Peer-to-peer lending sites: MSE guide discussion
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This is my thoughts. I've put slightly more into the new hybrid diversified loan on ablrate and will put larger amounts In the new dpl but but otherwise I judt stick 50 to 100 in each new loan. I freely admit not to know enough about this to invest more and just look over the commentary on the p2p forum to decide whether to put slightly less or more in each loanFair enough, I took a probably more cynical view and have less invested, but I don't see a reason to bail out completely, just a case of being cautious and being fully aware of the risks involved.
I've recently had a couple of defaults on Moneything but that's the only ones for me so far. I did start with Lendy/ ss but sold everything there more than a year ago. Interestingly they are now trumpeting their high levels of profitability whilst admitting to 10% plus defaults, when in reality the actual default rate could easily be 30% in my opinion.
Moneything have a lot to prove on property loans, they seem to have restructured slightly but how they deal with their current defaults will be a real test of their platform.
Collateral have acknowledged they've tried to run before they can walk and seem to be scaling back the size of the projects they are financing for property development. There's a lot on their secondary market and they can't seem to get their current Bolton loans away at 15% with 2% cashback on top so a rethink was necessary in their part.
The issue around diversification is that how much effort are you prepared to make into due diligence on a. Loan which will make you £20 a year, ultimately I think you have to see it as an interesting pastime as well, similar to trading individual shares, but I think it forms a useful niche part of my portfolio, can't see me going above 10% though.0 -
Hi
I am about to move in with my bf and was intending to rent out my 1 bedroom flat.
Amount of rent after tax would cover mortgage and service charge, then I would be paying landlord insurance and about £105 per month for a major works bills for next 2 years (or £2500 if I pay as a lump sum, this will be billed in September reconciliation as work is curently taking place). I was hoping to manage it myself rather than pay an agency approx £70 per month. I am aware this will mean I need to be move involved.
My aunt has mentioned P2P lending. She has recently lent £50k to a property developer friend for 10% return, and knows of another developer who will offer 15% for a 6 month investment. A valuation of my flat last year was £120k, which I think is generous, so would expect to sell for £105-110k. So on £100k for example interest would be £6000 after tax. Signed loan agreements are in place.
I was thinking of all the things I need to put in place, little bits of DIY to get done on my flat before I can rent it, and then the task of finding a tennant etc. and now wondering if just selling up and lending the money to a developer for a year or so is an easier option.
My bf and I won't be looking to buy a joint property for about 1-2 years, although my original plan had been to leave the flat rented as additional income (mortgage will be repaid in August 2019) and pension pot (I'm nearly 36), although I have a work pension and small stakeholder, so have retirement sort of covered - but I expect the state pension may have gone by the time I get there lol, so may need another income source.
I apprecite I need to do more research, but advice on here is very good, so would appreciate your thoughts.
Thanks :-)0 -
My first thought is: Is your aunt a financial adviser? Best not to pay too much attention to friends and relatives.
The P2P lending covered here involves spreading the risk by lending to more than one platform, in each of which you lend to more than one company, so you may be spreading the risk over 25 to 100 different assets.
Your aunt's idea seems to involve putting all your eggs in one basket; never a good idea, however well you know the developer 'friend'.
You could do more research on letting the flat by talking to one or two letting agencies. You don't have to use one of them but you would get a better idea of the sums that might be involved.0 -
Thanks for this guide. I am very keen to learn about this peer-to-peer lending. I hope to earn some good return on lending via p2p platforms.0
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Diversify or die, no one should be putting 100K into one loan unless they are very wealthy.0
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YOU DO NOT WANT SIGNIFICANT P2P EXPOSURE DURING A RECESSION!!!
I've been on Zopa since 2006. It definitely did OK during the 2007/8 recession.
I don't agree that all p2p is correlated. There are property development, bridging, sme, personal borrowing, pawn shop, factoring ....0 -
My first thought is: Is your aunt a financial adviser? Best not to pay too much attention to friends and relatives.
No she's not, and she's not telling me to do it, just that she's doing and it could be an option for me to consider.
The P2P lending covered here involves spreading the risk by lending to more than one platform, in each of which you lend to more than one company, so you may be spreading the risk over 25 to 100 different assets.
Your aunt's idea seems to involve putting all your eggs in one basket; never a good idea, however well you know the developer 'friend'.
What if it was smaller chunks of say £20-30k in 3-4 projects? This would be a private loan agreement rather than through one of the companies discussed here. Or would you suggest I consider investing in multiple platforms, 25-100 assests via a company for a lower return than the private agreement? Is this relatively easy for a novice?
You could do more research on letting the flat by talking to one or two letting agencies. You don't have to use one of them but you would get a better idea of the sums that might be involved.
Yes I had a few come round last year so I have an idea of what it would all cost, I have another two coming this week to get firm costs in today's market.
Thanks for letting me bounce the idea around :-)0 -
. So on £100k for example interest would be £6000 after tax.
It is way easier to just give someone money for a fixed return than it is to run a succesful propety letting business.I was thinking of all the things I need to put in place, little bits of DIY to get done on my flat before I can rent it, and then the task of finding a tennant etc. and now wondering if just selling up and lending the money to a developer for a year or so is an easier option.
