Peer-to-peer lending sites: MSE guide discussion
Comments
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chucknorris wrote: »I occasionally think P2P is something that I should get involved with, but I am very wary, what I fear is not risks from a day to day basis, but what happens when there is a huge economic collapse (like 2008 and 1988). Sure, share prices and property collapsed back then, but they eventually recovered, wouldn't P2P investments just end up being totally lost in such an extreme economic meltdown?
On the other hand both jamesd and bigadaj not only put up very reasonable arguments, they are also respected posters with a history of common sense. I think my problem is that I am at a strange (to me) stage of my investing life. I have made my money, and I am 60 next year, and I must admit that I am struggling a little moving from investing for profit, to investing for safety. We've just sold 2 (of 8) investment properties, it was the right thing to do, but part of me still feels like a mug when I look at the prospective lower returns on the equity released.
I think jamesd's approach is somewhat different to mine but I think p2p has a place in a balanced portfolio.
Jamesd has a far more conviction based approach than I have, I prefer a lower risk and reward approach.
I believe James has a significant portion of wealth in p2p currently whereas I have barely five figures in total, four figures in individual platforms and three figures in individual loans.
My approach has been to diversify on the basis that defaults will then have low impact, however this means small investments, at least initially and taking what some might perceive to be a long time and moderate effort to understand the platforms and individual loans.
This would be too much effort for many with significant wealth and not worthwhile though I do find the loans and platform models in themselves interesting.
With many bonds now offering such poor value I consider p2p as an approximate proxy, higher risk but with significantly better potential. Partially balanced by a reasonable sum in premium bonds which have the advantage of not offering negative returns, at least in absolute if not real terms.0 -
Yes, I was replying to someone who was worried about a mention of the 28% rate so I used the property rates. I edited the post to give both so it didn't mislead in the P2P case that would be ten or twenty percent if over the allowance.18%/28% is only for residential property.
Everything else is 10%/20%.0 -
chucknorris wrote: »I occasionally think P2P is something that I should get involved with, but I am very wary, what I fear is not risks from a day to day basis, but what happens when there is a huge economic collapse (like 2008 and 1988). Sure, share prices and property collapsed back then, but they eventually recovered, wouldn't P2P investments just end up being totally lost in such an extreme economic meltdown?
I think you've in effect responded to yourself on the totally lost point. If it's secured lending and residential property is the security that's not going to lose all value just because of economic trouble. There's timing flexibility to some degree on when to sell a property which has been seized, or even on whether to do if at all if the developer can still pay the interest until conditions improve.chucknorris wrote: »I appreciate what you are saying, and perhaps my post could have been worded better, but wouldn't those assets be sold in a very bad market, leading to significant losses? In 2008 our properties dropped in value by approx £1m, but are now well over £2m higher than they were in the dip. Obviously we didn't sell back in 2008, in fact, we actually bought another investment property (which has doubled in value) taking advantage of the lower values.
Consumers don't all stop paying during a downturn so much of that lending would be fine or not particularly bad losses.
Lending secured on business buildings could be more dubious, perhaps in part because many lenders might not know that valuations for those are often valued as a multiple of rent paid. So you have to factor in possibly worse trading conditions as well.
There's a business loan for a pub at Ablrate at the moment. Property valuation of a million Pounds based on anticipated EBITDA times 5.5 if I recall correctly. Gives loan to value of around 50%. But that's not most recent EBITDA which would cut the value to half a million at the same multiple. Buyer is a pub group with a good record reworking pubs to raise profits so the deal makes sense IMO but in recessions people may go to entertainment venue pubs (themed bars and such) less and hurt both trading and property value dependent on it. Then there's the guarantee from the parent firm to improve on the building security. But ultimately the loan is about the business refurbishment being successful with a side bet on there not being major trading strain on the business. And on them not over-trading and failing during a period of rapid expansion they are in at the moment. The loan is split into two parts, 12% interest only and 14% amortising, so the overall loan to value will improve as the amortising one reduces and since that is subordinated to the first (paid off after it if the security is called in) the higher rate is needed.
I've put a few thousand into that one but there's a real question about how many lenders might understand that nature of the security and the way it's linked to trading risk. Even so, the place won't become worthless, however bad things might get.
A sensible mug maybe?chucknorris wrote: »I think my problem is that I am at a strange (to me) stage of my investing life. I have made my money, and I am 60 next year, and I must admit that I am struggling a little moving from investing for profit, to investing for safety. We've just sold 2 (of 8) investment properties, it was the right thing to do, but part of me still feels like a mug when I look at the prospective lower returns on the equity released.
Reducing hassle could make a lot of sense for you so cutting back on the investment properties assuming they are let seems to make sense.
That doesn't rule out P2P because it has some interesting properties due to it being a hold to maturity investment, unlike bond funds. So less volatility. But you might want to avoid property development loans because they are riskier than most due to the unknown exit market conditions at the end of the work. And maybe sell a while before the end of the term since that's when risk is most likely to become actual rather than potential - that's when sale prices might not be reached or the developer might not have the funds to complete the job. Or maybe you'd pay BondMason their cut to get 6-7% with less work by you.0 -
I think you've in effect responded to yourself on the totally lost point. If it's secured lending and residential property is the security that's not going to lose all value just because of economic trouble. There's timing flexibility to some degree on when to sell a property which has been seized, or even on whether to do if at all if the developer can still pay the interest until conditions improve.
