Our terms and conditions are periodically updated to take into account changes in law, the regulatory regime and other matters. The Terms and Conditions applicable to your loan are the terms and conditions at the date you signed the Security Agent Instructions form or submitted your online pledge. If you are unsure, please contact us as we will have a record
Changes to previous version:
1) Additional wording in 7.8 to give further detail on the process for loan extensions
2) Addition of 7.12 - 7.16 to outline the payment waterfall (ie the order of payments)
3) Additional wording in 13.16 to specify how HNW will communicate to lenders regarding loans in arrears or default
4) New clause 16.3 which states:
By entering into a loan commitment the Lender confirms that it is not connected to the Borrower in any way with reference to the HMRC connected parties rules
Changes to previous version:
1) Addition of the following to 13.3 to clarify the process of majority decisions on course of action to be taken in relation to loan enforcement:
The course of action chosen will generally be that voted on by the majority of lenders (based on % of the loan held) unless the debt collection agency appointed to enforce the loan feel that this course of action would prejudice the recovery of the loan
It should therefore be noted that if one lender was to vote to commence enforcement action but the majority of lenders voted to allow the borrower a loan extension, then the borrower would be given a loan extension. The options then open to that lender would be either to accept the loan extension or try to sell their participation on the secondary market
2) Addition of an extra risk into Section 22 Risks and mitigation for lenders
Although a borrower commits to take out a loan for a specified period of time, such as 12 months, HNW Lending Ltd has found that relatively few borrowers pay back on time. In broad terms, HNW Lending Ltd have found that about a quarter of borrowers pay back early, a quarter within a week or two of the expected repayment date, a quarter ask for loan extensions and a quarter pay back either a month or more late or debt collection action is required. Lenders should note that they will continue to accrue interest on loans that do not pay back on time and loans where debt collection action is instigated
As decisions are taken by a majority (based on % of the loan held), it should be noted that if one lender was to vote to commence enforcement action but the majority of lenders voted to allow the borrower a loan extension, then the borrower would be given a loan extension. The options then open to that lender would be either to accept the loan extension or try to sell their participation on the secondary market
Changes to previous version:
1) Addition of the following to clarify the process on sale of loan parts:
8.10 Should you wish to sell a loan part then by filling in the Sale Form you undertake to sell / assign your loan part to another lender at the price stated on that form unless you have withdrawn that request prior to the sale having taken place
8.11 A buyer of a loan part will need to fill out the Security Agent Instructions Form as normal but will be advised on this form of any discount being applied to the loan part being purchased. If there is no mention of a discount then the loan is being purchased at 100% of face value. In all other respects a pledge to purchase on the secondary market is the same as a pledge to a loan before the loan commences.
2) Clarification of client money arrangements, and in particular the addition of the following into 3.8:
Funds deposited by you into HNW Lending's client account remain your money until lent to a Borrower in accordance with your instructions and will be identifiably separate to any other client funds. Similarly we will promptly deposit in the HNW Client Account all funds received by a Borrower in respect of your Loan, save for any amounts due to us.
3) Addition of a declaration of Trust into the Lending Agency agreement:
3 Declaration of Trust
3.1 The Security Agent shall hold the Trust Property upon trust for the Lender, and the obligations, rights and benefits vested or to be vested in the Security Agent by the Collateral and the Personal Guarantee shall be performed and exercised in accordance with the instructions of the Lender and otherwise on the terms of this Deed.
3.2 Save as expressly provided to the contrary in the Lender's Terms and Conditions, all monies from time to time received or recovered by the Security Agent under the Loan Agreement or in connection with the realisation of all or any part of the Collateral or Personal Guarantee shall be held by the Security Agent on trust for the Lender.