The problem is that if the developer goes bust, you'd lose not just the £6k income but also the £100k capital.
So you'd need to lend out at enough of an interest rate to make many times the 6% (which is the return you really want) so that you can afford for it to go badly wrong in x% of the times you try it.
You then have the choice of perhaps putting your eggs in only a few baskets with a loan of £100k to a developer or two loans of £50k or three loans of £33.3k to two or three developers. In those cases even if you get a really high interest rate it is not much good if it one or two of them go bust and you lose 33 or 50 or 66% or 100% of the capital. Or, you can put your eggs in hundreds of baskets via a P2P lender but then you have to assess the creditworthiness of hundreds of developers and their plans which is very time consuming for just a few hundred quid of loans (and a few quid of potential interest) per loan.
Also by investing in hundreds of opportunities you are not going to get the 'best' deal you can find; you'll just get the average performance of the good ones and all the bad ones. In an economic downturn there could be lots of defaults and pretty poor performance - and if the platform itself goes bust, that's a big problem for you trying to assert ownership and collect on hundreds of underlying loan parts. Still safer than one big loan to one developer, but not 'safe'. Really if using p2p you need to diversify across p2p firms in addition to diversifying among loan parts from different borrowers.
You might find that you renew someones tenancy for another 12 months because you think your property purchase with the bf will take another year to put in place and you don't need the income to support the mortgage on the new place anyway; but then all of a sudden you find something a week later and urgently want the capital from your let place to help buy your dream home.My bf and I won't be looking to buy a joint property for about 1-2 years, although my original plan had been to leave the flat rented as additional income
But the tenant has another year on their tenancy so you can't get them out. Then once their minimum term is up, you serve notice, but they don't want to leave and it takes 40 weeks to evict them through the courts. Your place has been trashed with £20k of damage which isn't close to being covered by the small security deposit they left you, and you've gone close to a year without income.
Then you eventually sell the place but because you want a reasonable price for it rather than a lowball figure, it takes six months to sell it, and then the buyer walks away at the last minute, and you're stuck there with a property you'll have to deeply discount to sell, almost two and a half years down the line from when you saw the dream house with your bf and really wished your money wasn't tied up in a property.
So, there is risk everywhere you look, when you are considering what to do with £100k of capital.
Really it depends whether you need it to finance your next property purchase with the bf. If you don't, and it's just going to be some income supplement you don't really need for now - with its primary purpose being retirement funding - then you can probably take larger long term risks with it. Either mortgage it back up and get a couple of rental properties (to avoid the eggs in one basket / nightmare tenant scenario) or sell up and buy a diversified pool of investments, which probably means using investment funds of shares and bonds and property in addition to P2P and so on. It doesn't mean having all the money lent to a developer with fingers crossed that the developer's solvent enough to pay you back.
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I've been on Zopa since 2006. It definitely did OK during the 2007/8 recession.
I don't agree that all p2p is correlated. There are property development, bridging, sme, personal borrowing, pawn shop, factoring ....
Zopa was a lot smaller back then and their underwriting standards a lot better (they wanted to be trusted and have close to no defaults as possible). What we have now are many P2P platforms all competing against each other. Some for the same property developer loans, some for the same consumer finance loans etc.
This means that underwriting standards would have to fall. These platforms rely purely on volume to stay afloat to pay their staff, rent, computers, valuers etc etc. So they need volume. Not only that but the owners want to be paid more and the way to do this is only through more volume. There is some from taking more margin from each loan and therefore the lender (us) gets paid less for the same risk, but that's harder as we are all interest/income sensitive and can decide not to invest based on the interest promised.
So you will naturally see underwriting standards fall as competition increases, they can and will do this in an environment of decent growth and no economic shocks etc. They can easily get away with it. However what happens when we get a recession? Its safe to assume that property will be harder to shift, people will lose their jobs, asset values will fall, things like gold could fall etc. Everything will be more correlated then before.
Suddenly you will find many loans in distress. Hard to recover as liquidity goes to zero and asset values fall and/or harder to shift. The interest rate of 5-8-12% or whatever suddenly becomes not so worth it.
They key to all this is are you adequately being paid for the risk taken? You may very well be paid for it under current economics, however most of these loans have a term of at least 3 years. What if we get a recession within the next 3 years? It has been 9 years since the last one...
The key difference between the stock market and by far most p2p platforms (with the exception of ABL) is price discovery. The stock market is full of buyers and sellers, prices are set by the market. In the P2P world most platforms dont have this mechanism, the platform sets the price and you either accept it or not. This means you have to do due diligence to be comfortable with the price paid for the loan. This means information needs to be readily available and you have the time to sift through the information. This all assumes you are good at pricing P2P loan securities.....
Because of this you have to sacrifice diversification for getting the right price. You would still want a cap on the amount lent to each loan but you can afford to lend more on the ones you did the due diligence on. The question is, how many loans will you have to sift through to find the fairly or better priced loan? And how do you know you are not missing something whilst doing the due diligence?0 -
More defaults on property at Moneything, not a good run. I have some funds in the recent defaults as well. MT will certainly be tested as a platform on any recovery.0
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