Consumers don't all stop paying during a downturn so much of that lending would be fine or not particularly bad losses.
Lending secured on business buildings could be more dubious, perhaps in part because many lenders might not know that valuations for those are often valued as a multiple of rent paid. So you have to factor in possibly worse trading conditions as well.
There's a business loan for a pub at Ablrate at the moment. Property valuation of a million Pounds based on anticipated EBITDA times 5.5 if I recall correctly. Gives loan to value of around 50%. But that's not most recent EBITDA which would cut the value to half a million at the same multiple. Buyer is a pub group with a good record reworking pubs to raise profits so the deal makes sense IMO but in recessions people may go to entertainment venue pubs (themed bars and such) less and hurt both trading and property value dependent on it. Then there's the guarantee from the parent firm to improve on the building security. But ultimately the loan is about the business refurbishment being successful with a side bet on there not being major trading strain on the business. And on them not over-trading and failing during a period of rapid expansion they are in at the moment. The loan is split into two parts, 12% interest only and 14% amortising, so the overall loan to value will improve as the amortising one reduces and since that is subordinated to the first (paid off after it if the security is called in) the higher rate is needed.
I've put a few thousand into that one but there's a real question about how many lenders might understand that nature of the security and the way it's linked to trading risk. Even so, the place won't become worthless, however bad things might get.
A sensible mug maybe? Reducing hassle could make a lot of sense for you so cutting back on the investment properties assuming they are let seems to make sense.
That doesn't rule out P2P because it has some interesting properties due to it being a hold to maturity investment, unlike bond funds. So less volatility. But you might want to avoid property development loans because they are riskier than most due to the unknown exit market conditions at the end of the work. And maybe sell a while before the end of the term since that's when risk is most likely to become actual rather than potential - that's when sale prices might not be reached or the developer might not have the funds to complete the job. Or maybe you'd pay BondMason their cut to get 6-7% with less work by you.
Ablrate looks interesting, I've just registered and awaiting confirmation of the ID proof that I uploaded on their system. I nearly called it Ablgate above, I hope that isn't a bad omen, lol.
I'm beginning to see the sense of this:
Investments like that pub/restaurant will not fail on the first day, so some interest at 12% will have been received.
If I make a few investments, most will probably last for at least the length of the loan.
Do Bondrate and Ablrate provide annual interest earned statements for completing tax returns?
EDIT: I now have access to Ablrate, on that pub/restaurant opportunity, I prefer the 12% interest only option, as it has the first charge. I may invest in that, what is the min? I was thinking about £3-4k, but I will think that over. What made you prefer the second charge option (I'm just checking that I have correctly interpreted both options)?
I need to think how much in total I want to lend, and over how many investments (how many are likely to be available over any 4 year span). If I want to invest a total of say approx £40-£50k at any one time, that would be £3-4k per loan. If I assume that I will be interested in say 50% of the opportunities, is it likely that 8 opportunities (in property only) are likely to be offered per annum?
If all that is feasible, I think I would target about 4 loans per year at £3-4k each, maybe double up on ones that look particularly tasty.Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop0 -
chucknorris wrote: »Ablrate looks interesting, I've just registered and awaiting confirmation of the ID proof that I uploaded on their system. I nearly called it Ablgate above, I hope that isn't a bad omen, lol.
I'm beginning to see the sense of this:
Investments like that pub/restaurant will not fail on the first day, so some interest at 12% will have been received.
If I make a few investments, most will probably last for at least the length of the loan.
Do Bondrate and Ablrate provide annual interest earned statements for completing tax returns?
Ablrate do, not used Bondratte.
EDIT: I now have access to Ablrate, on that pub/restaurant opportunity, I prefer the 12% interest only option, as it has the first charge. I may invest in that, what is the min? I was thinking about £3-4k, but I will think that over. What made you prefer the second charge option (I'm just checking that I have correctly interpreted both options)?
Minimum is £1 I think. Personal preference really when it comes to amortising or interest only, I prefer amortising but missed this one as I was on holiday so have gone for a bit of the IO one
I need to think how much in total I want to lend, and over how many investments (how many are likely to be available over any 4 year span). If I want to invest a total of say approx £40-£50k at any one time, that would be £3-4k per loan. If I assume that I will be interested in say 50% of the opportunities, is it likely that 8 opportunities (in property only) are likely to be offered per annum?
ABL don't have many new loans, and only a subset of those are property so you may struggle to get 8 opportunities in a year. Again, personal opinions but I would rather be spread across a lot more loans than 8 @ £4k to spread the risk, 25 @ £2k minimum for a £50 investment. Additionally, in your situation with a number of BTLs why put more of your eggs into the same sector (property)?
If all that is feasible, I think I would target about 4 loans per year at £3-4k each, maybe double up on ones that look particularly tasty.
