Get 12% on your savings with a site called Blend Network. Is that really possible? Surprisingly, it is.
When companies offer two-digit returns on investments I am always suspicious. At 12% I would expect a lot of risk and possibly even a company trying to pull the wool over my eyes!
However, when I learnt about what Blend Network actually invest in I liked the idea and thought I would give it a go myself. i haven’t put a large amount in because I consider that it’s risky, but I was impressed enough to give it a go a year and a half ago and I’m still putting bits of cash in.
- What is Blend Network
- How does it work?
- Advantages of investing in Blend Network
- Should you invest in Blend Network?
Blend Network provides money to small developers: really small – like people who are building a house or a development of a few flats. They purposely avoid London property as there isn’t so much potential there and prices are too high. They also only invest in affordable housing, not those crazy-priced properties that get bought by rich people who never live in them.
And there’s a huge demand for this kind of property. Housing experts report that 40% of all new houses built every year need to be affordable homes, but 2016-2017 figures show that the figure was only 23%. Recent research also states that England has a backlog of 3.91 million homes, meaning that 340,000 new homes will need to be built annually until 2031.
Blend Network lends on these properties because they saw a gap in the market. Surprisingly, these small developers creating affordable housing are being ignored by the banks because they don’t want to borrow enough! This is the kind of thing that can happen in the world of borrowing. If you want to borrow millions there are quite a few organisations interested in speaking to you, but if it’s a relatively small amount (a few hundred thousand pounds) then the banks shut their doors.
Loan amounts at Blend Network recently have been £125,000 (to turn a guesthouse in Norwich into six flats), £300,000 (to help turn an empty office block in Norfolk into flats) and £450,000 (to part finance the costs of developing a site in Derrycrin, County Tyrone into 6 houses).
Blend Network has already lent £5m to twenty projects across Northern Ireland, Scotland and the North of England, with zero defaults and an average fixed return of 12.06% p.a.
who borrows the money?
It’s small developers who borrow money through Blend Network. They tend to borrow it for 18-24 months but some of them pay the money back quite a lot earlier (like just after six months).
They borrow this way – at quite high rates given where the Bank of England base rate is right now – because they can’t get loans from the high street banks.
Blend Network lends the money at 2% above the rate that we the investors get. So that means that developers are borrowing at between 10-17%, an expensive rate, and they are keen to pay it back as quickly as possible!
Blend Network works on a peer-to-peer model. In other words, it puts borrowers and savers together (sort of) so that savers like you and I lend pretty much directly to individual borrowers.
It’s not that they give you the name and phone number of the borrower together with their bank details!
It’s more that they tell you on the website what development is coming up that needs cash and then you can decide if you want to be one of the people to put a bit of money into it. Some big investors put a lot of money in but many others just put in £1,000 or so.
- £1,000 is the minimum investment that you can make.
- You will need to be willing to tie your money up for a few months at least if you invest it here.
You can either wait until Blend Network tells you about a new development coming up to invest in or you can set your money on ‘automatic’ so that as soon as a property comes up, some of your money (whatever you have set on the system) is automatically invested. You can put in the system the minimum return you want (say 11%) and the maximum amount of time you want to invest for (say 18 months) and then when the right property comes up, your money is put into it immediately.
Actually, it’s not a bad idea to put it on automatic. Once you’ve decided you like the company and trust them you’re more likely to get a piece of the action if you set payments at ‘automatic’ as the investments get filled up very quickly when they come on line.
a healthy secondary market
One good thing to know about Blend Network is that they have a healthy secondary market – in other words, there are people hanging around who would be happy to buy your loan off you if you decide that you don’t want to keep your money there for the full term.
This is helpful to know as the last thing you want is to have to take money out of an investment and then find you can’t because no one will buy it off you. It’s helpful to know that you can get out of this if you need tol
There are a few advantages of investing in Blend Network
- The excellent returns. Yes obviously, the number one reason for investing in it is to get that lovely average interest rate of 12%. That’s certainly the part that interested me! So far some of the borrowers have paid back early and there have certainly been no defaults but that doesn’t mean that there might not be some in the future. You take the risk but you are paid well for it.
