Lending Works P2P

Ciprico

Anyone thinking of investing with Lending Works - be extremely careful.

It seems their provision fund (their benefit over other P2Ps) became so depleted they had to raid their investors by reducing their interest rates.

The long and the short of it

If you sign up now you would think you were earning 5.4% with a .5% early leave penalty.

You also are liable for any change in interest rates when the loans are resold to new owner if rates have gone up. Sounds reasonable.

In reality (from 1 Jan 2020) you earn somewhere around 1.5% for first couple of years, and maybe 7.5% for the last couple of years, the average being 5.4%

If you leave early you have to compensate the 1.5% to the 5.4% the new investor will be getting. (This on top of the expected .5% exit fee). Ie you get hit with a 3.9% + .5% exit fee)

Figures above are to illustrate the concept, but I got out less than I paid in taking into account interest earned, interest deficit charge and excluding the .5% expected fee

The real kicker is they applied this retrospectively. ie I invested at 6.5 last summer, sold early after they had reduced their rate 5.4. You'd think there would be no interest shortfall, they will be paying new owner of the loans less than they paid me

As of their change of rules in Jan 2020, they've retrospectively applied this average interest concept so I wasn't earning 6.5 from last summer, but maybe 1.5% so I had to pay an almost 5% penalty to cover the interest short fall.

If I'd stayed invested the full 5 years I would be earning maybe 9% later to bring the average back to 5.4% - but I decided I wanted out.

If you hold your investment the full 5 year term the above won't apply

This assumes Lending Works will be around in 5 years time, and don't change the rules in the meantime.

Also when I tried to sell out, I couldn't sell maybe 10% of the value, as the the underlying loans were bad and unsellable. I was under the impression the Provision Fund/Shield would protect me as an investor from bad loans. I'm still trying to understand why this is....

So be very careful - P2P is very risky, and when companies start behaving like this it might be a sign things are not too healthy

There is lots of "discussion" on this on the dedicated P2P forum if you want more info.

jono1975

I invested after the change to 5.4% as a first time investor and if I were to withdraw on month later I get hit with a shortfall penalty + the .5% fee. This is despite the rate not changing, so it's not just to do with the rate changing!

Really we all need to know the actual way this is being calculated, and this should be very clear on the website and downloadable data, which it isn't.

I'm lucky that mine is low shortfall, even though it should be zero, and I worry about rule changes that are vague or even omitted entirely like this seems to be. I think this is all to do with loaning out at high APRs and risky borrowers (something on the website mentions getting confidence to lending to higher risk borrowers over time). I guess that has backfired.

Also, as a brand new investor why was I given several loans in arrears that I can't sell from day one! Isn't that against the new P2P rules?

Albermarle

It seems their provision fund (their benefit over other P2Ps) became so depleted they had to raid their investors by reducing their interest rates.

Generally this was seen as a sensible move in the face of higher than expected default rates .
Better to have a suitably funded provision fund , even if it meant lenders taking a haircut on interest rates being earned .
However it seems the way this haircut is being applied is complicated and not easy to understand . Plus seems to be affecting some lenders more than others in ways not fully clear.

Aceace

jono175, can you tell us what percentage shortfall penalty you are being quoted. I'm currently being quoted 6.5% plus the 0.5% fee, but all of my loans were taken out before the rate cut.

webjaved

P2P just screams extreme danger to me, I would stay well away from P2P.

Ash_Pole

I had about 125k in p2p three years ago. I lost around 12k with the lendy & moneything problems, and I've been running the rest down ever since.

Lendingworks I liked the look of but I can see this going the same way as the others so I've put the lot up for sale. Defaults here are growing though and I'm not counting on getting back what I put in.

I'll probably keep a small amount in Zopa as their platform seems reasonably stable, but to me now the first rule of making money is not losing money.

Ciprico

Aceace wrote: »

jono175, can you tell us what percentage shortfall penalty you are being quoted. I'm currently being quoted 6.5% plus the 0.5% fee, but all of my loans were taken out before the rate cut.

I was charged £150 on a £2000 withdrawal plus the expected .5%.

I took the hit, as have become disillusioned with the whole P2P "thing" - was good whilst it lasted and overall am "up" - though the profits were all generated with the earlier incarnations of Ratesetter/Funding Circle/LW.

They've all changed their "models" and non of them positively!

ILikeToSave

Same here. After 2 years with them the changed the Loan Data Book & I found I had bad debts of around 5% of my loans, one owing £5000, and some were 8 weeks behind with payments but LW will not implement their policy to default loans 4+ months behind, presumably because the 'Shield' is empty. And from 1 Dec 2019 they reduced my interest rates to zero in some cases without telling me. I only found out as I do a weekly check that I've got the right interest. They tell me they are not telling investors what their interest rates are in case they pull their money out. I've got what I can back but I lost nearly 6% of my investment in charges when I took it out. New investors should watch out as Interest rates are subject to change every few months so you can't be sure what you'll end up with, if anything. And they tell me they are doing this for my benefit! Obviously the good credit rating loans are anything but. Do what I have done and report them to the FCA. They'll probably do nothing unless a lot of us complain about LW's conduct, which IMHO is unethical, especially putting our loans in the Growth Fund. I for one would have switched into the Flexible fund.

Shankers

At one point I was in Lendy, Ratesetter and Lending Works. As a keen follower of MSE and the P2P Independent Forum, I read comments by people far more knowledgeable than me and saw the writing on the wall for Lendy. I only had modest amounts in all three platforms, but I managed to come out with a profit and didn't lose any capital. Nevertheless, Lending Works seemed too good to be true for a long time and the only reason I left it last February was I was getting very frustrated with long matching times. 

firestone

Not something i am up on but notice from the p2p indie forum a reply from LW about a new update to their methods (which might be better for some maybe)

Shankers

firestone said:

Not something i am up on but notice from the p2p indie forum a reply from LW about a new update to their methods (which might be better for some maybe)

In fairness, although LW have had to make some changes, they're still probably one of the best P2P platforms around (damning them with faint praise). Matthew from LW has been good at communicating with people on the P2P forum and is a clear and calm voice.