Gray Stern of LandBay
Landbay co-founder and New Zealander Gray Stern tells BQ what inspired him to launch the peer-to-peer investment platform and why he chose to set up in London.
Tell us about Landbay – what does the business do and how does the business model work?
Landbay is an online mortgage lender. We match investors to our mortgages using our peer-to-peer technology platform. This enables our investors, both retail and institutional, to earn reliable monthly returns secured against tangible mortgage assets.
What inspired you to launch the business? Can you remember the lightbulb moment which sparked it?
I’ve been involved in property finance for over 20 years – I first saw an opportunity fund mortgages using an online platform post the 2008 Financial Crisis. For a number of years there was an undersupply of credit, particularly into property. At the same time savers were suffering from low returns on their savings --- there was a clear opportunity to bring the two together efficiently.
Tell us a bit about yourself, where did you grow up and what previous jobs had you held?
I grew up in Auckland, New Zealand. I took a gap year job working in Westpac’s corporate property division. I was the youngest there by about 20 years, but that was a positive as everyone there saw me as a bit of a project. Being exposed to complex transactions was exciting and I worked with some smart people, learning how to analyse and structure good quality credit.
I stayed there for 5 years, then did a similar stint at a mezzanine financier (doing higher risk property lending). After that I went client side, managing development projects on behalf of private investors. It was this experience that got me thinking about the online financing platform, and ultimately saw me moving to London in 2013 to set up Landbay.
Did you receive any support when starting up and getting it off the ground?
Of course. When I moved to the UK I had a very limited network here. Luckily, I met my co-founder and CEO John Goodall very early on (July 2013). He had just completed his MBA and had been looking at the burgeoning peer-to-peer lending space - so we were both looking at the opportunity from different sides (John as a saver, and me as a property investor). It was a logical step then to launch Landbay as a peer-to-peer funded mortgage lender.
What challenges have you had to overcome since? How did you overcome them?
For any new entrant to market, I think one of the main challenges is building trust among potential customers, something that is particularly true within the peer-to-peer space, which was – and to an extent still is – in its infancy when we launched Landbay. Trust is something that has to be earned, so we have spent the last three years focused on providing our investors a high quality lending product.
To date we have had no defaults or arrears – the only major peer-to-peer platform with a clean performance history - a result of our prudent approach to lending. Furthermore, as of December 2016 we became fully FCA authorised, enabling us to launch our Innovative Finance ISA last month, one of the first in the industry.
With the funding side of our business now in place, our focus has turned to originating mortgages at scale, an area which has been the sole domain of the banks up until now. As most people know it can take months to move through the application process - it’s cumbersome and ripe for improvement.
At Landbay we currently work to a 48 hour turnaround, which includes bespoke manual underwriting by our experienced team. While we have invested in technology to streamline the application and back-end processes we continue to rely on our team’s experience to review all cases – this can’t be replicated by algorithms.
How did you raise the finance to continue growing the business?
Our equity funding has been split between private individuals and a number of institutional investors, including a hedge fund and the listed company Zoopla Property Group. As a mortgage lender we also have to raise lending capital.
To date, we’ve been funded by retail investors, but over the course of this year we will be complementing this with significant institutional funding. Getting those facilities in place has been a challenge, but we’ve come out the other side with the capacity to rapidly scale our lending operation.
How much are start-ups like yourself changing the property sector?
There is a lot of talk about disruption; probably the most overused word in the start-up world. At this stage most of what’s being done is really just focused on process improvement and efficiencies: moving stuff online and giving it a pretty website, leveraging simple technologies to improve the customer experience.
At the moment it’s lots of small players working on niche solutions --- individually they don’t amount to much, but in aggregate it becomes quite compelling. That’s why we’re building a platform that will bring the best of these together. We think we’re very well placed to do this, as for many people, the property transaction experience revolves around the mortgage.
What does the future hold for prop-tech?
We’re focused on streamlining investment into quality housing. This may seem a bit of a stretch, but we’ve always seen the mortgage as the gateway into the broader housing sector. Controlling the finance unlocks opportunities to improve what is a dysfunctional market in many respects. At Landbay, we are now close to providing fully-funded and underwritten mortgages in real time at the point-of-sale, removing what is a massive pain point.
As a mortgage lender we also collect a lot of data, so applying this data to help streamline other processes, say the provision of insurance, tax/accounting, conveyancing, property management – this is the logical next step. A streamlined process saves on time and cost – and my hope is that we can redirect these savings back into the properties themselves, creating better homes for more people.
Just how much has the company grown since its launch?
There’s 25 of us now and we’ve facilitated 250 mortgages on c.£65m of UK residential property.
What do you put this growth down to?
We’ve grown slowly against a clear long term strategy that hasn’t materially changed.
Finally looking forward, what are your plans for the future?
Our goal is to build a solid lending business, while improving the quality of UK rental accommodation at the same time.