Funding Circle Lending Update! huh??

footballfriend · 21 August 2017 at 9:33AM

Morning All,

I awoke to a disturbing announcement from funding circle this morning (can't link, but it shows up at the top of your account summary)

Apparently from September 18th, we will no longer be able to choose which investments our savings go into!! From now on, the site will act as a black box where the investor has no control which loans are purchased via their account.

My question is: Why would anyone continue investing via Funding Circle directly over, say, holding Funding Circle SME Income Fund in an ISA??

bunyipthethird · 21 August 2017 at 9:50AM

Good point! If the fund was in an ISA you'd be much better off with that. Though it wasn't in an ISA wrapper then you'd be getting the same returns except that you'd be paying your fund platform (HL, Fidelity or whatever) their service charge as well so you'd be better off investing direct.

footballfriend · 21 August 2017 at 10:17AM

But would my risk exposure be greatly reduced when investing in the fund versus FC directly? From what I gather, FC will just take my funds and purchase loan parts on my behalf - if one defaults, I take a 0.5% hit or so directly. With the fund, it's a pool of loan parts, so each time one defaults the effect on the overall investment is negligible. Is this correct?

Flatliner27 · 21 August 2017 at 10:35AM

Good news about the ISA but the attraction of P2P/FC for me is that I get to choose my own investments.

I've never used the AutoBid function as I suspect it'll scoop up some unfavourable loan parts from the re-sale market. Looks like this 'improvement' forces users down that route now.

Did anyone else also catch the note about the rate changes??
<edit: sorry can't post the link, but Google "Update to Funding Circle Rates">

Looks like the less risky (A+ to C) loans will pay a lower return, and the higher risk ones will pay more from 30th August.

I don't hold a lot of cash in FC (under 1k) and generally go for a conservative mix of A+, A, B and a few C and would be happy with a 6% return after fees and bad debts.

If my understanding of this change is correct... from September my preferred loan rating will provide a lower return, and I won't even be able to pick them myself anyway since the 'Conservative' option only gives you A+ and A loans.

footballfriend · 21 August 2017 at 10:51AM

I am also a hands on investor, and for me this was the main draw of FC over other p2p choices. With this change they seem to be taking themselves out of play and more or less turning into a higher risk mutual fund...

pandas_eat_bamboo · 22 August 2017 at 12:55AM

Don't be fooled by the "simple, fairer, better" tagline - this is an interest rate cut in disguise.

Average net returns over the last three years are 7.0% (7.1% YTD in 2017). The 'balanced' and 'conservative' bonds offer 4.8% and 7.5%, respectively - i.e. a blended rate of 6.15% assuming 50 / 50 uptake between the two bands. Funding Circle will pocket the 0.85% difference.

I am moving all of my capital to LendInvest where the interest rates are higher and the loans are property secured. I'm recommending my friends and family do the same.

Malthusian · 22 August 2017 at 10:03AM

pandas_eat_bamboo wrote: »

Don't be fooled by the "simple, fairer, better" tagline - this is an interest rate cut in disguise.

Average net returns over the last three years are 7.0% (7.1% YTD in 2017). The 'balanced' and 'conservative' bonds offer 4.8% and 7.5%, respectively - i.e. a blended rate of 6.15% assuming 50 / 50 uptake between the two bands. Funding Circle will pocket the 0.85% difference.

No they won't. You've overlooked that the 4.8% and 7.5% are not an interest rate, they are a guess at what returns will be. The actual returns will depend on what rates future loans are and how many borrowers default, neither of which anyone knows. You can't compare known past performance with unknown future guesses in that way.

oran · 22 August 2017 at 1:55PM

Equally not impressed.

I liked the ability to choose my risk bands and pick and choose what companies to invest in. That assured me that my funds were not being invested in risky businesses, while also earning an attractive rate of investment.

For the same risk profile, they're not offering 4.8% - which is no different from RateSetter. I may as well move my funds out.

They can salvage this by providing a Moderate plan for A - C rating at a mid level interest rate similar to I had originally (6.6%).

Funding Circle Lending Update! huh??

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