Peer-to-peer lending sites: MSE guide discussion

masonic

fun4everyone wrote: »

Hey ok, I mean the overall conclusion that SavingStream is not a place to trust with your money. If I am wrong about that I really don't mean to twist other peoples words. I said at the time I felt saving stream is claiming things that are not sustainable. I therefore felt it was not wise to trust them with money.

I can promise you that every P2P platform and every financial institution is claiming things that are not sustainable. That's why most financial institutions have to update their terms and conditions at least one or twice per year.

It is funny because I just did some research, it appears SavingStream agreed with me also. Here is their landing page from March when I said what I said

https://web.archive.org/web/20160321021508/https://savingstream.co.uk/

Note it says "
Invest your funds and earn 12% interest per year with our secured peer to peer lending platform.

Grow your capital with a fixed 1% monthly return"


That is a claim you will get 12% interest at a rate of 1% fixed per month.


Now contrast with what it says today
https://savingstream.co.uk/


"
Invest your funds and earn up to 12% interest per year with our secured peer to peer lending platform.

Grow your capital with an up to 1% monthly return"


They have changed their tune big time, I am sorry but I feel I had a point before and the end conclusion is the same.

So they are reserving the right to offer new loans at less than 12% in the future. It's business as usual at the moment, with all loans still offering 12%. I'm not seeing the issue with that. I've opened numerous fixed rate accounts where the same rate was not offered to me when my account matured.

I really like funding knight. Slow to get invested but extremely trustworthy imo with proper screening of loans and appropriate return on investment.

Aren't you concerned that many of the loans are only backed with directors personal guarantees? I note these are business loans (which I'm not very keen on as it is) but the interest rates are significantly higher than the loans offered at, for example, Assetz, presumably because of inferior security and/or borrower credit rating. Seems just a little bit riskier than other offerings with equivalent rates to me.

jamesd

masonic wrote: »

I believe there was a granted PP application for redevelopment of the garden centre, but there was also a separate PP application that was not granted for the development of a holiday park on the agricultural land. This seems to have been correctly described in the loan particulars.

Any chance of you providing a pointer to that, I'd very much welcome finding a successful application in place at time the loan was offered? That's a request to anyone - I'd very much like to see anything that contradicts that or other items in the list I gave.

My description was based on a statement from a person who wrote that they had checked the planning permission records and did not find such an application, with things like this press story appearing to support that description:

"Reopened last year as the Maple Ridge Garden Centre and Country Store just off the A272 the new owners, <name redacted>, his father <name redacted> and brother <name redacted> of Eco Warrior Resorts have been trying to get planning permission to demolish the existing garden centre buildings and replace them with a two storey ‘log cabin’.

But in the face of strong opposition they have now withdrawn the application."

This one too.

jamesd

fun4everyone wrote: »

Yep fair enough, I got absolutely slated for suggesting SavingStream was risky beyond normal P2P sites in that other thread (I simply thought what was advertised was unsustainable). I am glad a more reputable poster than me has arrived at the same conclusion now.

I have not arrived at that conclusion and do not think that the interest rates offered for bridging finance are unsustainable in the short to medium term. There is enough margin between lending rates for bridging finance and the rates paid to lenders to support those rates.

In the longer term there may be a sufficient increase in money supply to cause bridging and development finance costs for borrowers to fall and that could lead to a drop in rates for lenders. For this reason among others I broadly treat P2P as a useful but possibly not long term opportunity that merits me moving to investing 75% or so of my investment money in it.

In the specific case of SavingStream I was considering investing many tens of thousands of Pounds and this is part of my due diligence before investing. I have more reservations about SavingStream than I do about the interest rates, which I think would just be offered at other platforms instead.

