Good day ladies and gentlemen and welcome to LendInvest plc full year results 2025. At this time all participants are in listen only mode. Later we will conduct a question and answer session through the phone lines and instructions will follow at that time. Alternatively, participants can submit written questions using the Ask a Question button on the webcast page. I would like to remind all participants that this call is being recorded. I will now hand over to the CEO of LendInvest, Rod Lockhart, to open the presentation. Please go ahead.
Good morning everyone and thank you for joining us. We're excited to share our results for the year ended 31st of March 2025. I'm joined this morning by Stephen Shipley, our CFO, and Hugo Davies, our Chief Capital Officer. Over the next 30 minutes we'll deep dive into our FY 2025 performance, showcasing precisely how we've executed our strategy and, critically, how this positions us for profitable growth in the years to come. This past year has been transformative for LendInvest. We've achieved pivotal milestones in funding, dramatically boosted operating efficiency, and built a scalable foundation. Critically, we've made great progress in enhancing our profitability. Today you'll see a LendInvest that's more resilient, more agile, and leveraging its capital-light model to unlock scalable, profitable growth. I'll kick things off with a brief overview of our business for those of you that are new to LendInvest.
I'll then highlight the strategic achievements and then hand over to Hugo for an insightful look at our market and divisional performance. Stephen will then take the reins for a financial deep dive before I return to share the outlook. We'll, of course, conclude with a Q and A session. LendInvest was created to digitally revolutionize the U.K.'s colossal GBP 1.8 trillion property finance universe. We built an alternative finance platform designed to leverage cutting-edge technology to seamlessly connect investors with diverse property finance opportunities. We did it because there was, and there remains, a huge gap in the property lending market. While high street banks dominate mortgage lending, their legacy systems are suited to the mass market. There's a big and growing group of borrowers, which Hugo will come on to describe, that don't suit simple high street scorecard lending.
That's where we step in, able to better underwrite risk and create products tailored to their needs. For 17 years we've been pioneers, consistently simplifying property finance with innovative, tailored products across short-term, development, buy-to-let, and residential mortgages. Our proprietary platform empowers landlords, developers, and homeowners to secure funding with unparalleled speed and simplicity. The numbers speak for themselves. We've lent over GBP 8 billion since our inception, with GBP 5 billion of that coming in the last five and a half years alone. Critically, we're strategically shifting from a principal lending model to an asset management approach. This transition is designed to deliver stable, scalable recurring revenue and capitalize on the success we've already had in our investment programs.
Today, our funds under management, which encompasses both our capital deployed into loans and the capital we have committed for lending, proudly exceeds GBP 5.1 billion, which has more than doubled since our IPO in 2021. Our consistent track record has attracted formidable partners including JPMorgan, HSBC, Lloyds, BNP Paribas, and many more. At the heart of our success is a proprietary tech stack tailored to the needs of specialist property finance. This is our competitive moat. Few new entrants possess the domain expertise and can access the capital required to replicate with the same depth of automation, configurability, and scale. Our customer-centric engine dramatically enhances speed, simplicity, and transparency of securing property finance for borrowers and brokers. Our customers are prepared to pay for that service. We don't need to lean on price and can generate better risk-adjusted returns for our investors.
Many of our competitors are at the start of their digitalization journey. We've done it. Our platform now positions ourselves as a structurally leaner business capable of absorbing volume without proportional cost increases. This time last year, off the back of a difficult year for the business, we set out a really simple plan with three core pillars to get the business back on track. One. Drive lending growth. We committed to significantly expanding our lending volumes across core product lines vital at short-term mortgages, development, and residential. Our approach was multifaceted: deepening broker partnerships, fortifying crucial relationships to accelerate origination, expanding retention pathways, innovating with product transfers, bridge-to-let to maximize the client lifetime value, unlocking direct-to-customer potential, strategically cultivating new avenues for direct engagement and scalable growth.
