Peer-to-peer lending sites: MSE guide discussion

roxannafy48

I'm not ready for P2P lending at all..... One bit of investing that makes me scared and I couldn't be bothered to look into it....

No offence given- just being honest,
Thanks

rwgray

roxannafy48 wrote: »

One bit of investing that makes me scared...

Understandable. It can bite the hand that feeds!

I've tried to limit exposure between Funding Circle and Rate Setter, while burying most of the savings in an online cash ISA. Just moved that from Halifax to Santander due to the rates crash. Fortunately, I already banked with both companies.

I suppose this counts as spreading our investments.

~ Rich.x

cloud12321

thanks this will help me loads

Nuncle

Ok, I've been looking around to see what the real rate of return is on Zopa loans, and what you need to set in order to get it. I turned up the following calculation method:

Set your headline rate:
5.5%
Take of Zopa's fee per year:
-1% = 4.5%
Remove tax at 20% for basic rate payers:
x0.8 = 3.6%
Then (according to HMRC) take off estimated bad debt. For A* Shorter market:
-0.5% = 3.1%

You can set any rate you like, so as long as you keep the proper real rate of return in mind, and set your offer rate accordingly, there should be no problem.

Nuncle

What dawned on me is, once everything's taken into account, tax and bad debts, what rate of return should I be looking to get? For any savings or investment it should be above the rate of inflation, but by how much? My investment isn't protected, so if Zopa goes under I might lose the lot. I can put a lump sum away for 3 years in an ISA and get 3%. The shortest loans are 3 years also, and using my current offer rates I get a real rate of return of 3.1% for shorter terms, and 4% on longer. At these offer rates there is low participation from borrowers, so lending with Zopa is only marginally better that cash. I just wish that all lenders would put up their rates too.

ChopperST

Nuncle wrote: »

What dawned on me is, once everything's taken into account, tax and bad debts, what rate of return should I be looking to get? For any savings or investment it should be above the rate of inflation, but by how much? My investment isn't protected, so if Zopa goes under I might lose the lot. I can put a lump sum away for 3 years in an ISA and get 3%. The shortest loans are 3 years also, and using my current offer rates I get a real rate of return of 3.1% for shorter terms, and 4% on longer. At these offer rates there is low participation from borrowers, so lending with Zopa is only marginally better that cash. I just wish that all lenders would put up their rates too.

If you read carefully the loan book and ZOPA's business account are ring fenced separately therefore if ZOPA the business failed the loans would continue and likely would be bought by another of the big P2P lenders.

Nuncle

ChopperST wrote: »

If you read carefully the loan book and ZOPA's business account are ring fenced separately therefore if ZOPA the business failed the loans would continue and likely would be bought by another of the big P2P lenders.

Good to know, thanks!
I still don't know what rate of interest I feel I ought to be getting from Zopa loans though.

jamesd

Something that allows for the investment risk you're taking and is competitive with other ways of investing. Which means a minimum 6% or so after tax because you can get that much from bond funds inside a S&S ISA without trouble. Or from retail bonds held within an ISA and issued by major UK companies.

What the P2P companies do is compare the rates available for investing via them with the much safer insured savings account rates. That then sucks in consumers who don't know much about the more mainstream investments that are available and who may not realise that they are taking investment risk.

There's definitely a place for P2P but you should at least be aware of the more mainstream investment options and compare what you can get from them.

mrwine

I opened a ZOPA account years ago but then didn't go ahead due to slight "risk" involved. I managed to get 5 year bonds at almost 7% and settled for that. However I am now faced with these bonds maturing and a prospective 5 year rate of 3% ! As I have finished work and rely on interest for income this is scary . I am now prepared to take the slight risk as there have been no horror stories since my initial setting up of my Zopa account and of course they have now copied ratesetter in creating a "fund" for any debt. I will place a reasonable amount with both firms and hope for the best. I am happy ,or should i say willing, to accept around 5% as ratesetter are quoting for a 5 year term. I do no consider this a high risk strategy at all, their debt rates are very low and the backup fund is reassuring .I confess that I have not read back on this forum due to time constraints but will do before taking the step to invest next week. I would welcome any comments .

00ec25

mrwine wrote: »

I would welcome any comments .

It is vital to understand that Zopa is now a totally different set up to even as recent as the post previous to yours in April 2013. Not only has Zopa created the “safeguard” fund which is (supposed) to remove all risk to your capital but you can no longer select the rate you want to lend at. Zopa now does that for you using its “averaging” approach that is supposed to ensure your return is always better than a bank “savings” account. Zopa is now trying to market itself as a savings option rather than an investment option, the difference is of course subtle but immensely important.

Zopa wants to suck in huge sums of money from people who really do not understand what they are doing which is why Zopa has re-positioned itself as a deposit and forget savings “bank” rather than an investment opportunity. This will succeed for Zopa itself but in the meantime the new mass of savers will get rates than owe nothing to the actual rate charged to the borrower and much more to the rate Zopa wants to pay its savers – there is a name for that business model, - oh yes – its called banking not P2P lending…

So right now Zopa is a radically different entity than when you created your original account. There is also the fact that rates are as you know very low so the margin between a bank savings account and the Zopa rate is small and is beaten by some fully FSCS protected accounts. However, those have relatively small limits on total amount you can save with them so if you have a reasonable lump sum then you still need other avenues.

I am a Zopa investor (not a saver) and have been since 2010. I no longer invest new funds in it because the changes mean I have no control over what rates I am trying to get. I am content to leave what I have in it there, but as a bank I do not see it offers enough of a difference to make it worth new money going in compared to other (more risky) “non bank” cash based investments such as bonds...