There are platforms that used to say 1% a month but changed that to up to when they came up with some deals where 10% or 11% was the annual rate, so they could offer those deals with an accurate description. I assume that this is what happened in the SavingStream case even if such deals haven't happened yet. Not dissimilar to MoneyThing that used to do only 1% a month deals but has now done some at 10% and 11% a year. So I think that the change in rate description is harmless and just being honest.

masonic

jamesd wrote: »

Any chance of you providing a pointer to that, I'd very much welcome finding a successful application in place at time the loan was offered? That's a request to anyone - I'd very much like to see anything that contradicts that or other items in the list I gave.

I did not mean to imply that I had verified the existence of any PP applications. I was merely pointing out that the loan particulars referred to two distinct developments, one for the "extensive redevelopment and increase of the garden center" that had PP granted (which, it transpires, the borrower had no intention of acting upon if it existed) and another for the change of use that was yet to be submitted and is presumably the application that has attracted the publicity(Edit: in fact, from my reading around the application that was submitted, this was possibly going to follow on from the withdrawn application). If there is some concern that the former application might not exist, then that's potentially even worse. I had assumed this was an application made by C**** A*** prior to the purchase by the borrower.

I did have a quick look on the district council website and couldn't find anything since 2005, so clearly I was doing something wrong.

Edit: It's perhaps worth mentioning that the first valuation document refers to "applicable planning consents", so there is clearly something out there.

Edit2: I've also now checked out the South Downs website, both Apr 11-12 and post Apr 12 applications. The only one I could find was the withdrawn application submitted Oct 15 (which cannot be the one mentioned in the loan particulars as this document was produced around Dec 14 / Jan 15).

Daz2009

adindas wrote: »

What about looking into the borrowers side. if the borrowers are paying 18% how could they sustain their business. I do not think many reputable business could make 18%+ profit.

If the business is not sustainable then the loan will be defaulted and the private lender will loose their hard earning cash??

That's the going rate for bridging loans because they are usually short term hence they don't have to be sustainable

richbeth

adindas wrote: »

What about looking into the borrowers side. if the borrowers are paying 18% how could they sustain their business. I do not think many reputable business could make 18%+ profit.

Short term finance is expensive, just try a quick search to see the interest rates for bridging loans and you'll see that ca 1.5% pm isn't atypical.

As for profit the value of the loan may not bear any relation to the turnover of the company so that is a red herring.

adindas wrote: »

If the business is not sustainable then the loan will be defaulted and the private lender will loose their hard earning cash??

Bridging loans are typically secured against assets, typically at less than 70% LTV. Yes the realised value of the asset might end up being less than the initial valuation so not all capital would be returned. However, under normal circumstances these should be few and far between.

A quick search gives the following statistics for FundingSecure which offers interest rates of around 1% pm.
Total lent to date £43,787,893
Lost to defaults £15,612 (0.09%)

https://www.fundingsecure.com/investors/statistics

You can choose to invest in a P2P site with unsecured loans to business but personally that's not for me.

fun4everyone

masonic wrote: »

I can promise you that every P2P platform and every financial institution is claiming things that are not sustainable.

I generally agree with you but I would change "every" to "almost every". I am not so fussed with bank claims being unsustainable as there is real protection there per authorised institution. With p2p there is only light regulation and no real protection. There is also evidence from other sites of bad apples taking liberties with customer funds (trust buddy). You just have to go with your judgement and pick sites that you trust.

Aren't you concerned that many of the loans are only backed with directors personal guarantees? I note these are business loans (which I'm not very keen on as it is) but the interest rates are significantly higher than the loans offered at, for example, Assetz, presumably because of inferior security and/or borrower credit rating. Seems just a little bit riskier than other offerings with equivalent rates to me.

Surely a properly diversified p2p portfolio should contain both business loans and loans to individuals? The reason I mentioned Funding Knight was because I trust them the most which counts for a lot (to me) in p2p, it is irrelevant for banks when you have less than 75k there. I am of course concerned by possible defaults as I am sure every investor is. I know they reject 90%+ of loan applicants and have good historical performance. Then again every site in p2p seems to have pretty good historical performance at the minute. I would link the stats as they publish them but I am not wanting to advertise. I do use several other sites as well.