Two. Operate more efficiently, not a one-off cost-cutting exercise but a structural realignment designed to reduce overheads, simplify the business, and embed technology-led processes across every function. Our goal was to embed a drive for operating efficiency across every part of our business. This meant transformation through automation, leveraging AI and automation to dramatically reduce our cost per loan and supercharge our underwriting throughput. Streamlining operations, rigorously optimizing workflows to drive agility, lean operations, and scalability. Optimizing our real estate footprint, rightsizing our London office to a smaller, more suitable space, deepening our investment in Glasgow as a strategic growth center. Three. Return to profitability, this was paramount and we focused on margin reconstruction. Meticulously rebuilding margins through stringent pricing discipline, robust cost control, and securing more favorable funding terms, driving substantial growth in net fee income to cement our path to a sustainable, profitable growth. How have we done?
I'm delighted to set out now our progress against this plan and the success we've had. FY 2025 marks a turning point for LendInvest. Having returned to profitability in September, we delivered a sustained performance throughout the second half of the year, achieving H2 profit before tax of GBP 500,000. This was a critical milestone for the business and a clear demonstration that our strategy is working. The progress reflects a combination of strong execution, tough decisions, and a focused effort across the business to simplify, scale, and reset the platform for long-term growth. That included reshaping our cost base, strengthening our capital markets relationships, and deepening our investment in technology that underpins how we lend, underwrite, and serve our customers. LendInvest today is a capital-light, technology-driven investment platform and the investment in technology over preceding years is now paying off.
Total new lending grew 39% year on year to GBP 1.23 billion, with particularly strong momentum in our mortgages division where volumes rose 62%. These results were driven by the strength of our service-led proposition, combining deep underwriting expertise with a tech-led platform that accelerates our decisioning, reduces friction, and builds trust with borrowers and brokers. Platform assets under management, which differs from the funds under management KPI because it's the invested part of the portfolio only, increased by 16% to GBP 3.23 billion, with 79% of those assets now managed on behalf of third parties. A clear signal of our strategic shift to a capital-light model and the confidence our platform investors place in the business. Our AUM today is more than double our AUM in our IPO. We've also focused on deploying our own capital selectively and effectively.
As a result, our net interest income doubled to GBP 15.7 million, supported by significant new and renewed financing, partnerships on improved terms, and a focus on using our capital to maximize our returns. When you put all of that together, we're delighted to have increased EBITDA by 117% to GBP 3.2 million. We're most proud to have sustained profit in H2, delivering PBT of GBP 500,000. The previous slide showed our key performance highlights in FY 2025. This slide is intended to give you more detail on how we did it. Here are eight key things that supported our turnaround. First, as we highlighted just now, lending was up 39% across the year, but the other critical component is at the same time operating costs fell by 22%. That top line growth combined with the leaner cost base is exactly what drove our return to profit.
Second, our tech roadmap is focused on driving further leverage from decisioning automation to AI-led underwriting support. We still have more to do, but right now we're reaping the benefits on a unique platform. Third, I'm going to give you some examples of exactly where and how technology is driving business performance. For instance, we reduced our average cost per buy-to-let origination by 60% from an average of GBP 671 across FY 2024 to GBP 269 by March 25. That's a huge gain in unit level efficiency as a direct result of automation and process design. Fourth, another example of average offer to completion times through FY 2025 improved by 16%, reducing from 43 to 36 days for our borrowers and brokers. That's faster access to capital with more certainty in tight timelines as well as supporting customer satisfaction.
Fifth, another strong example, our buy-to-let underwriter productivity increased by 50% compared with FY 2024, with each underwriter now able to process up to six cases per day, up from four last year. This means that six underwriters can now support up to GBP 900 million in annual originations or GBP 150 million per underwriter per year, up from GBP 100 million in FY 2024. Sixth, we've done all of this while holding headcount flat. New hires kept to a minimum. Just more output, better systems, smarter execution across the board. Seventh, as a proof point, we maintained a Trustpilot rating of 4.1 stars compared to a non-bank lender industry of just 2.7. That shows we're delivering better customer experience at scale even as volumes increase.
