Has It All Become a Ponzi Scheme?

A very fair point.

Alternatively, LY could become the White Knight of P2P investors by taking up arms against dodgy valuations and vigorously pursuing recompense from the surveyors!!!!!!! Maybe......

It takes two to Ponzi! We've been at this P2P lark now for several years and there is a tiresome inevitability of younger, smaller platforms with new loans performing well and older platforms suffering as mature loans go bad.
Even seasoned investors then turn on the older platform and pile into the younger platforms which accentuates the Ponzi effect.
I think Assetz and FC have become "post-Ponzi" in that they have settled into an equilibrium of new loans coming in and old loans being repaid/going bad and we see the true performance. 
Jack P

I do feel that is the only way I would have nay faith restored in lendy. yes its a risky investment but valuations out by that amount are beyond risky more ridiculous

I feel the pressure is building for LY. The “castle” debacle has, quite rightly, created a wave of bad sentiment. There’s only a few hardened LY fans who keep saying “everything’s fine, we all know the risks”, the rest of us are increasingly disatisfied. I just went over to TrustPilot to read some LY reviews, wow, they’re all 1 red star reviews and an outpouring of anger and frustration. The replies from LY are all patronising boilerplate answers. 

The average interest rate on bridging loans is around 13% + fees, with an average LTV of around 50%. So the SS model in the 2014-16 loans of 18% interest upfront + 6% in fees (4% upfront, 2% on exit) is very much at the higher end of the distribution. Any borrower who cannot achieve better than the SS effective IRR of 30%+ is probably going to have something in their proposition which makes it high risk. It's 100% our duty as lenders to ensure that we understand that.

With regard to valuations, my experience over 15 years of bridging as a personal investor is that valuations are never reliable in the scenario where they matter: default and recovery. It's fairly obvious that if the valuation on a 70% LTV loan was reliable to the stated accuracy of 10-15% in that scenario then the lending proposition would be essentially risk-free. So anyone who believes valuations are going to be reliable is being somewhat naive. There is a reason why some bridgers and development loan lenders operate on LTC rather than LTV or only lend on pre-let developments etc. The statistics back this up. While senior secured bank lending books (first charge, sub 70% LTV) show average recoveries of around 90%, equivalent traded loan portfolios (who are typically borrowers who cannot access bilateral bank lines) show recoveries closer to 70%. That implies that the security realized say 50% of the valuation. A 40% recovery like PBL155 is a low but non-negligible probability outcome. My own worst personal outcome was closer to 30%. Stay diversified etc etc.

The big problem here is that investors are getting such a low proportion of the borrowers interest. Effectively, SS is charging a 6% management fee and 33% of the yield. How many funds do you invest in that charge fees of 6% and 33%? I don't invest in any. Basically a portfolio of 12-month par loans, paying 12%, monthly in arrears, with a default probability of 30% and recovery rate of 70% has a NPV of 1.027% i.e your expected return is 2.7%. If they pay 18%, the expected return is 8.55%. At an 18% yield, you can tolerate a 30% default rate and 42% recovery and still breakeven; at 12% yield, the breakeven recovery rate is 61% at a 30% default rate. So the borrowers are paying enough; it's just the lenders aren't receiving enough. You get less than 50% participation in the loan IRR.

I cannot claim any special skills at avoiding bad loans across P2P, but that place looked like a dog from the start.  I now severly limit my loans on property and only if it passes the "I would like to live there" test.  On the "castle" I would not have wanted it.