P2P - Ratesetter

jscol

Thanks everyone. Some interesting replies.

I suppose it shows why financial companies offer these incentives. I feel I'm getting an easy 10% plus return but it does get me interested in the area and I'm certainly going to consider it as a small part of my portfolio. I'll have a look at the Assetz / Kufflink sites as a start. I still struggle to work out how risky p2p is and how it will fare in an economic crash.

I certainly appreciate that point that you could have a large sum ISA wrapped and gaining a moderate rate of interest and therefore this could be a different option rather than poorly paying cash ISAs or amount limited higher interest accounts.

masonic

jscol wrote: »

I still struggle to work out how risky p2p is and how it will fare in an economic crash.

I certainly appreciate that point that you could have a large sum ISA wrapped and gaining a moderate rate of interest and therefore this could be a different option rather than poorly paying cash ISAs or amount limited higher interest accounts.

It's probably a better diversifier for someone who already has S&S investments. The overall risk lies somewhere between bonds and shares, with the caveat that the sector is lightly regulated and there is platform risk due to lack of FSCS compensation.

Some of the oldest platforms fared quite well through the global financial crisis and losses were not substantial even at the riskier end of P2P, so it looks like a credible option for 5-10% or perhaps a little more of a larger investment portfolio.

bxboards

masonic wrote: »

Some of the oldest platforms fared quite well through the global financial crisis and losses were not substantial even at the riskier end of P2P, so it looks like a credible option for 5-10% or perhaps a little more of a larger investment portfolio.

I suspect most losses if any will come due to inaccurate valuations for asset based loans. I personally avoid multi-tranche property development loans - I see these are fairly high risk, as if development stalls or is incomplete, essentially you could have a multi-million pound loan secured on not much more than a pile of rubble, or a incomplete site with a bit of scaffolding up and a skip in the corner!

So losses I suspect will come about mainly through inaccurate valuations - recently there was a loan using a hotel as the asset - for the loan, the hotel was valued at 600k, whereas it was actually listed on Rightmove at 475k with no takers. Platforms that show such lack of due diligence should IMHO be shut down (I believe in this case, the loan was pulled by the platform, but it should never ever have been offered) with that pie in the sky 'valuation')

jscol

I'm enjoying this thread and learning something.

One thing I still don't fully appreciate is the following scenerio.

If the markets crash and my S and S investments crash do badly it's commonly accepted that they should recover over time and this is an expected and unavoidable scenario but not the worst issue for a long term investor like myself.

However I worry that if I am investing in p2p and there is a significant recession presumably some borrowers will go bankrupt and never repay their debts. Therefore I worry that p2p does not have the potential for long term recovery.

Is this too simplistic a way to look at the issue?

bxboards

jscol wrote: »

However I worry that if I am investing in p2p and there is a significant recession presumably some borrowers will go bankrupt and never repay their debts. Therefore I worry that p2p does not have the potential for long term recovery.

That is certainly possible.

If loans are asset backed and the valuations are accurate, then losses should be minimised, as the asset should be sold to pay the debt, so I would look for loans secured as a 1st charge against residential property over say for example a loan to Ltd company backed by a Director's personal guarantee

If you are concerned about losses, then you money is safer in the bank although with inflation higher than most interest rates, you are losing money there too.

Shedman

bxboards wrote: »

...

Assetz Capital offer 4.25% in a 30 day access account (Ratesetter rolling is effectively 30 day access) or 3.75% with instance access (in normal market conditions)

Not quite sure why you infer that Ratesetter Rolling is effectively 30 day access? Whenever I've withdrawn Rolling Market funds on loan I've had the money back in my Holding account within minutes (on amounts up to £15k not just a couple of hundred) and then been able to transfer to my linked account where it has appeared next day.

Mind you the rates on RS Rolling have been so pathetically low recently its no longer worthwhile.

Might have a look at the Kufflink cashback offer (via your referral link) though as looks like it could be worth a punt.

jscol

Thanks again.
Having gone through the Ratesetter website again I understand that all the loans are anonymous and one doesn't choose who one lends to. However I realise this is different on other p2p sites and one can make an informed decision about risk versus gain.

I do still feel that my S&S investments will all come good if I leave them alone for an appropriate timeframe but p2p could be very badly affected by a recession as borrowing companies and individuals go bust and never repay. Having said that I think that p2p is much better 'policed' than I first thought - I think I was initially thinking that it was like lending a tenner to a friend in the pub knowing well you may never get it back.

What other platforms would people recommend if I want to gently experiment a little more with p2p? I presently have more cash than I should have and need to look at other opportunities.

masonic

bxboards wrote: »

I suspect most losses if any will come due to inaccurate valuations for asset based loans. I personally avoid multi-tranche property development loans - I see these are fairly high risk, as if development stalls or is incomplete, essentially you could have a multi-million pound loan secured on not much more than a pile of rubble, or a incomplete site with a bit of scaffolding up and a skip in the corner!

So losses I suspect will come about mainly through inaccurate valuations - recently there was a loan using a hotel as the asset - for the loan, the hotel was valued at 600k, whereas it was actually listed on Rightmove at 475k with no takers. Platforms that show such lack of due diligence should IMHO be shut down (I believe in this case, the loan was pulled by the platform, but it should never ever have been offered) with that pie in the sky 'valuation')

Development loans are among the riskiest classes of loans. But less risky than unsecured business lending if done right.

I suspect the largest losses however will arise through fraud, we have seen a loan in which the borrower has done a runner with the loan security and then attempted to dispose of his own personal assets, plenty in which the borrower has materially misrepresented the loan security - common practice on certain platforms, and are currently working through a situation in which a whole platform was being run unlawfully, apparently with one of the directors skimming money from the clients account.

Diversification is therefore key.

firestone

Not with them so not sure if its a good or bad move but Kufflink have changed the way their product is run this week with regards the 20% funding they did - so could be worth looking at the indie forum etc if considering

bigadaj

masonic wrote: »

Development loans are among the riskiest classes of loans. But less risky than unsecured business lending if done right.

I suspect the largest losses however will arise through fraud, we have seen a loan in which the borrower has done a runner with the loan security and then attempted to dispose of his own personal assets, plenty in which the borrower has materially misrepresented the loan security - common practice on certain platforms, and are currently working through a situation in which a whole platform was being run unlawfully, apparently with one of the directors skimming money from the clients account.

Diversification is therefore key.

I'd agree with the above but the single biggest risk to most people in my opinion is the poor valuations on so many loans. Distressed sales obviously lead to a lower outcome but it's not unusual for actual sales to be well below 60-70% of the valuation, and so lead to a capital loss for investors. There's no appetite for suing surveyors, which I'd agree is difficult but would pursue at the 50% recovery level sometimes achieved, and some loans just look like an alternative way of selling the property abive market value.

And third of course the famous Welsh castle that achieved a third of the loan amount, with 50% capital loss for lenders, it's not an area for orphans and widows.