Which peer-to-peer market is most secure for accessing funds?

aroominyork

I have investments with Ratesetter, rolling and one year, and with Assetz, 30 day notice. Am I right in thinking that if there was an economic downturn, a rise in interest rates or the mood turned against investing in p2p, my one year Ratesetter is the best option for confidence I can access my funds (albeit when the year ends)? I say this because the rolling and 30 day markets are dependent on someone else wanting to buy my loans at the rate I took them out, whereas the one year market automatically releases my funds (assuming there are no defaults not covered by a provision fund, and ignoring early repayments).

N1ckS

Personally I treat P2P as potentially not being accessible and that in the event of a sharp downturn it might be a case of having to sit it out. If it were particularly bad and the provision fund dried up or Ratesetter went out of business potentially a large proportion funds in any market are at risk.

https://www.orcamoney.com/ratesetter-review/

aroominyork

N1ckS wrote: »

Personally I treat P2P as potentially not being accessible and that in the event of a sharp downturn it might be a case of having to sit it out./

That's my point - kind of. Is a rolling or 30 day account more likely to be inaccessible than a one year account with a fixed repayment date?

Albermarle

That's my point - kind of. Is a rolling or 30 day account more likely to be inaccessible than a one year account with a fixed repayment date?

I don't think you can make a simple comparison like that as Assetz and Ratesetter have different business models , which may or may not stand up better in a recession.

Malthusian

In the worst case scenario nobody is going to buy super-junk loans whether within 30 days or a year.

As Albermarle says, the answer is essentially neither. If the same platform is offering a 30 day investment and a 1 year investment then in theory the former should be more accessible, but comparing a 30 day investment on one platform with a 1 year investment on another can't be done without a full professional due diligence investigation into the underlying loan book.

aroominyork

Malthusian wrote: »

In the worst case scenario nobody is going to buy super-junk loans whether within 30 days or a year.

So are you saying that for Ratesetter's fixed one year market (I am not talking about a 30 day notice account) they need a new lender to step in before the original lender is repaid?

And what is the role of the provision fund in that? Is it only there to cover bad debts, or is it also used for repaying lenders when their one year loan matures if another lender is not available to take it over?

Edit: I've just spoken with Ratesetter. Investors into the one year market are only matched to loans of one year or less, so they are not dependent on other investors taking over the loan after one year. That seems to support my original assumption that if I do not want to be dependent on other investors taking over a rolling (RS) or 30 day notice (Assetz) loan, then the one year or five year fixed RS product fits the bill best.

DunnersO

My understanding (which I admit is often flawed) is that a buyer would need to be found in both circumstances. The provision funds are for bad debts.

I’ve only got a small amount in P2P, but stopped putting new money in last year. I’ve since been watching carefully how they perform and have reached the conclusion that they are not performing at a level that can justify the risk. So for that reason, I’m out.

bowlhead99

aroominyork wrote: »

I say this because the rolling and 30 day markets are dependent on someone else wanting to buy my loans at the rate I took them out, whereas the one year market automatically releases my funds (assuming there are no defaults not covered by a provision fund, and ignoring early repayments).

Borrowers don't really borrow for one-month terms ; the 30- day products are markets in which you could expect to be able to take your money back at short notice (rather than waiting for the year to be up) and effectively that's what Ratesetter call the rolling market.

To help liquidity, RS might buy your position off you instead of waiting for someone to buy from you, but in the T&C they say it is conditional on being able to match a new buyer. In a rising interest rate market, your loan part might be unattractive because who wants to buy a 3% loan when new ones are being written daily at 5%...

At Ratesetter, the stuff that gets thrown into the the 'rolling' market will include loans that pay back principal and interest as they go along, and loans that pay both in one bullet at the end, as they mentioned in a blog earlier this year And the term of those loans will vary. If you choose to commit just to the rolling market and not to a longer term market, you wil generally get lower rates but will not need to pay an exit penalty if you'd like to take your money back before the year or [other longer period] is up.

However, as you suspect, you are not guaranteed to be able to get your money back, it's just that most people do get their money back within 24hrs, in the market conditions experienced so far. In the market conditions of the future, it could be that nobody is lending any new money to the platform at all, and existing customers are all turning off their auto-reinvest functions for interest and principal, hence there could be a liquidity crunch and you have to wait for your money until someone wants to take over a loan paying what yours pays.

If that were the case, you might think it would be better just to have a term certain of exactly one year after which your borrower's loan matures and he pays you back. Assuming of course he does pay you back in full (or full enough that the provision fund covers the shortfall).

