Peer-to-peer lending sites: MSE guide discussion

masonic

Fatbritabroad wrote: »

Hmm very difficult to know how this is going to affect the platforms. Anyone else concerned enough to pull out and see how this plays out? I have 20% of my non pension non household net worth in p2p and don't count as a sophisticated investor as income less than 100k so not sure if I'd be in breach. Be interested to see how this affects the main players particularly ratesetter and assetz. Long term perhaps a good thing but may make for some difficult short term issues

Nardge wrote: »

Personally I don’t like that they plan to restrict everyday investors to 10% in P2P. It’s not for them to tell people what they can and cannot do with their money. Guidance ok, but many sites already require an introductory ‘exam’. Hopefully such nanny-state antics will be unenforceable.

This only affects new investors/investment in P2P.

I welcome the limit, which brings P2P in line with other such high risk products like mini-bonds. The standard limit is 10% per year for restricted investors, so it is hardly going to slam the brakes on most people's investment plans.

I wouldn't advocate anyone putting more than about 10-15% of their net assets in P2P unless they were a professional or HNW.

Scrooge's_younger_brother wrote: »

If the FCA allowed P2P platforms to have 'skin in the game', the new regulations wouldn't be required. Valuations would be more accurate and late repayments would be more robustly progressed if platforms suffered first loss (and were only reimbursed for costs of recovery once all investors had been repaid in full).

To some extent all platforms do have skin in the game because they are dependent on performing loans for their income. If a large enough proportion of their loans become non-performing, they will become insolvent (see Lendy).

The FCA doesn't want platforms to have any more skin in the game because the FCA's priority is that these platforms aren't further exposed to the risks of their loan book - because the FCA knows these are risky investments and could weaken the financial stability of the platform. The last thing the FCA wants is more platform failures, whereas investor losses are not an issue.

Thus the fundamental conflict of interests between platforms and lenders is made even worse.

A better solution to this problem would be for platforms to work more like mainstream investment platforms and be banned from taking a slice of the income from the loans they write and instead pass this income on to lenders and charge them a platform fee. Though this might be tricky in practice as the assets are illiquid and there is no guarantee they could simply be sold to cover fees when there is insufficient cash on account.

Fatbritabroad

masonic wrote: »

This only affects new investors/investment in P2P.

I welcome the limit, which brings P2P in line with other such high risk products like mini-bonds. The standard limit is 10% per year for restricted investors, so it is hardly going to slam the brakes on most people's investment plans.

I wouldn't advocate anyone putting more than about 10-15% of their net assets in P2P unless they were a professional or HNW.


To some extent all platforms do have skin in the game because they are dependent on performing loans for their income. If a large enough proportion of their loans become non-performing, they will become insolvent (see Lendy).

The FCA doesn't want platforms to have any more skin in the game because the FCA's priority is that these platforms aren't further exposed to the risks of their loan book - because the FCA knows these are risky investments and could weaken the financial stability of the platform. The last thing the FCA wants is more platform failures, whereas investor losses are not an issue.

Thus the fundamental conflict of interests between platforms and lenders is made even worse.

A better solution to this problem would be for platforms to work more like mainstream investment platforms and be banned from taking a slice of the income from the loans they write and instead pass this income on to lenders and charge them a platform fee. Though this might be tricky in practice as the assets are illiquid and there is no guarantee they could simply be sold to cover fees when there is insufficient cash on account.

Silly question as someone who is just under being classed a sophisticated investor (never really understood why your income should dictate whether you are sophisticated tbh I know plenty of idiots who earn loads) . When it says net assets is it based on all assets or those outside primary residence and pension I cant remember? I have 137k outside of pensions but 200k in my pension and 200k plus in my house so 10% so net total assets on well under 10% net my liquid investments I am probably slightly top heavy

masonic

Fatbritabroad wrote: »

Silly question as someone who is just under being classed a sophisticated investor (never really understood why your income should dictate whether you are sophisticated tbh I know plenty of idiots who earn loads) . When it says net assets is it based on all assets or those outside primary residence and pension I cant remember? I have 137k outside of pensions but 200k in my pension and 200k plus in my house so 10% so net total assets on well under 10% net my liquid investments I am probably slightly top heavy

Template HNW and Sophisticated Investor Statements here (scroll down to 4.12.6 and 4.12.8):
https://www.handbook.fca.org.uk/handbook/COBS/4/12.html

Alexland

10% seems a perfectly reasonable upper limit for a retail customer to have invested in P2P given the high risk of permanent capital loss and more appropriate asset classes for generating long term returns. I would go further and put a limit of 5% per platform so people could only go as high as 10% if they had some diversification.

We never allowed our concurrent P2P investments to exceed 1% of our household wealth and, despite not experiencing losses, have now unwound to a final £1k in RateSetter awaiting a bonus before withdrawal. I have yet to find a big enough signup bonus with a new platform to justify doing any P2P investements this tax year. This phase of our financial life is probably over now.

Alex

billtr1615

My experience has been poor, Funding Circle advertise rates of 4.5-6% but my return has been 1.9%, definitely not worth the risk when you can get 1.7% from notice accounts with deposit protection

itwasntme001

billtr1615 wrote: »

My experience has been poor, Funding Circle advertise rates of 4.5-6% but my return has been 1.9%, definitely not worth the risk when you can get 1.7% from notice accounts with deposit protection

No P2P is worth the risk, the hassle, time, energy etc etc etc. Decided to sell down my "investments" last year. Still have some left due to bad loans. If you think about it the very idea of P2P makes it not worth it. You will not ever get compensated for the risk.

AdrianC

By contrast, I'm currently sitting at a snidge under 5.7% XIRR across P2P platforms, with some individual platforms up around 8-10.5% XIRR. That's over nearly five years since my first FC toe-dip.

FC themselves? A snidge under 7%, and that's only going up, since everything active is long-since withdrawn, and anything now is recoveries (currently sat at about 58% of the defaulted amounts, if you exclude the London hotel farrago that I over-invested in, more fool me...)

N1AK

billtr1615 wrote: »

My experience has been poor, Funding Circle advertise rates of 4.5-6% but my return has been 1.9%, definitely not worth the risk when you can get 1.7% from notice accounts with deposit protection

My experience of FundingCircle hasn't been great, though not that bad thus far, but I think you may have missed the point about risk slightly. One of the risks of many p2p lending platforms is that you may not hit the expected return level. If you'd achieved 10% by good luck in having less defaults then you'd still have faced the same risk.

Ewanwhosarmy

Very interesting to read the new regulations, its' a very complex space with everyone seemingly having their own models. I've been looking into investing in Zopa and Funding circle as well as some of the new companies that seem to be springing up. This one caught my eye as being interesting as they're offering much higher returns, love the name - punk.money

itwasntme001

Even at advertised rates of 6%, it is not worth the risk imo. My advice to everyone is to get out of P2P as much as you can. A recession will hit P2P pretty badly.