P2P: Saving Stream (AKA SavingStream)

jamesd

Malthusian, you're proposing a failure scenario as ridiculous as suggestions sometimes made that well diversified share holdings can drop to zero value.

The security varies, including ordinary residential homes, commercial premises, land, cars, jewelry, rental income from a film studio and many other things depending on platform. There's no worthwhile credible possibility of a huge value drop simultaneously across all of those things accompanied by simultaneous defaulting on loans with terms from six months to five years.

Malthusian

jamesd wrote: »

Malthusian, you're proposing a failure scenario as ridiculous as suggestions sometimes made that well diversified share holdings can drop to zero value.

The security varies, including ordinary residential homes, commercial premises, land, cars, jewelry, rental income from a film studio and many other things depending on platform. There's no worthwhile credible possibility of a huge value drop simultaneously across all of those things accompanied by simultaneous defaulting on loans with terms from six months to five years.

I have no faith in the due diligence being done to check that these securities exist, that there is a legal charge properly recorded against them, that they haven't already been offered as security against half a dozen other loans, and that they could in fact be sold at anything remotely approaching the liability. Consequently, I consider the collateral on these loans worthless for practical purposes. This is the fundamental point on which we are never going to see eye-to-eye.

The punters certainly aren't doing due diligence, and if you tell me that the platforms are, I won't believe you. Hearing about the loan offered to a guy who was banned from acting as a director was enough for me. That simply shouldn't happen. If due diligence was being carried out at the level this kind of corporate lending demands, it should have been spotted by the most basic database checks.

I appreciate that there have been defaults in which money has been recovered from the collateral and the rest from provision funds - for me there isn't yet enough evidence to outweigh my general concern. If we go through a 2008-style crash and at the end of it the majority of P2P investors still have their money then I will happily eat my words.

bigadaj

The whole point of the board and these threads is to explain the principle behind investments and then debate their pros and cons, some will be suit be, for certain people and not for others.

Savingstream or now Lendy have taken much criticism and their due diligence seems to leave something to be desired. This has led me to disinvest with them as I believe the returns aren't sufficient for the risk. They do have the benefit of high deal flows and a very active secondary market, the latter providing many people with an easy way out once the loan term reduces to their preferred length.

They are just one provider of many and to dismiss them doesn't necessarily mean rejecting all p2p offerings.

They are an asset class worthy of consideration given low cash rates and bond pricing, the latter probably being a larger risk for many low risk investors than selective p2p lending.

There are certainly risks and not just defaults from loans, or platform collapse. One problem is people not looking at what they are buying in any detail, with the result there may be a Mis selling type scandal looming but also that the consequence is an excess of demand and derogation of rates to a level that doesn't reflect the risk, or what my opinion might be.

Current rates on secured lending are around 10%, so huge compared to deposit rates but pretty poor when compared with what equities might have returned over the last year.

I will continue to invest a small proportion of wealth within this asset class, if for no other reason than it is another diversification tool.

masonic

Malthusian wrote: »

I have no faith in the due diligence being done to check that these securities exist, that there is a legal charge properly recorded against them, that they haven't already been offered as security against half a dozen other loans, and that they could in fact be sold at anything remotely approaching the liability. Consequently, I consider the collateral on these loans worthless for practical purposes. This is the fundamental point on which we are never going to see eye-to-eye.

I can understand why you might have some concerns over some types of security, but the majority of loans available are secured on property (all loans at Lendy) and it is relatively straightforward to verify that the security exists, and if the borrower is a company, that a legal charge is registered at companies house (perhaps not at the lime the loan has launched, but soon after).

In the case of jewellery etc, one has to take the platform at its word that it has taken this into its possession or not as the case may be. Having lent quite extensively on pawn, I have a string of defaults behind me where the borrower was sent a statuary letter of notice prior to the asset being sold at auction and the loan repaid out of the proceeds. In one or two cases of note, it was possible to identify the security listed at auction during this process.

But trust is needed that the platform operator is not acting fraudulently - if you don't have that, then clearly you should avoid. This situation could be improved by making P2P lending from fully FCA regulated firms subject to FSCS protection in the same way that other investments are. They already have FOS protection, meaning that investors could claim compensation if the platform acts improperly, but without FSCS protection compensation will not be paid if the platform cannot meet its liabilities.

