Peer-to-peer lending sites: MSE guide discussion

keyboardworrier

I've just had a quick glance through some Kuflink loans and the stake they take is now quite variable, in one loan they have taken none and in another 2.33%. I haven't been taking much interest in Kuflink lately and had assumed they took 5% of every one.


"We will be taking no stake in this deal to leave more availability for lenders." Very kind of them.....

jamesd

cfw1994 wrote: »

Perhaps to do with the bit I read on the MSE P2P front page about “From December, new peer-to-peer investors can't put in more than 10% of their investable assets”.

10% for your first year, no limit after that.

"2.21 ... will be certified as a ‘restricted investor’; that is, they will not invest more than 10% of their net investible assets in P2P agreements in the 12 months following certification"

And page 18:

"It is important to clarify that the 10% limit on P2P investments is designed to ensure that less experienced customers are appropriately protected. Investors can re-classify as sophisticated investors (thereby removing the 10% investment limit) when they have more experience.2
...
2 Our rules allow for such investors to re-classify as sophisticated investors (removing the 10% investment limit) if they have made two or more P2P investments in the past two years."

jamesd

masonic wrote: »

Unbolted just did away with their provision funds because they didn't feel they were able to meet the new requirements.

True, but perhaps misleading for not saying why, my bold:

"To protect our lenders from gold price volatility, we used to purchase exchange-traded derivatives (ETF put options) that pay off in the event gold prices fall. We used to hold these derivatives in our brokerage account in trust for our lenders (the "Gold Trust"). The new rules on contingency funds, which were designed for cash funds, would have required us to publish mark-to-market derivative positions as well as our exact hedging plan for the future which is an impractical ask. Therefore we have decided to no longer offer Gold Trust protection for any new gold/precious metal loans.

We will also not offer Provision Trust protection for new standard loans. Given our past performance (published here) on the recovery of defaulted assets, we feel that it is better for us to offer higher returns to our lenders than to put it away towards a contingency fund. Accordingly, we are now increasing the interest rate to be paid on gold loans to 0.65% per month (increase of 15bps) and on standard loans to 0.80% per month (increase of 10bps). These increased interest rates will also make us more competitive in the current market. The amount of principal loss on the platform to date is less than 0.05%."

So no new protected loans but 0.15% a month (uncompounded 1.8% a year) on gold and 0.10% (1.2%) on what would have been standard protected.

Same sort of lenders bear the risk but get paid more that Zopa started with.

Note that pawn auction prices are likely to fall during a recession, so losses during one would be expected to rise. But years of higher rates should cover it.

masonic

jamesd wrote: »

True, but perhaps misleading for not saying why, my bold:

"To protect our lenders from gold price volatility, we used to purchase exchange-traded derivatives (ETF put options) that pay off in the event gold prices fall. We used to hold these derivatives in our brokerage account in trust for our lenders (the "Gold Trust"). The new rules on contingency funds, which were designed for cash funds, would have required us to publish mark-to-market derivative positions as well as our exact hedging plan for the future which is an impractical ask. Therefore we have decided to no longer offer Gold Trust protection for any new gold/precious metal loans.

We will also not offer Provision Trust protection for new standard loans. Given our past performance (published here) on the recovery of defaulted assets, we feel that it is better for us to offer higher returns to our lenders than to put it away towards a contingency fund. Accordingly, we are now increasing the interest rate to be paid on gold loans to 0.65% per month (increase of 15bps) and on standard loans to 0.80% per month (increase of 10bps). These increased interest rates will also make us more competitive in the current market. The amount of principal loss on the platform to date is less than 0.05%."

So no new protected loans but 0.15% a month (uncompounded 1.8% a year) on gold and 0.10% (1.2%) on what would have been standard protected.

Same sort of lenders bear the risk but get paid more that Zopa started with.

Note that pawn auction prices are likely to fall during a recession, so losses during one would be expected to rise. But years of higher rates should cover it.

I think the part in bold is a perfectly rational explanation as to why the gold provision fund could not continue to include an element of hedging, but does nothing to explain the removal of the provision fund completely, or removal of the standard loan provision fund. When an explanation for a change doesn't adequately explain the whole change, it is probably not an adequate explanation. IMHO, this comes down to what they are allowed to say about the protections afforded by the provision fund and the competitiveness of their rates.

