Peer-to-peer lending sites: MSE guide discussion

mikb wrote: »

"in time" -- that time passed a while ago. Rates on most of the bigger P2P sites have fallen as they strive to be competitive on the lending side, and realise they only have to beat "typical savings account" on the other side.

The risks have also altered. For example, Funding Circle used to offer SME lending (unsecured, with director's personal guarantee = toilet paper security), and asset secured.

Asset secured loans went the way of the dodo. Property loans came along, secured against -- property. But with a massive unwillingness to ENFORCE that security when it goes wrong, and lenders left wondering what is going on.

Some of the loans have become SO long defaulted, that Funding Circle closed their own forum at very short notice, to suppress the mounting evidence being found by lenders as to the real shenanigans behind the loans, and the mounting calls for a proper response from FC management. Not the occasional platitudes and then, ultimately, silence.

In one case, FC took over a year to finally get things under control, and they did so by just handing over to Administrators. Another "SHORT TERM" loan has been in default longer than the original entire loan term.

So loan quality has already long gone down the toilet, with a worrying number of SME loans making 0-2 payments and "unexpectedly" going out of business. I don't touch them any more, and have sold a lot of those I did hold!

You have very much missed the peak of P2P, if you weren't brave and got in at the beginning.

You've made a good case for not investing in the likes of Funding Circle and the other big players, but I don't and wouldn't invest in any of those. As I mentioned in a previous post, I used Ratesetter for a brief time, but as soon as I learned a bit more I abandoned it for better prospects and loans at 10-15% secured on assets (which includes property, but also jewellery, vehicles, aircraft, wind turbines, business assets, HP agreements, consumer electronics, gold, and more).

Personally I've been happy with the enforcement action taken by the three platforms I use in which I have held loans that have defaulted. I have had 4 defaulted loans recover 100% of capital and interest, with a number of others currently in recovery, but with reasonable prospects, and very few defaults overall.

Of course I don't expect things to remain quite so rosy in the event of an economic downturn.

You may think that I've "missed the peak of P2P" and I don't know what sort of rates were available in the past, but I wasn't aware of rates higher than the 10-15% available now, or I surely would have taken a look earlier. In any case, in the 5 years following the financial crisis in 2008, my overall investment portfolio achieved annualised growth of 19% (all tax free), so my absence from the P2P arena did not harm my wealth too greatly

Edit: On some further checking... prior to 2009, my understanding is the only significant player was Zopa, with rates of 5-7%, which could be matched or better after basic rate tax by risk free cash in an ISA. Google tells me Funding Circle didn't arrive on the scene until 2010 and if I am reading their infographic correctly, average returns did not exceed 10%, so perhaps some investors did better than that, but presumably not more than 50% better. As for Ratesetter, like Zopa, it has never returned as much as 10% per year.

bigadaj wrote: »

I'm not sure you're being totally objective there Masonic, though to be fair to you the post your responding to wasnt either.

It's not my intention to lose objectivity, but I am searching out the information of past returns based on platforms I knew were operating prior to my first foray into P2P.

Several years ago some European platforms were offering up to or even abive 20% but with the additional peril of currency risk, I think bondora was one, and they were typically unsecured.

I have some awareness of Bondora and it seems a very risky proposition.

Looking at their website, there is an indication that net returns have fallen since 2014, but they were rising between 2011 right up to mid-2014.

There have been numerous accounts over on the P2P independent forum of investors seeing net returns much lower than those lofty advertised rates, with several claiming that they had broken even after several years and some celebrating escaping with only a small loss overall.

Ablrate was offering loans at 16% or possibly higher a year or two ago as well.

I may be misremembering, but there may have been one or two higher rate loans offered to a select few members, but I don't think these were made available to all. I've only been lending with Ablrate for just over 2 years, but the highest loan I've seen made available to normal members is the 15.4% container loan.* It is a loan I currently hold, but it was a one off. It may become available on the secondary market shortly when the repayment of capital is completed, but might be subject to a premium. There have been several loans at 14% - one just a few months ago, so I'm not convinced of the case that rates have already fallen there.

* Edit: Looking back, there was actually a second charge property loan at 16% launched about 6 months ago.

The best example of a platform with formerly high rates that has recently dropped them considerably is Assetz Capital, where I still hold several loans at >10%, but where loans of 6-8% are the new norm. But to say that is evidence that the best days of P2P are in the past is quite an overstatement.

I don't think you'd also claim your investment returns were in any way guaranteed or even projected, and significantly exceed anticipated returns on any mainstream funds.