The punters certainly aren't doing due diligence, and if you tell me that the platforms are, I won't believe you. Hearing about the loan offered to a guy who was banned from acting as a director was enough for me. That simply shouldn't happen. If due diligence was being carried out at the level this kind of corporate lending demands, it should have been spotted by the most basic database checks.

If the loan is the one I'm thinking about, it was a personal loan to an individual who had previously been caught acting as a director while banned and his court case concluded around the time the loan went live. The platform, in this case Lendy, did not seem to think that was a problem (after all, they had previously lent to past convicts/bankrupts and claimed their past was of no consequence).

But that wasn't the worst aspect of this loan. The security was being developed as a luxury home, but appeared not to have planning permission for use as a dwelling. I don't believe this situation has been clarified even now.

It was this loan, and Lendy's handling of it, that was the final straw for me and led me to remove the last of my money from the platform.

I appreciate that there have been defaults in which money has been recovered from the collateral and the rest from provision funds - for me there isn't yet enough evidence to outweigh my general concern. If we go through a 2008-style crash and at the end of it the majority of P2P investors still have their money then I will happily eat my words.

I think P2P investors will suffer some loss in a 2008-style crash. The question is how much. That's why I'm keeping my P2P investments at a fairly small percentage of my overall portfolio.

jamesd

Malthusian wrote: »

I have no faith in the due diligence being done to check that these securities exist, that there is a legal charge properly recorded against them, that they haven't already been offered as security against half a dozen other loans, and that they could in fact be sold at anything remotely approaching the liability. Consequently, I consider the collateral on these loans worthless for practical purposes. This is the fundamental point on which we are never going to see eye-to-eye.

Since you appear to be asserting that the Land Registry and Companies House are lying about charges present respectively on buildings and land or other property, you're right that we aren't going to agree on at least those aspects. Neither will permit duplicated exclusive charges on the same asset, though CH does have in addition the less certain charge against unspecified assets.

Malthusian wrote: »

The punters certainly aren't doing due diligence, and if you tell me that the platforms are, I won't believe you. Hearing about the loan offered to a guy who was banned from acting as a director was enough for me.

The ban and pending sentencing was discovered by prospective lenders. So were the apparent facts that the valuation was given on residential basis when the Planning Inspector said that use must not be allowed to lapse into residential and the relevant High Court case that didn't a change that situation. I don't I have a problem with platforms offering such loans provided the facts are fully and accurately disclosed.

That an earlier loan was to a company partly owned by Lendy was discovered by a possible lender, checking at CH. However that wasn't disclosed there until long after the loan had been made, as part of routine CH reporting requirements.

You may not believe it but I've done some of those checks myself.

Both are reasons why I recommend against lending via Lendy. Not all lenders check but some do. It's free to check CH and not expensive to check LR.

Malthusian wrote: »

I appreciate that there have been defaults in which money has been recovered from the collateral and the rest from provision funds - for me there isn't yet enough evidence to outweigh my general concern. If we go through a 2008-style crash and at the end of it the majority of P2P investors still have their money then I will happily eat my words.

This particular discussion is mainly for a platform I recommend against using. They are atypical. You should start to eat your words already give that Zopa already did go through the actual 2008 with the majority of P2P investors still having their money. I still have some loans in debt collection and making reduced payments from then but I still made money overall.

Malthusian

masonic wrote: »

I can understand why you might have some concerns over some types of security, but the majority of loans available are secured on property (all loans at Lendy) and it is relatively straightforward to verify that the security exists, and if the borrower is a company, that a legal charge is registered at companies house (perhaps not at the lime the loan has launched, but soon after).

It's straightforward to verify whether the director of the company you are lending to has been banned from acting as a director as well.

Jamesd - I very much do believe that you are doing these checks yourself but you are basically MSE's resident P2P expert. I think you are in a minority of less than 1% in terms of the length of time you spend researching both P2P platforms and individual underlying loans. I wouldn't be at all surprised if the amount of effort you put in means you make significant returns even after a wide-scale bad debt event. It would be very sad if it your level of knowledge and effort didn't translate into returns. However, I do not believe that most P2P investors are putting in the same amount of effort and research as you, or that they can expect the same returns you are making without doing so.