Have a look at moneything for a wider range of property based opportunities, along with other asset types. Again not a fast deal flow but IMO well thought out offers in the main with good support from the team there. Collateral is another I use, deals are generally a lot smaller but there is a steady flow of "pawn broker" type loans secured against jewellery and the like (with trade buyers underwriting the valuations and prepared to step in and take on the assets if repayment problems occur.
As with all things though - DYOR.0 -
Don't know about BondMason. Ablrate does, though they are still working on some improvements that are needed to fully correctly handle secondary market trades, largely related to accrued interest paid when buying and CGT reporting. The tax treatment for various things differs between platforms so it's something to get familiar with for each.chucknorris wrote: »
Do Bondrate and Ablrate provide annual interest earned statements for completing tax returns?
£1 minimum. I tend to have as much opportunity to invest at 12% as I want overall so for that one offered in both forms I preferred to take exposure to the higher risk/reward amortising second charge. I've done the same at MoneyThing for some split 13% second/10% first charge interest only loans.chucknorris wrote: »on that pub/restaurant opportunity, I prefer the 12% interest only option, as it has the first charge. I may invest in that, what is the min? I was thinking about £3-4k, but I will think that over. What made you prefer the second charge option (I'm just checking that I have correctly interpreted both options)?
I expect more than eight since they are growing. Though do consider some of the other types of security, they can be interesting and it's nice to diversify a bit. Loans secured on buildings are so common across various platforms that it'd be easy to have high property market exposure.chucknorris wrote: »I need to think how much in total I want to lend, and over how many investments (how many are likely to be available over any 4 year span). If I want to invest a total of say approx £40-£50k at any one time, that would be £3-4k per loan. If I assume that I will be interested in say 50% of the opportunities, is it likely that 8 opportunities (in property only) are likely to be offered per annum?
You should also look at the secondary market because it's a good way to get invested quickly with diversification. Either buy instantly from the best priced offers or create a bid and see if any sellers are interested in the price you're offering, give it at least a week. Declaration of interest: I quite often sell to reinvest and diversify or just to free up money so there's a chance that if I'm offering the best price you might buy from me. I think not likely at the moment, but possible. The ability to buy and sell at premiums and discounts means that there's usually something to buy, though maybe not at an interesting yield.
Easily feasible though I suggest that you also open a MoneyThing account and look to split between the platforms. Maybe two thirds or three quarters Ablrate initially because of the ease of getting invested quickly via the secondary market. I expect that you could in a year be at an average of 1-3k per loan, depending on what takes your fancy.chucknorris wrote: »If all that is feasible, I think I would target about 4 loans per year at £3-4k each, maybe double up on ones that look particularly tasty.
Those are two of the top three used platforms in a recent P2P forum poll. Also the two I prefer to recommend. Two up and coming are Collateral because of security diversification, like jewelry, and Funding Secure because of the tax advantage of its secondary market - interest all paid by borrower at end of loan like the pawn model but if you sell the buyer pays you the accrued interest as a capital gain in effect, normally reducing tax bill for those with available CGT allowance. Funding Secure loan descriptions and risk/return are much more varied than Ablrate or MoneyThing, definitely don't think of going for everything there. Collateral to a lesser degree. The other top three one is Lendy, losing a fair bit of its shine for reasons already discussed quite a bit. Of those five, Ablrate, FundingSecure and MoneyThing currently have full rather than interim FCA approval.0 -
For those who didn't receive a direct notification, FundingSecure has today launched its IF ISA.0
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For those who didn't receive a direct notification, FundingSecure has today launched its IF ISA.
It's a shame that the ISA rules are so restrictive. I have a Lending Works IFISA (opened 16/17) and would like to open a FS IFISA and a Moneything IFISA as and when available. I might possibly wish to open others in the future.
Funding them is not going to be straightforward as I'm going to need to plan for transfers of previous years Cash ISA money to fund them effectively. Even my previous years ISA money is actually in other accounts which will need returning to my flexible cash ISA prior to then being transferred out to the IFISAs. No more straightforward drip-feeding into multiple p2p platforms.
This inconvenience is, of course, the price I (we) have to pay for receiving a significant tax saving on the interest.
I do wonder if it will lead some to concentrate money into perhaps too few platforms as they might subscribe only to one/few IFISAs and not diversify especially if no ISA subscriptions from previous years are available for transfer.0 -
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I think those that aren't really bothered about diversification across platforms will probably not have spread their money around much anyway, so this group will probably not find it too hard to maintain their spread within ISAs.I do wonder if it will lead some to concentrate money into perhaps too few platforms as they might subscribe only to one/few IFISAs and not diversify especially if no ISA subscriptions from previous years are available for transfer.
For those who are using quite a few different platforms, it will be more of a problem, but with the slow rate IF ISAs are appearing, I wouldn't be surprised if many have made provisions to have previous year money available to split up.
Where it is going to get troublesome is when platforms become less attractive or go through a dry spell where money cannot be reinvested. Since some IF ISAs (including the FS one) are not flexible, one has to either sit tight with cash drag, or transfer the cash to a rival platform's ISA or flexible cash ISA, which will be inconvenient for all concerned.0
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