Landbay is first P2P lender to put itself through Bank of England stress tests and publish the results.
A stress test is an analysis conducted under unfavourable economic scenarios, designed to determine whether a bank has enough capital to cope with the impact of adverse developments such as for example an increase in unemployment and low housing prices.
As the first peer to peer lender to do so, Landbay decided to put themselves through the same level of stress testing as the high street banks.
Landbay published the results of the tests that were independently run by MIAC Acadametrics Ltd (MIAC), a leading mortgage industry data, analytics and risk consultancy.
These stress tests were conducted to Bank of England (BoE) criteria and modelled how Landbay mortgages would perform in both a base and stressed economic environment.
The very positive results provide clear evidence for Landbay’s assertion that it is very low risk.
1. BoE base case scenario – assuming the economic conditions expected by Bank of England (BoE)
Result: 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%
Result: average expected loss rate of 0.48% before interest payments
Landbay’s provision fund is currently maintained at 0.60% of the loan book, meaning that all losses would be absorbed.
These results reflects no loss to Landbay lenders, even in the Bank of England’s stress test scenario designed to imitate the return of a deep recession, and provide evidence of just how secure lending at Landbay is for their customers.
This means that even should economic conditions bring about big falls in property values, Landbay’s lenders remain shielded.