Eighth, We're proud to be recognized as Digital Lender of the Year 2025 by Smart Money People in their mortgage market broker survey, a signal that the market likes what we've built and the impact it delivers around speed and ease. The Smart Money People survey includes all mortgage lenders, mainstream and specialists. The flywheel's working: scalable technology, disciplined execution, and a relentless focus on customer delivery. That's what's powered the turnaround and what will fuel the next phase of our growth. I'm now going to pass across to Hugo, who's going to cover off the market and divisional performance.
Thank you very much, Rod, and good morning everyone. Now, for the last few years, every discussion about the ecosystem of property investment has been marked by a common theme. That theme has been uncertainty. The key question was always, when does this cycle turn? Today I'll pose a slightly different question. What if this uncertainty has created one of the most compelling structural opportunities in U.K. property finance since before the financial crisis? We are seeing more than just green shoots. We are seeing a fundamental market shift. The fundamentals are clear. Mortgage approvals hit an 18-month high last quarter, stock rates have stabilized, and critically, impairment levels remain historically benign. This isn't just sentiment. The market is regaining its rhythm. The real story isn't in a cyclical recovery.
It's the permanent change that's happening underneath as high street banks, constrained by legacy systems, continue to retreat from entire segments of the market and offer one-size-fits-all products. This begs the question, where do creditworthy borrowers with complex or bespoke needs go? Think of the successful portfolio landlord establishing a student-led HMO in the face of the Renters' Rights Bill , or the SME developer purchasing land at auction, or the doctor with multiple income streams. These are not high-risk borrowers. They are the engine of the U.K. property economy and they are undeservedly being underserved. The vacuum created by the high street is being filled by specialist lenders. Does mainstream now simply mean outdated and analog? Even the regulatory environment is responding, with the PRA and the FCA helping to address issues that restrict innovation. Where will the high street hide in that context?
Unsurprisingly, with the mainstream retrenchment coupled with political and regulatory goodwill and strong fundamentals, this opportunity has attracted a wall of capital. The global private credit market now exceeds $3 trillion, but over 40%, that's $1.2 trillion, is actively targeting asset-backed finance or lending such as U.K. mortgages and property finance. Naturally, with all of this capital trying to find a home, competition is fierce, counteracting any cyclical consolidation that would have been the story before. In this new world, how do we win? We think the advantage goes to today's smartest players, not today's biggest players. This is where we have built our moat. We are not just another lender. We are an alternative property finance platform with a proprietary data-rich, intelligent platform voted best in class. It allows us to turn market dislocation and niche complexity into scalable, bespoke opportunities.
If we talk about capital strength and institutional support, we are making a very bold claim, but it's a claim backed by billions of pounds of capital from some of the world's most sophisticated financial institutions. The term a flight to quality means more than just low-risk assets. It means risk-adjusted returns generated from an institutional-grade, scalable infrastructure. Our platform is a destination of choice. As you can see, we executed close to GBP 2 billion in funding transactions last year, and critically, every major deal was executed on improved commercial terms. These deals tell a strategic story. When a powerhouse like JPMorgan upsizes their separate account to GBP 1.5 billion, it's a strategic decision. They partner with us because we provide fast, scaled access to a high-quality asset class that supports their commercial ambitions.
A fast-growing retail bank doubled its commitment to GBP 1 billion, using our platform as a complementary engine to reach customers that their own brand cannot. When Soc Gen made its strategic entry into wholesale U.K. property finance, they chose us for their first GBP 250 million facility. This confidence is a broad-based theme with major renewals from HSBC, BNP Paribas, and Lloyds, all validating our credit performance and ability to originate at scale. This validation extends to the public markets too. Our sixth oversubscribed securitization priced at highly competitive levels, despite being our first deal backed by a mixed pool of assets. This proves our ability to build attractive portfolios in a way that the market fully supports. What does this institutional support mean for our strategy? There are three key things.
First, it systematically lowers our cost of capital, which boosts our bottom line or allows us to be more competitive. Secondly, it has allowed us to expand our investment criteria. We are using this capital strength to directly fund our attack on the market dislocation that we just discussed. Finally, it's the engine that has driven third-party capital to fund 79% of our AUM. This makes our model more resilient, more profitable, and exponentially more scalable. That's the capital that fuels our engine. How does it translate into performance? This is where our strategy comes to life, through two complementary divisions primed for growth. First, our mortgages division is firing on all cylinders. We delivered a blistering 62% growth in lending last year. This is smart, efficient, and scalable growth.
