Peer-to-peer lending sites: MSE guide discussion

MrOverheads

They do have a scheme but I've not signed up to it:
https://www.rebuildingsociety.com/march-lender-offers/

Dewpoint

I've invested with Funding Circle and Zopa. Both for about the same duration and amounts (~£5000). Funding Circle has lost me money. Bad debt, worthless borrower "guarantees", and their inability to recover bad debt convinced me to pull my money out. Zopa on the other hand has proved to be a good investment. No bad debt over the same period and guaranteed returns. I would thoroughly recommend them.

jamesd

Zopa returns are not guaranteed.

For example, lend £10,000. Watch interest rates increase from the horrible 5% or so today to the 10% or so available a few years ago, then sell your investment. You will lose around half of the money you sell because that is what it will take to give the buyer the then-current market rate. The Safeguard fund won't pay out for this loss, which is the same sort of thing as you'd have if you invested in bonds and sold them in a similar situation. If the investment was really guaranteed you wouldn't have any loss in this situation.

The Safeguard aspect will only pay out if it has money to do so and neither Zopa nor any non-Safeguard fund will step in to backstop it in that case. The Safeguard fund is substantially less well funded than banks making similar unsecured lending, so while Zopa has a generally excellent record, it doesn't have as much margin as might be nice.

If Safeguard does pay, it does not pay out the whole return. Instead, it pays out just the return until the time of the default that caused it to pay out. If returns were guaranteed, it would pay out the return due until the end of the duration of the loan deal.

There are also a range of systematic and other risks that are not covered at all by the Safeguard setup.

The Safeguard system has value but don't make the mistake of believing that it guarantees your returns.

When it comes to the current 5% offer for five years, don't expect that you will really get that for five years. Extra and early repayments are extremely common among those who borrow via Zopa and you should be pleased if you manage to get that for as long as three years on average. Though I'm not sure "pleased" is accurate for an investment that's only paying out 5% when much more is available elsewhere.

If you want something in the P2P area that pays a lot more, have a look at isePankur, where I'm currently averaging more than 25% on the money I've lent over the last year. That's lending in Estonia and other non-UK places so you might instead prefer equity income or bond funds, each of which pays out tax free inside a S&S ISA.

Zopa does many things well but these days the returns are so low compared to other investments that they just aren't worth bothering with.

BarGin

Would a service like Zopa be suitable for supplementing income during retirement?

I am due to retire soon and would like to invest part of my tax free lump sum. The idea is to invest in Zopa and then, after a few years, start taking the repayments as income when required until the fund is exhausted.

Would this be a sensible thing to do?

Dewpoint

If you keep on reinvesting the capital and interest returned by Zopa it more than keeps up with inflation as interests rates keep rising, and pays far better than banks or building societies. What's more, bad debt on my investment is ZERO over the past 3 years, while FC, with its high return promises and risky loans lost me money, despite the reassuring cods-wallop they provide about the surety of borrowers. Yes, you can tuck your money away in an ISA paying a pitiful return, or put it in bank and building society with equally unattractive rates, but with inflation at 2%+ you'll see the buying power of your saving dwindle. In my experience ZOPA more than wins out.
This is what ZOPA says about Safeguard:
"Remember, loans made through your Safeguard offer are protected by the Zopa Safeguard. In the rare event you see a late payment or default status for a loan made through your Safeguard offer, you don't need to worry as the Safeguard was created in order for you to get back all your money plus interest. "

jamesd

BarGin wrote: »

Would a service like Zopa be suitable for supplementing income during retirement? ... I am due to retire soon and would like to invest part of my tax free lump sum. The idea is to invest in Zopa and then, after a few years, start taking the repayments as income when required until the fund is exhausted. ... Would this be a sensible thing to do?

For a maximum of about 5% of your total investable assets it's OK but the returns from Zopa and some of the other bigger UK players are pretty poor at the moment compared to other investments so it's not currently a great idea.

Better choices for retirement income generation are the usual standards of equity income funds and bond funds. Those both offer better returns and better tax treatment. If you aren't familiar with them the pension section here is one place to get some help, or you could seek the help of an IFA, best found through unbiased.co.uk unless you have a personal recommendation from someone.