However, when you make your investment into that one-year market, in practice they do not promise that you will get exactly matched with one creditworthy borrower who wants to borrow for exactly one year from the same afternoon you want to deploy the funds. Instead, it could be a bit like the Wild West of the rolling market, with your money partitioned up and allocated into loans of varying duration. The difference is that you will usually get a higher interest rate, and you will need to pay to break earlier than the term for which you committed. After your term, you can ask for the money back without an exit fee. But as far as I can see, that doesn't mean the money will be available, because it might be stuck in a loan that hasn't matured yet and which (in adverse market conditions) nobody wants to buy.

As you mentioned the person told you over the phone, they would look for borrower's of one year or less, for the one year market. However the T&C is not so committal:

Ratesetter_T&C wrote:

Your investment is for the term of the loans you are matched with.

The terms of the underlying loans may be longer or shorter than your requested investment term.

You may be matched against loans from the RateSetter secondary market with considerably shorter terms than you have requested.

As an investor you can request access to funds earlier than the underlying loan terms but that is dependent on other funds being available on the RateSetter market to take your place and therefore early access is not guaranteed.

There may also be costs for exiting loan contracts early, depending on the product selected.

From the second of those bullet points I quoted, it's not clear that you are automatically going to get your money back after a year if you sign up for a year. Your investment is for the term of the loans you are matched with, and the terms of the underlying loans may be longer or shorter than your requested investment term. Once the year has passed, you can request penalty free exit just as if you had been in the rolling market. It doesn't necessarily mean they didn't match your one year lending request to a borrower who wanted the money for three years.

[My interpretation of their T&C, happy to be corrected]

If they are telling you on the phone they definitely won't match a three year borrower with a one year market investment (except perhaps the last year of his three year borrow, via the secondary market) then you can have some confidence that the money would be available from the one year market at the end of your one year. However, thinking logically, will that be the case?

Say you lend for a year and they match you with a loan that has ten months to run. But he repays early after month four. You are looking for them to provide you with a home for your money for a year... So perhaps you would either auto reinvest it on the 1 year market, in which case the money might not be available until month 16, or you would reinvest it on the rolling market, in which case you are stuck in a "request an exit and see what happens" situation whenever you want to leave.

aroominyork

bowlhead99 wrote: »

From the second of those bullet points I quoted, it's not clear that you are automatically going to get your money back after a year if you sign up for a year. Your investment is for the term of the loans you are matched with, and the terms of the underlying loans may be longer or shorter than your requested investment term. Once the year has passed, you can request penalty free exit just as if you had been in the rolling market. It doesn't necessarily mean they didn't match your one year lending request to a borrower who wanted the money for three years.
[My interpretation of their T&C, happy to be corrected]

(Deep breath as correcting bowlhead is done with trepidation)… my reading of the written terms is the same as they explained on the phone: that in the one year market you can be matched to loans shorter than one year but not longer. Once the year has passed, I do not have to request a penalty free exit – I will automatically receive my funds back from the redeemed loans as they will all mature on that date if they have not matured earlier.

bowlhead99

aroominyork wrote: »

(Deep breath as correcting bowlhead is done with trepidation)… my reading of the written terms is the same as they explained on the phone: that in the one year market you can be matched to loans shorter than one year but not longer. Once the year has passed, I do not have to request a penalty free exit – I will automatically receive my funds back from the redeemed loans as they will all mature on that date if they have not matured earlier.

I added an edit to my earlier post at the same time as you were replying, apologies. Once any principal comes back from the one year loan it would presumably need to be redeployed if you wanted to maintain your exposure to RS borrowers within your overall portfolio. I guess if you are looking for the exit, you would want to not redeploy it, so point may be moot.

my reading of the written terms is the same as they explained on the phone: that in the one year market you can be matched to loans shorter than one year but not longer

Well, the Investor Terms at https://www.ratesetter.com/investor-terms under "Investment term and access to your funds" literally says, as I quoted above:

"The terms of the underlying loans may be longer or shorter than your requested investment term"

I'm not sure how your reading of that would be that the term of the underlying loan on whose maturity you were reliant for your exit after a year would definitely not be longer than a year. It says in black and white that it could be, which I would take over the word of the customer salesperson on the phone.

aroominyork

bowlhead99 wrote: »

Well, the Investor Terms at https://www.ratesetter.com/investor-terms under "Investment term and access to your funds" literally says, as I quoted above:

"The terms of the underlying loans may be longer or shorter than your requested investment term"

I'm not sure how your reading of that would be that the term of the underlying loan on whose maturity you were reliant for your exit after a year would definitely not be longer than a year. It says in black and white that it could be, which I would take over the word of the customer salesperson oh the phone.

Yup, I'll put that in writing to them and see what comes back. Watch this space...