The modern mortgage broker demands speed, clarity, and certainty, and we deliver this through our award-winning platform, which is why we are the partner of choice for the U.K.'s largest broker networks. Acquiring customers is only half the battle. Our new product transfer and enhanced bridge-to-let capabilities create a flywheel, turning one mortgage into a long-term relationship. This increases lifetime value and drives down acquisition costs. This combination of superior service and technology sets us up to grow our market share, where in our core markets our share is just 2%- 3%. This creates a runway for growth that is immense. Next, let's turn to LendInvest capital, our home for larger, more complex property finance. While this market has been more impacted by headwinds, we are now seeing a more definitive recovery, and this is underpinned by three powerful tailwinds. One, there is a clear political mandate.
The government's commitment to building 1.5 million new homes provides a powerful top-down driver for residential housing development in addition to a commitment to reform the planning system. Two, we have a resilient macro backdrop. Themes of uncertainty have become themes of predictability, helping to boost confidence. Interest rates are coming down and investors want to put capital to work. Three, there is a growing demand for high-quality assets from both buyers and tenants. From life sciences construction to energy-efficient homes, from luxury HMOs to ultra-modern purpose-built student accommodation, opportunities are growing and we see this reflected in our development finance pipeline and in the growing success of our capital raising efforts into our funds platform, such as our third secured credit fund. LendInvest capital is well positioned to capitalize on these opportunities as the market rebounds, given the division's deep domain experience and expertise.
To conclude, I want you to think of these two divisions, these two engines working together. Our mortgages division delivers fast, flexible, and simple mortgages that are scalable and drive recurring revenues. Powered by our proprietary technology, our capital division provides specialist investment products derived from tailored financing solutions, meeting the diverse needs of our clients. Together they create a balanced, resilient, and uniquely compelling investment proposition. We have the right technology, the backing of the world's leading financial institutions, and the right strategy for the market ahead. Thank you very much. I'll now pass on to Stephen.
Thank you, Hugo. I'll now take you through our financial performance for full year 2025. The headlines for me were that this was a year defined by strong lending growth, disciplined cost control, and most importantly, a return to profitability. In the second half, net fee income rose very strongly by 48% to GBP 22 million, reflecting our capital-light model and growing third-party AUM. Net interest income nearly doubled to GBP 15.7 million, driven by a focus on better margins as well as the benign market conditions delivering improved loan yields. We also delivered 22% lower admin costs, which I will talk to later. At the same time, impairment fell 58% year on year, underlining our prudent credit management overall. We delivered over 100% income cost jaws, an excellent turnaround in one year.
This has then driven a 96% improvement in our loss before tax to GBP 1.2 million and, importantly, a profitable half two with PBT of GBP 0.5 million, up 127% from H1. What's encouraging is that this financial performance was achieved without compromising our long-term growth. Lending rose 39% year on year, and our platform efficiency continued to improve. Turning now to another of our core pillars, increasing operating efficiency. Operational leverage was a key focus in full year 2025, and we've made material progress. Total administration costs fell GBP 6.1 million, a 14% year on year reduction, driven by the full year benefit from 2024's restructuring program and continued efforts to manage costs in a disciplined manner. Across the board, staff costs were down GBP 4.6 million, supported by a 15% reduction in average headcount, while lending volumes grew, a clear indicator of productivity gains.
Our strategic relocation to Glasgow and the Centre of Excellence we are growing there continues to pay off, offering both a scalable talent base and a structurally lower cost footprint. Restructuring costs also reduced by GBP 2.3 million year on year, as the one-off charges in full year 2024 were not repeated. The restructuring costs we incurred have had a swift payback. We have also aimed to reduce reliance on external advisors, resulting in a GBP 1 million saving on legal and professional costs. Together, these steps demonstrate the structural efficiencies now embedded in the business and a disciplined cost management mindset. Now, looking deeper into the P&L, you'll see strong momentum across all revenue lines. Net interest income up 99% year on year, underpinned by a stronger mix of securitized principal investments, improved funding terms, and benign market conditions.
