We take an institutional approach to both risk management and corporate governance to ensure we operate under best practices and manage risks wherever possible.
Our board of directors have extensive experience working with a range of companies, both in the financial services sector and wider afield. They consider key business decisions such as overall corporate strategy.
The board have appointed three committees who meet to consider and report directly to the board on key aspects of the Saxon Trust business including (i) risks, (ii) operational activity and (iii) credit decisions.
The risks associated with operating a marketplace are diverse and we regularly review our risk appetite framework in line with the changing environment that our business operates within. We have listed some of the main risks associated with property finance products below.
We always recommend that our investors diversify their investments between a range of loans. This way, if one property falls in value, the borrower falls behind with their payments or we need to take formal action to recover the security, you have spread your risk across a number of loans.
There are three main categories of risks:
Property market risk
The value of UK property can go up as well as down with economic cycles. If the value of a property against which we have lent falls, the borrower may find it difficult to meet their repayment obligations, particularly if they try to refinance their loan based on a reduced valuation. We plan for this risk by issuing loans worth no more than 75% of the property's value, and understanding market dynamics in the property's local area. If a borrower requests an extension on their loan, we will normally commission a new and independent valuation of the property.
For all our lending, we obtain a professional valuation, undertaken by RICS registered valuers with local experience, which are backed by professional indemnity insurance. Each valuation is carefully inspected by our experienced underwriting team to ensure the security is acceptable to support the lending proposal. LendInvest has a restricted valuer panel for all residential and commercial valuations and regular reviews are undertaken of the valuation service including the quality of the reports provided to us. The valuations allow us to make informed decisions about where to lend and against how much of the value.
All our loans are backed by security. As with any secured asset, there is a risk that the security is not properly constituted, rendering it unenforceable. A particular risk associated with property investment is the risk of property fraud. We work closely with our panel of solicitors, each of which is a specialist in property finance, and require that the solicitors used by the borrower meet our minimum requirements. This, together with our diligent internal processes, ensures that property risk and security risk is minimised.
Property and payment risk
Our property finance products typically range from one to three years in duration and repayments are contingent on the borrower's successful exit from the underlying property project. Before committing to a loan, we examine the viability of the borrower's payment schedule, including monthly interest payments, as well as the intended exit route - typically by refinancing or selling the underlying property. In the industry we operate within it is common that extensions and further advances are agreed. Each time one of these is requested, we thoroughly review the borrower's track-record and the project's progress to ensure continued suitability before approving an extended term.
Financial crime risk
Generally speaking, those seeking short term property finance in the UK are working to short deadlines that require fast turnarounds. The profile of these borrowers can be very diverse too, ranging from individuals to complex corporate structures.
These factors make short-term property finance a target for criminals to attempt to launder money or commit other financial crimes. Our experienced underwriting team undertakes robust due diligence on every customer using two of the country's leading fraud detection systems. You can find out more about our due diligence approach below.
Every loan we underwrite is secured against property. This means that in the event that a borrower fails to repay, we would seek to recover the outstanding loan by selling the property and passing the proceeds on to investors. The secured nature of the loan does not, however, mean that repayment of the loan is guaranteed because the loan outstanding may exceed the property net sale proceeds. Where appropriate we will also look to rely upon the personal guarantees from the borrower or directors to ensure the loan is fully repaid.
Sometimes, borrowers require some flexibility. For example, they might warn us of an issue that could make them late on an interest payment (perhaps a delay in obtaining planning permission from the council has tied up their cash flow for longer than anticipated), or they tell us they may not exit the loan within the prescribed term (perhaps the sale of the property has been delayed). If, having assessed the facts and the evidence provided to us, we are comfortable with the delay, we may allow the borrower to defer payment to a later date.
If the borrower fails to make payments, an investor may not receive the investment income as your capital is at risk and repayments are not guaranteed.