond to our questions about the Westbury Castle loan.
EG also contacted Lendy, but it was unable to comment beyond the statement it had previously given, which said: “The borrower was asked to refinance as the loan expired. However, the borrower was unable to repay the loan in time, so receivers were appointed and the property is going to auction.
“We have a detailed valuation of £4.9m from a reputable firm of valuers and this is the value that was lent against.”
Lendy’s spokesperson responds
A spokesperson for Lendy said that the company would be pursuing a claim against the borrower in order to recoup costs, saying: “We are disappointed that the sale of Westbury Castle at auction fell short of the original independent valuation put on the property.
“Before this loan was written, Lendy undertook detailed due diligence with our advisers, including a valuation by a RICS-registered independent property agency.
“However, the sale of Westbury Castle is just one stage in our process for recouping maximum value for lenders. Following the auction, we have acted immediately to protect the interests of our investors.
“As part of our efforts to bridge the gap between the value of the property realised at auction and the loan value, we will be pursuing a claim against the borrower (in line with the terms of the loan agreement) and we will update investors on that and other actions in due course.
“Despite our strong and sustained track record of delivering above-market returns to our investors, there are, sadly, occasional instances where a single property may not realise its full potential value for investors.
“It is for this reason that we always recommend that investors diversify their portfolios across a wide range of loans in order to manage concentration risk effectively.
“We also always recommend that investors read the full independent valuation reports on the properties they lend against and that they never commit more than they are comfortable with to any one loan.
“We are, however, very aware that investors will be disappointed at the price realised, so we would like to reassure all investors that the team will be putting every effort into recovering as close to the full capital value as possible, on top of the interest already earned.”
All about Lendy’s
Lendy’s current default rate is 10.4%, which is in line with the P2P sector average.
Concerns were raised last year when its default rate rose from 4% at the start of 2017 to around 13% in June 2017 as older loans matured.
Lendy has grown dramatically since it was founded in 2012 and now employs 25 people and has 19,591 registered users.
Its users have invested more than £370m and earned a total of £36m in interest on loans.
It has a live loan portfolio of £186m.
Lendy says none of its investors has lost capital since its launch.
Investors are told to expect up to 12% annual interest on their investment in a loan once interest is being paid by the borrower.
A provision fund has been set up to cover 2% of the live loan portfolio. This can be used to cover a shortfall in asset disposal, but this is on a purely discretionary basis.
To send feedback, e-mail julia.cahill@egi.co.uk or tweet @egjuliac or @estatesgazette