Net fee income also rose significantly, supported by higher origination and servicing volumes from third party capital. Hedge accounting swung to a GBP 0.5 million gain compared to a GBP 4 million loss in 2024, providing a cleaner income picture this year. As mentioned earlier, impairment charges fell to GBP 3.5 million, down 58%. With the legacy exposures largely addressed and mortgage credit quality remaining strong, these results show a business that's not only growing, but doing so with improving profitability and capital efficiency. Finally, turning to the balance sheet, we continue to maintain a strong foundation. Net assets increased 16% to GBP 64 million. Loans and advances rose 47% to GBP 694 million, reflecting robust lending momentum. Lease liabilities rose due to new premises in London and Glasgow.
Aligned to our long-term operating model, interest-bearing liabilities increased 41% in line with loan book growth, with revolving facilities and securitizations driving the uplift, positioning the group for future residual sale opportunities. Cash and equivalents stood at GBP 68 million at year end, up 22%. Unrestricted cash dipped to GBP 11 million, but this was by design, reflecting strategic reinvestment into new lending and securitization readiness. Overall, full year 2025 was a pivotal year, one where we reshaped the business to deliver sustainable capital-light and tech-enabled growth. We enter full year 2026 with strong momentum, confidence in our business model, and a clear pathway to scalable profitability. With that, I'll now hand back to Rod for our outlook.
Thanks, Stephen. We're proud of the turnaround this year and to deliver this set of financial results. As I set out at the start of this presentation, we've built a proprietary technology platform that's purpose built for specialist property finance. That platform now provides us with a structural advantage, a genuine moat. It enables us to scale without scaling costs, to drive automation in underwriting, and to operate at levels of configurability that others simply can't replicate without major upfront investment. This is the foundation for everything that comes next. Our near-term priorities are disciplined execution, laser focus on operating efficiency, and growing our profitability. We're not adding complexity; we're scaling what already works. FY 2026 is about pushing harder across proven lending lines: buy-to-let, short-term mortgages, residential, and development. Product transfers are a key part of that.
It's now live across buy-to-let and residential, helping to reduce churn and enhancing long-term yield. We'll continue to build post-completion journeys that reward customer retention and drive repeat business. As we grow, we're not looking to add to our headcount. We'll increase capacity without increasing cost. We expect to grow our profit for FY 2026 in line with the current market expectations. Looking to the medium term, our direction is clear. We aim to double our lending volumes and grow our assets under management. We can do this focusing on our existing and immediately adjacent lending products. We will maintain capital efficiency by growing third-party mandates, deepening institutional relationships, and growing recurring fee income as we scale. This will be supported by selective principal investments. We won't be constrained by the size of our balance sheet to grow.
Where we do use our own capital, we'll do so sparingly, focused on segments we know we can deliver sustainable returns and to seed new funds and products. We'll continue to drive automation and greater adoption of AI and advanced tooling to support continued platform scalability, enabling us to increase throughput without significantly increasing headcount. The platform is built to scale efficiently. The strategy is now to accelerate what already works. When you put this together, we expect to deliver exceptional profit growth for the years ahead. Thanks for joining us, and we'll now open the floor to questions.
We will now begin the conference line questions. As a reminder, participants can submit written questions using the Ask a Question button on the webcast page. To ask a question on the phone line, please press star followed by one on your telephone keypad. We will pause for a brief moment to assemble the queue. There are no further questions on the conference line. I will now hand over to Chris Semple to read out the written questions submitted via the webcast page.
Hello there. I don't think we have any questions, but I do know Ray Mile is on the line. I think he wants to ask a question. Ray has submitted his question via email as well, so that's helpful. Can you please talk about your competitive pricing in the current environment?
I'll pick that up and then let Hugo step in as well. To start with, as I made clear in the presentation, because of the service proposition, we don't need to lead on price to secure growth in our lending. Of course, clearly the more competitive we are on price, the more volume we do see. We deliberately price ourselves off the top rates in the market to generate that extra return. Currently, for a buy-to-let mortgage, we're typically priced around 25 basis points-35 basis points on the pay rate off the leading or competing pay rate products. That's enough for us to grow at the rate at which we've grown over the course of this year. We're better relatively priced than we were two years ago when we were some way off from a relative pricing perspective. That's because we've got all bases covered with our funding model today.
