Landbay passes BoE criteria stress tests

Peer-to-peer buy-to-let mortgage lender Landbay has published the results of stress tests that were independently run by MIAC Acadametrics Ltd (MIAC), a mortgage industry data, analytics and risk consultancy.

The stress tests were conducted to Bank of England criteria and modelled how Landbay mortgages would perform in both a base and stressed economic environment.  Landbay thought it appropriate to put its business model through the same rigorous stress testing that UK banks are required to go through by the Bank of England.

In summary, the results are as follows:

  1. BoE base case scenario – assuming the economic conditions expected by the BoE
    = average expected loss rate of 0.03%, before interest payments
  2. BoE stress test – assuming GDP down by 3.5%, unemployment rising to 9% and UK house prices falling by 20%
    = average expected loss rate of 0.48% before interest payments. NB – Landbay’s contingency fund is currently maintained at 0.60% of loan book, and so would absorb all of these losses.

If the stress test was made worse to include a 25% drop in house prices, the Landbay loss rate, before interest payments, would only increase to 0.52%.

John Goodall, cofounder and CEO of Landbay, said: “These impressive results provide a firm vindication of our work to make lending at Landbay a low risk proposition –arguably the lowest risk of any peer-to-peer lending in the UK.

“For investors seeking better returns than those from bank savings accounts (3.5% and 4.4% currently) but without the radically higher risk of say funds investing in stock markets, Landbay is an ideal solution worthy of serious consideration.”

Joe Macklin, director of MIAC, said: “MIAC believes the approach to generating key assumptions in this exercise has been prudent and has therefore resulted in conservative estimates of future portfolio performance.

“Despite this caution, given the adverse nature of the stresses and sensitivities we have applied in line with the BoE scenarios, Landbay’s existing portfolio, and its anticipated future portfolio, performed with impressive resilience.”

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