4) Insertion of reference to the Innovative Finance ISA
5) Various minor wording changes and capitalisation of defined terms such as replacing "borrower" with "Borrower"
Change to previous version: Paragraphs 6.8 and 6.9 added to comply with FCA regulations:
6.8 HNW Lending is required to give you a fair description of the likely actual return on your investment, taking into account fees, default rates and taxation. The 'Interest Rate Payable to the Lender' box on each Security Agent Instruction form that you are required to agree to as your pledge for each loan is the gross return paid to the Lender, after deduction of our fees. Taking the fact that in the period to December 2016, over 100 loans have been made and there have been no capital or interest losses sustained by lenders, the major further deduction required is therefore likely to be for taxation. However, past performance should not be taken as predictive of future performance and so to show a fair description of the likely actual return on your investment, HNW has assumed 2% is deducted to take into account the default rate. This is equivalent to one loan in twenty defaulting and the resulting loss being 40% of the capital. For a basic rate taxpayer where 20% tax is deducted, a fair description of the interest rate payable to lender would be the rate as displayed in the 'Interest Rate Payable to the Lender' box less 2% for defaults and then 20% for tax. For a higher rate taxpayer where 40% tax is deducted, a fair description of the interest rate payable to lender would be the rate as displayed in the 'Interest Rate Payable to the Lender' box less 2% for defaults and then 40% for tax. However it should be noted that HNW Lending Ltd is not required to deduct tax and so you will be paid the interest rate as per the 'Interest Rate Payable to the Lender' box on each Security Agent Instruction form.
6.9 HNW Lending is required to give you a description of how loan risk is assessed, including a description of the criteria that must be met by the Borrower before HNW considers the eligible for a loan. This is a complicated process and full details are available in our document titled "Responsible Lending Policy and Procedure" which is available on request. However some of the most important points are as follows:
- we ensure that the commitments under the P2P agreement will not adversely impact the borrower's financial situation and do our best to ascertain that the borrower will be able make repayments as they fall due over the life of the agreement with the repayment strategy being realistic and achievable
- we ensure that the loan to value of the asset being offered as collateral meets our loan to value criteria and arrange for a suitable valuation as required to enable us to assess this
- where the loan is for business purposes, we collect sufficient evidence that the loan is indeed for business purposes
- we check that none of our 'red flags' that indicate that we will not lend are not present, for example where we suspect money-laundering may be involved
A creditworthiness assessment of the Borrower is carried out for each loan.
Change to previous version: Lending Agency Agreement added as an appendix rather than as a standalone document
Changes to previous version:
1) FCA Risk warnings added:
Please note your capital is at risk and interest payments are not guaranteed
2) Paragraph 7.11 added with accompanying Client Money Flows diagram:
7.11 HNW has elected to treat all client monies for all loans, including those related to business to business loans as client money as defined by the FCA and applies the FCA rules to its treatment of all client monies, including keeping all client monies in segregated client accounts.
3) Clause 22: Risks and mitigations for lenders changed to:
22. Risks and mitigations for lenders
here are risks associated with taking out a loan and HNW Lending Ltd cannot guarantee that every lender will get all money lent back (plus the interest) at all times. While, to date, HNW Lending Ltd has never lost any capital or interest payments, a number of loans have been in default and so it is important to understand all potential risks. Below are what we believe to be the risks lenders are taking and also the procedures HNW Lending Ltd has put in place to mitigate those risks for lenders
1) The property needs to be sold but sells for less than the loan value
First, there is a loan to value threshold calculation in all HNW Lending Ltd's loan agreements. This means that if the the asset value falls beyond a certain level, then HNW Lending has the right take possession of the property and sell it before the end of the loan.
For example, let us assume that HNW Lending Ltd organised a loan for &pounhd;65,000 against a property worth &pounhd;100,000. On day 1 of the loan, the loan is at 65% loan to value (&pounhd;65,000/&pounhd;100,000). The LTV threshold may be set at 70%, which means that if the value of the asset fell below &pounhd;92,860 (&pounhd;65,000/70%), then HNW Lending Ltd as agent for the lenders, would tell the borrower that the loan was in default and either ask for more collateral to be posted, some of the loan to be repaid, or would take steps to sell the asset. This means that the lenders do not need to wait until the end of the loan term, by which time the asset may have fallen below the loan value. Nevertheless, the risk remains that the asset may sell for below the value of the loan
Secondly, HNW Lending Ltd always obtains a personal guarantee from the borrower. This means that if the sale of the asset was not sufficient to repay the loan, then HNW Lending Ltd as agent for the lenders should be able to sue the individual on behalf of the lenders. However there is still a risk that the legal action agains the borrower fails or if the legal action is successful, the borrower has insufficient assets
2) The valuation of the asset is incorrect
If the asset was to sell for materially below the asset valuation, and this is less than the outstanding loan amount and interest then the interest and capital on a loan may not be able to be repaid in full. However, if the asset was to sell for materially below the asset valuation, HNW Lending Ltd, on behalf of the lenders should have a legitimate claim against the third party valuer (and their insurers) for negligence. This means HNW Lending Ltd should recover the shortfall from the valuer (or their insurers) in order to pay this on to the lenders. All HNW Lending Ltd's valuers have at least &pounhd;1m of insurance cover per claim, however the risk remains that a legal action against a valuer may fail
3) The loan documentation proves to be unenforceable
The loan documentation is drawn up by HNW Lending Ltd's solicitors. As a result, they give a representation before each loan is completed that they have fully reviewed the terms and conditions in the loan documentation and confirm that they enable interest collection, the loan principal to be collected and enforcement action to be successfully taken against the borrower in the event of default.