We can access the capital markets with our own balance sheet and we can use our separate account with JPMorgan and using their balance sheet. We also have a partnership with a retail savings bank that's competitive in some of the products. From a buy-to-let perspective in relation to bridging finance, we compete and price our products alongside the leading non-bank lenders in the space. The bank lenders will price a lot tighter than us for bridging finance. The space continues to be dominated by the non-bank lenders, continue to be the largest players, and really borrowers are paying for that speed and simplicity. Hugo, do you want to pick up and add anything to that?
Yeah. I think with respect to our mortgages division, because there is a different pricing approach between mortgages and capital. In the context of the mortgages division, the products which are typically securitized, so buy-to-let and residential homeowner, are fundamentally priced in respect of two key things. Obviously, one is in respect to our competitors, which Rod described, but they also need to be priced clearly taking into account where swap rates are and, you know, securitization spreads are. Luckily, both are moving in a direction that is conducive to being more competitively priced versus our banking peers in the high street, but also to unlock affordability, which will in turn help to grow the market over coming months. From a pricing perspective on the mortgages side, it's very positive.
On the capital side of the equation, where there is, I guess, less competition, less demand for some of these more business bespoke or complex opportunities, that tends to be a natural hedge against a very well-contested market. In that respect, the ability to still provide that premium service and think of these unique opportunities as the bespoke opportunities they are means that those comparisons to the high street in particular or to other alternative finance platforms tend to matter a little bit less.
Great. We've got a follow-up question. What scale of loan activity do you think you can manage on your current cost base?
That's a great question. As we move into FY 2026, we're not expecting to significantly increase our cost base to meet the expected growth that we have during the course of this year. We expect to be able to deliver good growth in lending across the course of this year at a similar cost base. There are, of course, parts of our cost that do increase as we grow. For example, searches and bureau searches, every widget that we buy increases it or every widget that we write. Every loan that we write increases the cost. There's also cost in our servicing that also scales. Our AUM increases. On the lending side, we're making such efficiency gains, we're offsetting these costs as they grow. We continue to strive to drive efficiency across the business. There's a lot to do to deliver that.
It does mean that we can make sufficient savings to offset the costs that inevitably increase as we have either greater loans under management or we're originating more. Stephen, do you want to add anything to that?
Yeah, the only thing I would say is there's a good percentage of the cost base that is pretty fixed, so there's some marginal costs that Rod alludes to there, but then you've got maybe 50% or 60% of the cost base that is largely fixed. You've got some of the IT costs, you've got legal and professional costs, you've got kind of the Glasgow and London office costs. They're all fixed, and we can scale up quite strongly, and we should be able to deliver quite a strong income cost jaws as the volume comes through, because we have been driving down the marginal costs that are important, which is kind of underwriting costs and things like that. I think we've positioned ourselves well to drive down the marginal costs as much as we can using automation.
We've also been addressing the fixed costs as well in terms of reducing our London footprint. It sets us up for the future. It's not like there will be no cost inflation when volumes grow, but actually compared to the income that we will earn, we should be able to deliver a strong income cost jaws in the future.
Can I just add a further point? It's more conceptual, but it relates back to a point that Rod made around our productivity gains and each underwriter being able to process GBP 150 million worth of applications. It does also link to the point that Stephen just made regarding marginal costs. There are two levers that we have which are quite powerful forces behind those dynamics. One is application to completion conversion ratios. A lot of what we do at the moment assumes a broad kind of 50% application to conversion ratio. If we can address matters which would help to improve that conversion ratio, you can scale lending without having to necessarily hire more people. That's one point. The other aspect around that metric is around an assumption we make around the average loan size.