P2P was much a smaller market in 2008, so I don't consider it comparable to what will happen in the next crash. Zopa has changed its offering dramatically since 2008 - back then it offered rates of 9.5% on "A*" debt, now it's offering 3.5%, or 6.7% in the high risk option, comparable to standard corporate bond funds or high yield corporate bond funds respectively. I have less concern with that side of the P2P market. Given the yield on offer they certainly should survive a 2008 style crash and come out the other side, just as corporate bond funds did. The higher risk 12% stuff is a different kettle of fish, anyone chasing yields of 12% is through the looking glass in retail investment terms.

masonic

Malthusian wrote: »

It's straightforward to verify whether the director of the company you are lending to has been banned from acting as a director as well.

As I've already stated, AIUI the loan was to an individual, not a company. IIRC, the individual changed their name prior to applying for the loan, so it was not quite as straightforward to link them to their previous name, and subsequently the company in which they were previously acting as a director whilst banned. But this information did come to light before the loan went live.

I ruled that loan out on the basis of the PP issues before the murky past of the borrower surfaced, so didn't follow that thread very closely, other than to convince myself Lendy cannot be relied upon to clarify the misleading statements it makes in some of its financial promotions.

As stated earlier by jamesd, it is hardly reasonable to tar all P2P platforms with the same brush as Lendy.

jamesd

Malthusian wrote: »

I do not believe that most P2P investors are putting in the same amount of effort and research as you, or that they can expect the same returns you are making without doing so.

It's not hard to benefit from the checking I've done.

I recommend against using Lendy. I don't think that their financial promotions can be relied upon.

I recommend in favour of using both Ablrate and MoneyThing and neither has yet promoted a loan that I consider to be unduly risky so I think that people are unlikely to do too badly by taking what they promote. RateSetter and Zopa are also likely to be fine, it's just returns that cause me not to recommend them. So are some others but a bit soon for me to be routinely recommending them, that'll change in the fullness of time.

It's as easy as that to get started and benefit. Maybe not do as well as me, but that's OK, it's a good start with much less time spent.

bigadaj

Malthusian wrote: »

It's straightforward to verify whether the director of the company you are lending to has been banned from acting as a director as well.

Jamesd - I very much do believe that you are doing these checks yourself but you are basically MSE's resident P2P expert. I think you are in a minority of less than 1% in terms of the length of time you spend researching both P2P platforms and individual underlying loans. I wouldn't be at all surprised if the amount of effort you put in means you make significant returns even after a wide-scale bad debt event. It would be very sad if it your level of knowledge and effort didn't translate into returns. However, I do not believe that most P2P investors are putting in the same amount of effort and research as you, or that they can expect the same returns you are making without doing so.

P2P was much a smaller market in 2008, so I don't consider it comparable to what will happen in the next crash. Zopa has changed its offering dramatically since 2008 - back then it offered rates of 9.5% on "A*" debt, now it's offering 3.5%, or 6.7% in the high risk option, comparable to standard corporate bond funds or high yield corporate bond funds respectively. I have less concern with that side of the P2P market. Given the yield on offer they certainly should survive a 2008 style crash and come out the other side, just as corporate bond funds did. The higher risk 12% stuff is a different kettle of fish, anyone chasing yields of 12% is through the looking glass in retail investment terms.

There's a dramatic range of experience and diligence between investors in p2p, as there is across many set classes, just look at the guy on another thread who has put his whole isa allowance into a single small high yoeld investment trust consisting main,y of near junk bonds because it was yielding a high figure but with low total return and the obvious and probable risk of capital loss.

P2p attracts many people who do due diligence, I would not be surprised to see numbers being split evenly between experienced and those just taking a punt.

There's probably as much if not more risk of returns being diluted by too much demand overwhelming supply than there is from large scale and widespread default and platform collapse. As return reduce and some allowance for default need to be made then returns down at 8% or lower would probably not be worthwhile. This process has already happened at Zopa and Ratesetter for example.

It's not much different from bond investment but far more difficult to get diversification, though secured lending would be lower risk than many bonds currently in my opinion.

Some may not think it worthwhile doing due diligence for the time and effort it takes, particularly when building a position from scratch with individual investments that may only be tens or hundreds of pounds given that one default may then represent a capital loss far higher than the few percent one would project after some time as a larger number of borrowers, loans and platforms have been adopted.

economic

to me if you are a higher rate tax payer or more, it just does not make sense to invest in Lendy. you get taxed 40% so that leaves you maximum 7.2%. is that worth the risk?

yes you can put it in a pension, but since pension is for the long term, why not just stick with stocks and bonds - keep it simple. until they come out with an isa, i think its best to avoid especially as an additional rate tax payer.