RateSetter risky?

GiddyInvestor

Re. Masonic - Regarding my statement " barring fraud within the company the investors’ money would be covered by the provision fund." you are quite correct this was wrong. I need to replace "would" with "should". I have no doubt RS can calculate very precisely the likely default rates so excepting the certainty of the PF cover I stand by my comment.
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Alexland

GiddyInvestor wrote: »

I have no doubt RS can calculate very precisely the likely default rates.

They can only use historic data and model potential future scenarios. Otherwise they have no more clue about what will happen in future than any of us. We have seen several P2P platforms hit the wall as they weren't smart enough with much wealth destroyed.

A.

GiddyInvestor

I would actually dare to disagree with that. I would suggest that the owners of the companies that failed were very aware long before collapse that defaults were becoming excessive but the desire to get to an IPO meant they were prepared to push on regardless. Funding Circle would seem to be the perfect example. With a large body of statistics available the number of significant surprises should be limited. This is why transparency is needed.


Edit - Obviously Funding Circle has not failed as yet but trust you will get my point.

kcrane

GiddyInvestor wrote: »

Edit - Obviously Funding Circle has not failed as yet but trust you will get my point.

No it hasn't, but the time it takes to get your cash out has gone from almost immediate at the beginning of the year to well over 2 months now (and that wait is getting longer). You have to wonder why that is the case.

Alexland

GiddyInvestor wrote: »

I would suggest that the owners of the companies that failed were very aware long before collapse that defaults were becoming excessive.

True it may be internally obvious when they are already in a death spiral. So how would you, as a potential investor, know if the management of any P2P platform were getting privately concerned about their own loan quality? It's bad so many of us are assuming the worst will occur at FC.

masonic

GiddyInvestor wrote: »

I have no doubt RS can calculate very precisely the likely default rates so excepting the certainty of the PF cover I stand by my comment.

Perhaps you ought to peruse some actual data:
https://www.ratesetter.com/invest/statistics

If you compare expected lifetime losses for loans when written in the earlier years (where a sufficient proportion of loans have repaid) to the actual loss rate, you'll see a historic underestimation of RS's prediction. However, the point I want to draw your attention to is not that final losses have tended to be higher than predicted, it's that the initial estimate cannot possibly take into account scenarios such as recessions, because otherwise it would consistently overestimate actual default rates.

You might note a slight uptick in predicted default rates in latter years, but this is woefully inadequate to account for a real recession scenario when even the most credit-worthy people lose their jobs in swathes and businesses find their customers stop placing orders and stop paying invoices, in turn driving them out of business.

The changes to the T&Cs in 2017 gave RS the ability to call a Stabilisation event for exactly this reason. If they have to revise their predicted default rates sharply upward in response to a recession, such that the provision fund is not adequately capitalised to meet the revised predictions, all lenders have agreed to take a haircut on interest or capital and assign this to the provision fund.

I think if you phoned RS customer support and asked the question: "in the event of a severe recession in the UK, is there a realistic possibility I could lose some of my capital?", you'd get an answer that would make you reconsider your position.

Recessions are inevitable. They are a natural part of the business cycle. So you have to expect them to come along from time to time.

GiddyInvestor

My position is that I don’t trust RS at the moment as they are insufficiently transparent. The default rate of small loans to many people for phones are easily estimated but property loans are where you get into dangerous positions.
If RS went to a Stabilisation event they are finished and I suspect Rhydian Lewis would use every justification he could think of to not make that move. I love the idea of RS and want to return but need evidence of stability rather than obfuscation.

firestone

Snow_Dog wrote: »

I think if it were me in your position I would more go for the 1 year which is about 4.5% at the moment. Then in 1 year you get £145 in promotion and interest and could then look to see if any others are doing a similar promotion. Just keep racking up 10-15% returns per annum on your initial £1K.
Just make sure you set your reinvestment on Ratesetter to be high so it doesnt auto reinvest and it will drop right out into the holding account.

if only investing £1000 and setting your investment high so it does not reinvest(or even reinvesting back in to holding) you run the risk of losing the bonus if you get an early repayment on that One year fix and the money is out of the market

firestone

sanfairyanne wrote: »

Thanks, I’m going to put £1000 in the 5 year section at 5.8% with a £100 bonus after 5 years. A friend is linking me to this and he will get £25. So he owes me a beer. I’ll just have to think some more about using my cash. One would think the UK markets likely to be volatile in the run up to Brexit, so if I hold on to cash until the end of October I might find some opportunities arise.

the normal promo is keep the money on the market for a year to get the bonus not 5 years as you mention(unless its changed) but as others have found if you drop below the £1000 you may find they don't pay so you need to watch your settings

Snow_Dog

firestone wrote: »

the normal promo is keep the money on the market for a year to get the bonus not 5 years as you mention(unless its changed) but as others have found if you drop below the £1000 you may find they don't pay so you need to watch your settings

Good point, I forgot what method I used (just used to keeping my account at a highish reinvest rate), was OH account and I just set the reinvest from the 1 year to rolling market at market rate.


Her invested £1000 did mature about 4 days early and still took a couple of days to be reinvested in rolling so I was concerned that they wouldnt pay out but they did, dragged it out by the 30 working days though.