Everything that we look at today, particularly in the world of buy-to-let, suggests that the average loan is going to get larger through time. Remember, that's because the structural opportunities are in markets such as HMOs or MUFBs, because that's where the yield is. It's also where the regulation is starting to bite on the high street. What it means is where you've got a GBP 200,000 average loan size today, maybe in a couple of years' time, that's more like GBP 300,000. You've done the same volume, but the equivalent lending amount is clearly one and a half times without having to hire additional people, so that's the true power of the platform coming through.
Fantastic. Okay, we've got a three-parter here from Andy Edmond. I'm going to take the last bit of it first because it relates to c ost we talked about before.
Rod, has that cut in legal fees been achieved through in-house recruitment?
No, it hasn't achieved through in-house recruitment. We have two in-house lawyers, and that's been relatively stable over the last couple of years. I think fundamentally it's legal and professional fees. It's more broadly financial as well as legal advice that we've been able to make savings with. I think that the savings are coming as a result of this ruthless focus to simplify our business. The more straightforward and simple capital markets transactions we do, and the more straightforward and simple corporate structure, the more we do to simplify our corporate structure, the more we'll make savings in those areas. Whilst we've made great strides in savings in those areas, we've also got huge opportunity to save more over the months and years ahead as we simplify our business.
Okay, and the first part of the question, it's a two-parter, Hugo. First, probably U.K. base rates will edge down, but what does the rising long-term yield on global bonds driven by government debt levels mean for LendInvest? The second part, just how important has diminished volatility on swap rates been for you?
You may have to repeat the second part.
I'll repeat it afterwards, mate.
Go on.
Yeah, so I think as it stands today, our product set is actually still very much geared towards the front end of the rate curve. As a result of that, we do tend to see a bit of a tussle between what the market is pricing in terms of forward terminal values for base rate. At the moment, what the market is pricing in is about 50 basis points- 75 basis points lower than where we are today. That's quite a positive tailwind. The key interest rate benchmark that we use in the context of mortgage pricing and unlocking affordability and opportunity is the equivalent swap rate or the two year rate or the five year rate.
At the moment, we have seen, and probably for the best part of this year we have seen, swap rates probably encountering some friction as a result of gilt yields being slightly elevated than where we would like, probably in response to fiscal uncertainty. We seem to be limping from fiscal event to fiscal event. It would be great for there to be both some confidence from, I guess, the Chancellor and the Treasury, but equally the Bank of England in terms of plotting a very, very clear path ahead, which will help to boost confidence. In that context, I think the 10 year yield to some degree could probably do what it does best, which is reflect medium term fiscal inflation expectations.
Equally, I think the two year rate on the swap side and the five year swap will hopefully continue their current path to a level which we broadly see as being sub 3.5%. We start to see the mortgage market really unlock itself in terms of both opportunity and scale.
Fantastic.
I'm just going to add to that very briefly, and clearly we've been upbeat through this presentation because we've been able to grow into the property market over the course of the last 12 - 18 months. This is by no means a booming underlying property market. It is a difficult underlying market with transaction volumes still relatively low, and that's being driven by that friction that Hugo just described, that friction between gilts and swaps and this desire for the market to bring the base rate down, offset by gilts which are tight. That has meant that rates haven't come down as quickly as people anticipated. That's prolonging this period of a relatively difficult underlying property market. That's the market that exists today, and it's the market we're expecting over the next 12 months.
Hopefully it does free up, and every little bit that rates come down, the market opens up a bit more, and hopefully that comes through. We're sort of positioning ourselves for this tussle to continue.
Okay, let me turn to another question from Jonathan Richards. It's another three-parter. The first question, I think we've answered the first bit of it, which is how high can volumes go on the current cost base? The second bit is further what profitability l evels could be reached on the current expenses base.
We'll come back.
Stephen, do you want to talk to that? Let me pick up as a starting point. I talked to a medium term plan to increase a medium term ambition to increase our lending by twofold. Clearly, that will have a very significant impact on our net operating income. We really can. Stephen also alluded to earlier that some of our costs will grow through inflation. On a relatively flat cost base, we can deliver that huge increase. We believe we can deliver that huge increase in net operating income over that medium term. I think it's many multiples of the profit level that we've achieved today. I don't know what other color you can give on that, Stephen?