Removal of the provision fund has the effect of removing the protection against lack of diversification, meaning exactly what you invest in within any particular market is now critical to your returns. I have no problem with this personally, but as Unbolted is de-facto black box P2P (as you can't choose what you invest in in advance), you are at the mercy of the platform when it comes to the investments you end up with and have no recourse if it isn't pretty.

Incidentally, what's your opinion of the borrower (known in some parts as God of Litigation) who took Unbolted to court after defaulting on a number of loans on the platform? His loans ought to be covered by the provision fund when the matter is eventually concluded. If they were not I could have been looking at a substantial loss on the money that I invested in the platform, a disproportionate amount being automatically invested into loans to that borrower. I was quite surprised to learn how much of my money had been lent to this particular individual, across a number of different loans. This only became apparent when he started the legal action and it was recorded in an update to the affected loans.

Given that the platform earns between 2 and 5 times more interest than lenders, while investors take on all of the default risk, the increased rate coupled with removal of the provision fund isn't going to tempt me back.

bigadaj

jamesd wrote: »

10% for your first year, no limit after that.

"2.21 ... will be certified as a ‘restricted investor’; that is, they will not invest more than 10% of their net investible assets in P2P agreements in the 12 months following certification"

And page 18:

"It is important to clarify that the 10% limit on P2P investments is designed to ensure that less experienced customers are appropriately protected. Investors can re-classify as sophisticated investors (thereby removing the 10% investment limit) when they have more experience.2
...
2 Our rules allow for such investors to re-classify as sophisticated investors (removing the 10% investment limit) if they have made two or more P2P investments in the past two years."

Has your view on p2p changed given the recent problems on several platforms?

You advocated significant investments and it's now difficult to see where this will be viable, it's either low single digit returns or capital losses eroding higher rate platforms.

I thought my p2p investments would continue to increase a couple of years ago, though pulled out of Lendy as that has looked like a car crash for some time, and am now only active on Ablrate which does look like an exception to the many failing platforms.

jamesd

bigadaj wrote: »

Has your view on p2p changed given the recent problems on several platforms?

You advocated significant investments and it's now difficult to see where this will be viable, it's either low single digit returns or capital losses eroding higher rate platforms.

No substantial change but it's always depended on having opportunities to justify the allocation of money.

Perhaps also worth mentioning that since Zopa I've viewed P2P as a medium term opportunity that's not likely to last. Something to use while it's around.

I still think that even quite low rate P2P is currently useful as a bond substitute.

shoi

Froggitt wrote: »

Those investors chasing 12% took on the equivalent risk, and have only themselves to blame if it went tits up. Bit like those people in mini-bonds paying 8%.

But also read
https://blog.moneysavingexpert.com/2011/10/a-blog-in-support-of-stupid-peoples-rights-probably-the-most-important-blog-ive-ever-written/

jamesd

masonic wrote: »

Removal of the provision fund has the effect of removing the protection against lack of diversification ... what's your opinion of the borrower ... who took Unbolted to court after defaulting on a number of loans on the platform? His loans ought to be covered by the provision fund when the matter is eventually concluded. ... I was quite surprised to learn how much of my money had been lent to this particular individual, across a number of different loans.

On the borrower, no expressible opinion. Even with allowances made in valuations I expect that it will have gone on long enough that not all due interest will be paid.

The change clearly increases concentration risk. More so for those lending more money because the allocation method already concentrates most of the value of their lending in the biggest loans.

The bonus payments for larger working capital lenders at least partly offset some of the concentration risk in them. But do nothing for possibly similar amounts per borrower in other loans.

Psyduck1980

Does anyone know roughly how long it takes for an investment 1.5% above the so called "going rate" takes to get matched in the Access market?

firestone

Psyduck1980 wrote: »

Does anyone know roughly how long it takes for an investment 1.5% above the so called "going rate" takes to get matched in the Access market?

i would guess a long time but if you take that as advice and it jumps the next day you will not be best pleased:) it might be better reading the RS board on the P2P independent forum including the threads about Access rates to get some idea