Peer-to-peer lending sites: MSE guide discussion

jamesd

Indeed, not much action as a result of that 13% new loan to a fire sprinkler company that filled in a day or so, so probably lots of money still waiting for opportunities.

Tartaruga_Jones

I would like some advice from those of you with experience of using peer-to-peer lenders.

I have some money from selling my house, and I don't intend to buy a new house for 12 months at least. I’m hoping for a return of about 4% next year which we would like to receive in monthly instalments.

We almost certainly won't need to use the investment sum over the next 12 months, but we would like some flexibility to get our hands on it in case of emergencies.

I think the economic outlook is choppy over the next 12 to 24 months and perhaps beyond.

With all this in mind I'm going to try peer-to-peer lending.

If my wife and I use the same peer-to-peer lender is our risk likely to be more spread, or basically the same; in other words, would we probably just end up lending to the same people?

After the big three lenders MSE recommend (Zopa, Ratesetter, and Funding Circle) are there any others you can recommend? Or should I just stick with them? If not, why not?

As a newbie, what should I think about that I may not have realised is important?

I think that the answers to this next question will depend on each person's particular circumstance, nevertheless I think your answers may offer me some insight. So...

If you were only looking at the next 12 months, and assuming you had no other investments, what proportion of your wealth would you put into these kinds of products? Why? What other investments might I consider given my above requirements? Or should I 'play it safe' and just put the lion’s share in a standard savings account and just take the hit on inflation?

Thanks in advance for your answers!

Alexland

Not tried FC but with Ratesetter we both invested £1k each (for a £100 bonus offer) and they seem to have put our money out at the same time to a single lender. Ratesetter have a central fund to cover bad debt. Zopa cuts your money up into small chunks and lends it out to different people who may individually default.

Personally in your position I definitely wouldn't invest your house money in P2P. The risk/reward profile isn't great and house money is too important. Other than getting introductory bonuses I have no plans to invest in P2P further.

Alex.

Flobberchops

Tartaruga_Jones wrote: »

If you were only looking at the next 12 months, and assuming you had no other investments, what proportion of your wealth would you put into these kinds of products? Why? What other investments might I consider given my above requirements? Or should I 'play it safe' and just put the lion’s share in a standard savings account and just take the hit on inflation?

Thanks in advance for your answers!

How much would I be willing to risk? 10%, maximum.


Alternatives: look at 1 year bonds, there must be a thread. Also Premium Bonds possibly, although they take a month after investing to become eligible for prizes.

masonic

Tartaruga_Jones wrote: »

We almost certainly won't need to use the investment sum over the next 12 months, but we would like some flexibility to get our hands on it in case of emergencies.

Worst case is your money could be locked up for several years and you get back substantially less than you invest. If you are ok with that, then maybe P2P is appropriate, but I wouldn't use it for money I needed within the next year or two.

Tartaruga_Jones

Thanks for the information. To follow up, here's a hypothetical £100,000 you have to invest. It's a gift. You don't need it now, but you would like access to it a year from now because you intend to use it then for a different project.

What do you do with it?

And because we're in this thread, how much do you put into p2p? And if possible would you break that down for me into which lender/products?

Finally, could you provide the rationale?

masonic

Tartaruga_Jones wrote: »

Thanks for the information. To follow up, here's a hypothetical £100,000 you have to invest. It's a gift. You don't need it now, but you would like access to it a year from now because you intend to use it then for a different project.

What do you do with it?

And because we're in this thread, how much do you put into p2p? And if possible would you break that down for me into which lender/products?

Finally, could you provide the rationale?

Since I would need the money in a years time (and presumably I would definitely need all £100k), then that rules out investing in equities completely. It also means saving a large proportion of the cash in zero risk savings accounts.

I would stick £2500 in a Nationwide Flex Direct account, £1500 in a TSB Plus account both paying 5%, £3000 in a Tesco Current account paying 3% (that's £7,000 and £290 expected interest). I would then put £83k in the top 1 year fixed rate savings account (currently Zenith bank paying 1.88%, expected interest at least £1,500 after tax), and £8,000 in the next best (Habib bank, 1.85%, £118 after tax).

That leaves £2,000 that I could risk in P2P, which I would split between about 10 carefully chosen self-select loans in a couple of the higher rate platforms, such as Ablrate, Moneything or FundingSecure. Expected interest ~£200. Technically, as this money isn't needed, it could be invested in anything, including equities I suppose.

All going well, I'd get a best case outcome of about £102k and a worst case outcome of £100k.

Alternatively, if that's too much work, you could just go for the two fixed rate accounts and have a known outcome of ~£101.6k after basic rate tax, assuming the full personal savings allowance is available.

Alexland

Tartaruga_Jones wrote: »

Thanks for the information. To follow up, here's a hypothetical £100,000 you have to invest. It's a gift. You don't need it now, but you would like access to it a year from now because you intend to use it then for a different project. What do you do with it?

Knowing that it's probably the same really important house money I would put it in traditional savings accounts (including small sums in 5% bank incentive accounts, etc) and try and get an overall approximately inflation level of return.

Tartaruga_Jones wrote: »

And because we're in this thread, how much do you put into p2p? And if possible would you break that down for me into which lender/products? Finally, could you provide the rationale?

Much less than 1% of our net worth is in P2P. The return isn't good enough for the risk. I prefer taking similar risks for greater probable long term return in the stock market. S&S platforms and fund managers are more established, the market has greater liquidity and the accounts benefit from FSCS protection.

Alex.

masonic

jamesd wrote: »

Regrettably, it seems likely that I'll eventually end up recommending against using Moneythhing on ethics grounds, shaped in part by:
<snip>

3. the Birkenhead loan mess where Moneything must have known about the developer's overspending default on their loan but didn't disclose this key risk information to lenders after it's certain that one of their now-former directors had it. Had they and the borrower (with 5% first loss, not the developer) made timely and proper disclosure I'd have had nothing invested in this loan.

Given the particularly adverse update issued on the Bollington loan today, there does appear to be a more general issue with developers not doing what they should with the money advanced to them. In this case, lenders are looking at a 33% recovery of capital in the hand (this does appear to be a low-ball offer), or 60-80% recovery next year if more money is advanced in order to complete the build. Looks quite disappointing on first glance. I've experienced such scenarios on another platform, but thought MT kept a closer eye on their development loans.

[Deleted User]

As one in Birkenhead (but fairly low figures), a 70% capital recovery after today's developments wouldn't be the end of the world given all that's gone wrong with it IMO. Waiting a year for that isn't great, but I'd rather that than an instant 33%.

Why are they only in the 'early stages' of enforcing the PG? Assuming the borrower actually has some net worth to make the guarantee worthwhile, surely they need to do it ASAP before he ships it all off to some far flung tax-haven? There will almost certainly be a shortfall even before today's update (if you take into account the default interest due to lenders) - so it's a bit concerning to see that they're not closer to realising some personal assets!