- A good team. There is a professional team running Blend Network with backgrounds in investing and property. These are people with years-worth of experience not twenty-somethings with a nice idea,
- Strong demand. Blend Network only invests in property and only residential property. As we know, there is a huge demand for housing around the country as we have not built anywhere near enough properties to cater for the growing population. It’s not that houses are always ‘safe as houses’ but they are a better bet than many other types of investments.
- Helping to increase the housing stock. As mentioned above, there are nowhere near enough places for people to live in this country so by investing in these properties you are helping to make many people’s lives better by providing more affordable housing for families, couples and singles to live in.
- Other investors. Quite a number of well-known funds and individual investors have already put money into it. Although this one factor shouldn’t swing your decision – history is littered with terrible investments that quite sensible and intelligent people have lost money to – it can help to know that people who have a lot of experience of the market think that this is a good thing. Recent investors include Cyrus Ardalan, former Vice Chairman of Barclays and current Chairman of OakNorth Bank and Citigroup Global Markets Ltd, the Family Office of former CEO and current Chairman of Publicis Group Maurice Levy and Jean-Phillipe Blochet, co-founder of Brevan Howard, one of the leading ‘macro hedge funds’.
- Reputation. Blend Network has not been around for long but so far it has developed a good reputation in what can be a tricky area. CSO, Roxana Mohammadian-Molina, says “From what we’ve heard in the press, the main issue surrounding the competitor who went into administration was the high level of defaults. To avoid defaults and to protect Blend Network against poo-quality loans, we have built a very experienced team with a strong background in finance and property. Their job is to select the deals we are happy to lend on our own money to show we have skin in the game, and perform an enhanced the due diligence on each deal. As a consequence we had 0 default so far and that is the way we want to continue building the platform.”
- Early repayments. So far about a third of the loans have already been repaid, which is impressive as the company has not existed for very long. This helps investors feel more security that their money is being lent out wisely.
Investing in Blend Network – and any peer-to-peer business – is risky.
- This is not the sort of thing you should invest in if you don’t like to take risks.There is a relationship between risk and reward: the higher the risk, the higher the potential reward. You can see that the reward here is pretty high so you have to accept some risk with it.
- If you do invest in it you should only put a small percentage of your investment money into it. As you know, one of the fundamental tenets of investing is that you shouldn’t put all your eggs into one basket. With riskier investments you should also remember that you should only put a small percentage in.
- Blend Network hasn’t been around long, just over a year in fact and that is a short time in the world of investments. So far they have done very well with no defaults and some very happy investors but you might feel that you would like to wait and see how they do for a bit longer before you jump in.
- The company is covered by the FCA but there isn’t compensation if one of the borrowers defaults. You take the risk on this and that is one of the main reasons why the returns are so good – it’s risky.
- This may not last long. At the moment, Blend Network does well because the daft banks don’t see the value in lending small amounts of money to small developers. After a couple of years they will work out that they are missing a trick and will come into the market. This will increase competition and bring rates down. So, having said in item 3 that you might like to wait, there is also the chance that you will miss out on the top rates if you do.
- And of course, the ‘B’ word! Yes, Brexit could affect property as it could affect anything else. It’s already had a marked effect on central London property and who knows, it could affect it elsewhere. However, we know that there is a dire shortage of housing in the UK so that should keep demand and prices going even if politics messes things up again.
It’s quite possible that it’s good for your portfolio. I invest in it and have been quite happy with it so far. However, it’s not right for everyone.
- It really depends on your spare cash and your attitude to risk.
- Do you already have some ‘safer’ investments such as pensions and equities ISAs?
- Do you have some money in a savings account that you’re not touching unless you have an emergency need?
- Are you looking for some extra investments that will give you really good returns?
If your answers to those questions are ‘yes’ then it’s likely that this could be for you.
But if you’re still building up your investments and you would have a big problem if you suddenly lost any of the money then it may be best to stick with the safer and lower-returning products.