Yeah, I mean, I think if you think about the strategic drivers, we're originating long term mortgages. In theory those profit streams can last for five years, but the origination costs are incurred in year one. As long as we can keep originating, we're putting on five years' worth of P&L for a one year cost. That is helpful. I think our revenues are strong. We need to drive our cost base down. Our cost income ratio isn't where it should be. We see a pathway to improving that substantially. As soon as we drive that cost income ratio down by holding a number of the costs flat, it will enable profits to, as Rod said, significantly increase year on year.
You can imagine some very strong percentage growths in the profits as long as we continue the business model as it is continued, disciplined cost management and y ou a lso, hopefully drive down funding costs and improve our sort of capital efficiency as well. There's a bunch of drivers that will enable us to drive profitability strongly in the future.
Chris, just a very quick point as well. I think it's also worth understanding that GBP 1.2 billion of volume that was delivered over the course of the year isn't straight lined every month. The reality is that we have some months that will meet target, some months that might come in just a bit below, and some months that will far exceed it. What those months of outperformance prove to us is that the infrastructure, the system, the people doesn't buckle underneath that weight. Therefore, it's very easy for us to then think about what could happen in the future in terms of our inherent capability.
Okay, sort of tangential to that, but related. Can you please give us an indication of impairments at the end of H2? How much lower could they go in full year 20 26?
Stephen, do you want to pick up sort of a guidance around that? Clearly, we saw a big drop in impairments from FY 2024 to FY 2025. I think we're sort of in our own planning assumption, reasonably conservative over the period from FY 2025 to FY 2026. We're not expecting or planning for a significant drop again to support us in the same way.
The thing I would say is I think where we get to now and looking forwards is that we're expecting the roll off of legacy kind of book charges. Those have been trending downwards over a period of time. Equally, we're growing quite quickly, so there's always some level of impairment charge that we need to make, whether that's actually incurred provisions or the fact that we just need to under IFRS 9 provide prudently for the book that we've put on. I think what we've got is the legacy book that had relatively high impairment levels rolling off, and the high growth that we intend in the future will still drive some level of impairment. If you take those two drivers together, you might see impairment largely flatlining, modestly increasing, driven by volume. Actually, if you compare that with the income, you'll see an improving trajectory.
I think it's worth just highlighting here how the products on our balance sheet have evolved through time as well. We had principal or balance sheet investments in all of our types of lending through our history. The legacy portfolio that Stephen talks to is some development and larger or commercial asset loan assets running off today. Our balance sheet supports our buy-to-let, residential, and the short-term mortgages. The mortgages division, that more commercial lending is done through third-party capital, and that's where you see higher costs of risk. As Stephen points out, even as we grow, we're not expecting to see large increases in provisioning because of that underlying mix changing.
The last question from Jonathan is, do you plan to grow funds under management by increasing funding lines from existing relationships or by adding more partners in full year 2026?
It's a very, very good question. We do have a number of partners that we'd like to bring into the business, and we will inevitably bring some new partners, new opportunities into the business over the course of the year. At the same time, we're weighing that against the desire to maintain a really simple model, not overcomplicate things. We do think we'll have some new partners coming on board, which we'll be very proud to announce in due course. We're looking to replicate, I guess, funding structures that already exist rather than adding something fundamentally new.
We've got another question coming in. When might dividends make sense for LendInvest and its shareholders?
If you look through the RNS, we make a statement around returning to dividend when it's prudent for us to do so. Clearly, we went through a very challenging period in FY 2024 and we now have a period where we need to recover and return and grow profitability and recover that position and repair the overall balance sheet before we can return to dividends. It's not something that we're expecting to be able to deliver during the course of this new financial year, but we will return and have the ambition to return to dividend as soon as we're in a position to do so.
That's the end of the questions, guys. Thank you.
Thank you. Thank you everyone for taking our time to join us this morning. It's been fantastic for us to have had the opportunity to talk through our results. I'm pleased with the progress we've made, and our focus remains on executing our strategy carefully and building a business that delivers sustainable value. If you have any follow up questions, please don't hesitate to reach out to us using the investor relations email or directing questions to either of any of us individually as well. Thank you.