If you have at least £100,000 of investable assets and a suitable risk tolerance then you might consider some use of isePankur, which has a decent bad debt rate but far higher interest rates than Zopa. However if you use it you will be required to file a tax return every year because it is foreign interest and any amount of foreign interest mandates tax return use. £100,000 only because I wouldn't personally want to file a return unless I was making a thousand Pounds or so in interest and that takes around £4,000, which is a bit less than 5% of £100,000.

Going above 5% in any investment is imprudent, particularly in retirement, so try to avoid that whatever you do, unless you class yourself as having a high risk tolerance, when you might go as high as 10%.

Dewpoint wrote: »

If you keep on reinvesting the capital and interest returned by Zopa it more than keeps up with inflation... and pays far better than banks or building societies. ... Yes, you can tuck your money away in an ISA paying a pitiful return, or put it in bank and building society with equally unattractive rates, but with inflation at 2%+ you'll see the buying power of your saving dwindle. In my experience ZOPA more than wins out.

Zopa isn't an FSCS protected bank or building society account and ability to take things to the FOS if there's a problem. It is an investment with the potential to lose capital. There are plenty of other investments that can be held tax free inside a S&S ISA account that pay more. Neither saving accounts nor Zopa offer very good returns at the moment.

So far as beating banks go, I can get 6% with FSCS protection from First Direct at the moment. Zopa can't match that, let alone beat it.

Dewpoint wrote: »

as interests rates keep rising

At Zopa? At the moment they are claiming 5%. A few years ago I was getting 9% and above from their lowest credit risk market and I still have some of those loans. Rates are very low at the moment, particularly when compared to investments. Here's the rate history showing the steady decline in rates over the last five years:

Dewpoint wrote: »

This is what ZOPA says about Safeguard

Safeguard does not guarantee that you will get back all of your money plus interest. It pays out only only in the range of circumstances where it pays out and not if the fund runs out of money. Its useful and I hope that it doesn't run out of money but it's not guaranteed.

Zopa still has its place on the occasions when its rates make it worthwhile. That just happens not to be today when it's easy to beat with other investments.

mikb

jamesd wrote: »

the current 5% offer for five years, don't expect that you will really get that for five years. Extra and early repayments are extremely common among those who borrow via Zopa and you should be pleased if you manage to get that for as long as three years on average.

Also remember that it's 5% but only on the money that is lent out and that every month your capital is coming back to you == not lent any more. And when it's re-lent, it is not covered by this offer.

So much like you see people on here asking why their 8% regular saver hasn't paid out 8% over the course of a year ... because on average only half the money was in for the whole year ... the same applies in reverse to this offer.

Anybody thinking they can slam a single deposit in, and get 5% for 5 years guaranteed, just like a "fixed term fixed rate bond" from a building society, will be sorely disappointed.

rwgray

mikb wrote: »

...you see people on here asking why their 8% regular saver hasn't paid out 8% over the course of a year ... because on average only half the money was in for the whole year.

jamesd wrote:

I can get 6% with FSCS protection from First Direct at the moment. Zopa can't match that, let alone beat it.

First Direct can't match it, either, sadly. More like 3% in real terms. For 12 months only. For their own current account holders only. With a limit of £300 pcm. Not worth the bother for most of us.

Rich.x

jamesd

Not sure that I'd say that £120 or so of interest isn't worth the bother. Still beats maybe getting 5% without FSCS of FOS protection, though. Not that I'm using it even though I have a current account with them, I can do better easily elsewhere.

MrOverheads

Given the detail about Zopa and FC above, thought I would share my investment figures through rebuildingsociety.com

I've put to keep it simple, roughly £1000 per quarter in over the last 5 quarters and have a total of £4700 put into the platform.
Of this £500 is currently tied up in bids for the 3 loans that are live but not complete, £52 is uninvested and the remaining £4,429 is spread across 26 loans with the lowest £10 and the highest £316. All interest and capital repayments I immediately reinvest in new loans with new companies (compound interest works wonders) and I sell off loan parts in the companies I have the most invested to spread the risk. So the £316 one for example I'll sell off around £100 of that to release funds to bid on more loan parts and I can sell at a 5% premium too. The interest rates on my 26 loans range from 11% to 20% and I'm averaging 14.78%.

So as of today I have received interest of £289.57 all reinvested to try and boost returns with compound interest. So if one of the 26 defaults then because they are all less than £300 then I've only lost the interest so far, but the more I spread my risk and the higher the interest grows the less of a problem that becomes.