PS Apologies jamesd for misunderstanding you.

masonic

fun4everyone wrote: »

I generally agree with you but I would change "every" to "almost every". I am not so fussed with bank claims being unsustainable as there is real protection there per authorised institution. With p2p there is only light regulation and no real protection. There is also evidence from other sites of bad apples taking liberties with customer funds (trust buddy). You just have to go with your judgement and pick sites that you trust.

If it is unsustainability of terms and conditions that concerns you, then there is no regulatory protection that prevents terms and conditions being changed that applies to banks, but not to P2P companies. The main protection is the Consumer Rights Act 2015 (replacing the Unfair Terms in Consumer Contracts Regulations), which applies to all companies. This legislation would, for example, prevent a firm changing a fixed interest rate mid-contract.

Surely a properly diversified p2p portfolio should contain both business loans and loans to individuals? The reason I mentioned Funding Knight was because I trust them the most which counts for a lot (to me) in p2p, it is irrelevant for banks when you have less than 75k there. I am of course concerned by possible defaults as I am sure every investor is. I know they reject 90%+ of loan applicants and have good historical performance. Then again every site in p2p seems to have pretty good historical performance at the minute. I would link the stats as they publish them but I am not wanting to advertise. I do use several other sites as well.

I would argue there is no need for anyone to invest in unsecured business loans when there are plenty of business loans secured on property and/or business assets. As you rightly point out, in the case of a default, unlike banks, there is no FSCS to bail out lenders. Your protection against defaults therefore comes in the form of the loan security. I've invested in some loans to SMEs, but only in cases where the loan security looks very robust. In my view, personal guarantees offer no security at all - I usually ignore them when considering a proposal.

You also have to ask yourself what these businesses are being charged in loan interest for these long-term, sometimes 5 year, loans at 10-12%. Presumably a number of percentage points more than that if the platform is to take their cut. Plus arrangement fees. This isn't bridging finance, so the rates imply the risk is higher.

Rollinghome

masonic wrote: »

But contrast that with the likes of Ratesetter who don't provide any information at all. Lending money to anonymous individuals and businesses without any security or information about the borrowers is even worse in my view - especially if the rates aren't much better than you can get risk-free in a high interest current account.

Would entirely agree, though interesting that Ratesetter themselves seem to maintain they are among the most transparent - which isn't really my impression. For example, I haven't a clue why those mysterious "borrower's offers" are described as such when, as I understand it, borrowers don't have any way of specifying what they're willing to pay by way of an offer and short term money is used to provide liquidity for existing loans.

On a different note, last night I was talking to someone who told me he had money in Zopa. When I asked if he used any other p2p platforms he said "Is Zopa peer to peer then?" <gulp>

fun4everyone

masonic wrote: »

If it is unsustainability of terms and conditions that concerns you, then there is no regulatory protection that prevents terms and conditions being changed that applies to banks, but not to P2P companies.

It is not that that concerns me per se though. I don't really want to go round in circles but just for clarification.

I looked at SavingStream's site in the past. I considered their headline statement on their main page to be unsustainable so I therefore drew the conclusion that I did not really trust them. In an area which is saturated by sites who hold a lot of money and conusmers have no real protection or regulation trust is key to me. I therefore went elsewhere. I find it interesting to note now they have changed their tune on the front page and other potential issues are cropping up with them.

That is all there is to it, it just boils down to trust. I do not trust SavingStream since I looked at them initially and will not be putting my money in there. If that is wrong its wrong.

Personally I assume p2p to be an area that attracts a lot of chancers. Anytime there is hardly any regulation and large amounts of customer deposits floating about you get chancers. If I ran a trustworthy p2p site I would be worried some eejit at another site was going to ruin my fledgling industry's rep. I am wary about that eejit as a customer also.