This means that if HNW Lending Ltd as agent of the lenders cannot enforce the loan then there should be a valid claim of negligence against the solicitors and thus any shortfall should be able to be recovered from the solicitors (or their insurers) in order to pay this on to the lenders. All HNW Lending Ltd's solicitors have at least &pounhd;1m of insurance cover per claim, however the risk remains that a legal action against a solicitor may fail
4) The loan does not comply with all applicable laws and regulations
The loan documentation is drawn up by HNW Lending Ltd's solicitors and they are responsible for ensuring that the loan complies with the provisions of the Financial Services and Markets Act 2000 and all of its secondary legislation, the Consumer Credit Act 1974 and Consumer Credit Act 2006 and any other relevant legislation (eg in relation to collective investment schemes). The solicitors also give an assurance to the lenders on each and every loan that HNW Lending Ltd as arranger and agent for the lenders and the lenders themselves comply with all applicable regulations to enable them to enter into the transaction
This means that if HNW Lending Ltd or the lenders do not comply with any applicable laws or regulations then there should be a valid claim of negligence against the solicitors. All HNW Lending Ltd's solicitors have at least &pounhd;1m of insurance cover per claim, however the risk remains that a legal action against a valuer may fail
5) HNW Lending Ltd becomes insolvent or ceases trading
HNW Lending Ltd adheres to the Financial Conduct Authority requirements which includes having a wind-up plan and having a sum set aside to pay for this wind up plan in the event of our insolvency or that we cease trading. All loans are protected by way of a charge on the property lent against or a pledge over an asset. Any receiver will see that a lender's loan is secured against the relevant asset and will work to repatriate the lenders money
In addition, HNW Lending Ltd has put arrangements in place to protect your money in the event of our insolvency including funds not committed to lending being held in a segregated client money trust account according to the rules of the Financial Conduct Authority. It should also be pointed out that the shareholders of HNW Lending Ltd also invest in most of the loans and so it would be in their interests as well to see an orderly winding up of the business so that their shares of the loans were also repaid
6) HNW Lending Ltd provisioning
HNW Lending Ltd holds a proportion of its fee and margin income so that if a borrower defaults and there is a shortfall (after selling the property and less all related enforcement costs), then any fees and margin income earnt by HNW Lending Ltd will be paid back to Lenders so that HNW Lending Ltd has made no profit on such a loan
7) There are further risk mitigation policies in place:
Before we advance a loan to a borrower we conduct comprehensive identity, fraud and anti-money laundering checks and perform due diligence on the underlying security asset, including a valuation. We assess the Borrower's credit history, level of assets and liabilities. If we find this to be deficient the loan will not proceed.
Money is only handled by HNW Lending Ltd's solicitors or in a Client Account HNW Lending holds unlent funds on lenders' behalves in trust in a segregated bank account with Barclays Bank PLC so they do not form part of our assets (and would not be available to our creditors in the event of our insolvency) or in solicitors client accounts which are similarly protected. The security charge over properties is also held in trust for the benefit of lenders.
HNW Lending Ltd have had many years experience in the lending business and therefore reject many opportunities that do not match our lending criteria
The Directors of HNW Lending Ltd offer to put their own money into every loan Where HNW Lending Ltd arranges a loan on a property development, HNW Lending Ltd will employ (at the borrower's expense) third party monitoring surveyors who confirm the budgets are reasonable and that works have been completed prior to HNW issuing any stage payments. Lenders are lending on an individual loan basis and not in a 'fund'
Your Investment is not covered by the Financial Services Compensation Scheme (FSCS) Investing in Peer-to-Peer lending involves risk to your capital. If you suffer a loss, you are not entitled to compensation from the FSCS. Although HNW Lending Ltd is regulated by the Financial Conduct Authority (FCA), this does not mean that customers' funds are covered by the FSCS up to £85,000.
This document was substantially re-written from previous versions to comply with FCA peer to peer lending regulations
Please note your capital is at risk and interest payments are not guaranteed. Click here to find out more