That happened to be the best 5 year period in my investment history, but coincided with the 5 years prior to the date I dipped my toe in the water of P2P. No I am not trying to suggest those returns are normal, and that period did not include the financial crisis that immediately preceded it, but my statement was specifically in response to the insinuation that I wasn't "brave" if I didn't get into P2P at the beginning. I didn't divide up the quoted text like I normally do, so that may not have been clear.

bigadaj wrote: »

Going back to Mikb, It's never a good idea to extrapolate one experience to a wider scenario

It's not just my experience that Funding Circle are pulling out of property loans, having heralded them as a "really good idea" [tm]

It's not just my experience that the Funding Circle forum has been removed, for the second time, due to growing dissent, coupled with excessive due-diligence and analysis from clued up customers.

There was no extrapolation, although you have to admit that Zopa, Ratesetter, Funding Circle and Assetz Capital have all experienced reduced rates on the loans offered.

Returns of over 10% were possible on Funding Circle, but it required some work (bidding high on loans, holding for a while, and selling on at a reduced rate, a.k.a flipping).

Then this practice was hobbled by removal of the auction bidding process -- because the frenzy of bidding caused the whole website to crash each time an auction finished!

C'est la vie!

masonic wrote: »

I have some awareness of Bondora and it seems a very risky proposition.

Looking at their website, there is an indication that net returns have fallen since 2014, but they were rising between 2011 right up to mid-2014.

There have been numerous accounts over on the P2P independent forum of investors seeing net returns much lower than those lofty advertised rates, with several claiming that they had broken even after several years and some celebrating escaping with only a small loss overall.

They weren't rising, losses were just being concealed. Bondora doesn't count capital in a defaulted loan as lost until the payment was due for each individual month. That is, it projects 100% of future capital being paid on a defaulted loan. That can be almost five years after default and is for me because I mostly went for five year loans.

As long as they were growing, then when they added higher rate, higher loss markets, the initial interest rates but not counted yet losses to default produced improving apparent returns. At stable lending volume the pigeons have been coming home into the reporting each month without so much to mask them and that's showing as a gradual decline in claimed returns.

I stopped new lending after various scandalous things and finally when they removed the ability to automatically lend only to Estonian borrowers late in 2014. Since I stuck to Estonians and later sold off the higher risk and lower rate portions of that I'll probably come out with 16%+ returns, with many of my loans at raw 28% rates. I've already withdrawn more than I paid in.

Those who didn't stick to good lending discipline have done worse than me, I'm normally in the top 20% or so of lenders.

You can see similar issues at Lendy where it's possible to have say half of all loans (not the actual number, just illustrative) fail to pay back on time but claim only a few percent are late because most are newer during a period of high growth and just haven't been around long enough yet to be late. You can see through this masking by looking at the performance of each loan time cohort, say the first quarter of 2015, second and so on of originated loans. When you see bad rates on the old ones but good overall percentage during rising lending growth it's a danger sign for credit control issues. A successful player might be able to improve loan quality while still growing, before things get obviously out of control. An alternative would be to pile on dross to keep the growth rate up so that the overall percentage rate still looks good. By collecting interest up front as part of the amount borrowed Lendy has even more early masking potential than Bondora, with usually a cliff-edge potential when the pre-paid interest runs out and you find out whether the borrower can pay or not.

It's no surprise that property development and bridging loans over-run, more the norm. It's just something that doesn't get recognised usually until well after it could have been noticed because of the advance interest reporting, lenders being comforted by on time payments of interest that are their own money being returned to them from the Lendy holding account.

You'll see a somewhat different approach taken at MoneyThing with expected results from regular monitoring being reported in a quite timely way, so you have better insight into what's happening and an easy out by just not ticking the box to buy into an extension. They used to occasionally cover interest for a short time, like a brief monthly payment delay, but I think they have stopped that.

But that's not the big difference between the two, that is the difference between the loans which make it as far as being promoted by the platform to investors.

Most of my Zopa lending in the 2008-9 period was done above 15% interest rate. There was a later batch where I was doing around 8.7-10% to A+, A and B and these are now also mostly completing their terms, with most of my loan book there now in arrangement, collections or otherwise defaulted in some way. I just held back from lending there at lower rates. Those rates for interest weren't beatable at the time I did them, at least not via savings accounts except a few deals that I was also using, like 12% then 10% regular savings.

Zopa back then had a wide range of timing and loan size effects to exploit to improve returns and I generally bid at prices that would be matched by bigger loans only towards the end of the month when lender funds were running low. I'd set up a ladder of offers at ever-higher rates that the bigger loans might eventually have to use to get filled, something that came to be known as easteregging after a popular proponent of it, much the same way as stoozing is named after Stooze. Loans with longer terms were more prone to running short of funding so that's where I did most lending.

Awareness of cohort and growth effects is part of why there can be a big difference in the opinions of those who have been around a while and those who haven't. The comparative newcomers might not know where to look and what to look for.

elephantrosie wrote: »

am i right that there is no sell out fees on collateral uk?

you are correct.