chriscross
Member of DD Central
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Post by chriscross on Apr 27, 2018 12:04:01 GMT
Today an email was released by Lending Crowd (see below) trying to explain that they are dropping interest rates, and in doing so in their own words, it is to the benefit of both the investors and borrowers.
It probably took their marketing dept several hours thinking of how they could convince us investors of the positive spin, but please..., we are not that gullible.
Next time just be honest and say "We are doing this to attract more borrowers, and whereby increase future loans to invest in, we must apologise to out investors as to your loss of interest in future loans, but on the positive side we hope to bring a larger number of diverse future loans to invest in...". Now that we would have understood and believed that spin... ---------------------------------------------------------------------------------------------- (email from Lending Crowd, 27/04/2018)
To reduce the number of bids that are automatically rejected during auctions on our Loan Market, we’re lowering the maximum interest rate for each of our five Credit Bands.
We’ve made this decision after carefully considering the best interests of our investors and borrowers. We listened to feedback from investors who said they were being outbid on loans too often, and borrowers who said the rates they were offered at the end of auctions were no longer competitive.
The changes we’re making are designed to increase the number of loan offers accepted by businesses, which then makes more loans available to investors, improving the diversification in their portfolios. The changes will also reduce the number of investors who miss out during auctions.
There will be no change to the minimum rate for each Credit Band. As of Thursday 3 May 2018, the following lending rates will apply:
Credit Band Interest rate
A+ 5.95% to 7.95%
A 7.95% to 9.95%
B+ 8.95% to 10.95%
B 10.35% to 12.35%
C+ 12.25% to 14.25%
This new structure means that interest rates will be more closely aligned with each Credit Band, improving clarity for borrowers and investors.
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rzys
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Post by rzys on Apr 27, 2018 12:34:46 GMT
Not at all impressed by this move. The outbidding has only been a problem since the cashback offer, which ends shortly.
I suspect LC are going to find themselves rather short of lender funds come May.
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Post by albermarle on Apr 27, 2018 16:24:12 GMT
LC' s arguments do not really hold up, and as already said a lot of spin to justify a move that suits them for some reason.
The argument about attracting new borrowers doesn't make sense, as the number of borrowers has been increasing exponentially under the current interest rate bands. Also the average rate for the borrower is mainly determined by the Big hitters bidding at low rates and hardly any seem to refuse the loan in the end .
As far as being outbid as a lender , it's an auction so you will get outbid sometimes. No issue for me . In fact the increased number of bidding lenders has reduced the max interest available on some loans anyway so why cut the top rate arbitrarily ?
I suspect the last bit of advice in their mail is the real reason behind this move :
For those who don’t already invest in our Growth Account or Income Account, this may be a good opportunity to consider these automatic investing options, both of which can be held within our Innovative Finance ISA.
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Post by Berkeley on Apr 27, 2018 17:20:53 GMT
I agree completely with the above. It appears that they want to offer borrowers lower rates, but nearly 50% of loans offered are without physical security and some of the remainder are with personal guarantees only, which often prove worthless.
To ask lenders to accept lower interest rates on a platform which in my experience to date, has one of the worst rates of default recovery, it just about the last straw.
As for the ISA. I am nonplussed by those that wish to invest within an ISA in low return non-secured loans, when any losses within the ISA cannot be offset against tax on other P2P investment.
rzys is correct i think. I will certainly quit this platform if they go ahead with this but still fail to offer comprehensively secured loans to invest in.
Lending Crowd - how about an answer to this security issue.
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rzys
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Post by rzys on Apr 28, 2018 9:34:48 GMT
On reflection, the outflow of funds may not be as early as May, but rather when people's "locked in" amounts from cashback offers become unlocked.
I agree with the above points... LC seem to be herding lenders towards their packaged auto products. I would not be surprised to see a future announcement shutting down the self-select options completely.
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Post by GSV3MIaC on Apr 28, 2018 11:42:43 GMT
This is a level of spin which I fondly recall from early FC days, and latterly from Ly .. entirely consistent with trying to unscrew the inscrutable (FC succeeded, Ly are still trying). I associate it closely with various chocolate companies 'we are cutting the bar sizes in order to help with your waistline'.
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Post by df on Apr 28, 2018 18:13:48 GMT
Not at all impressed by this move. The outbidding has only been a problem since the cashback offer, which ends shortly. I suspect LC are going to find themselves rather short of lender funds come May. There were few more cash back offers since. I've noticed - as soon as one offer ends, they introduce another one. I didn't look at all of them, but I expect the condition would be "keep this money on platform for a year". So it might never end , and the number of lenders will increase. I expected this move. LC wants to grow and the only way to compete with FC is to lower the rates. It is very obvious that LC putting a lot of effort into promoting automated 6% and and 5.6% accounts. The next move will probably be similar to FC - to end manual investments. We'll see, but for now I will accept new rates and carry on with LC as usual, except becoming more selective if the loan flow increases.
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rzys
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Post by rzys on Apr 29, 2018 11:01:03 GMT
Also - would the LC rep care to comment on what financial incentives are offered to the big hitters?
By big hitters, I'm talking about those who make large bids at the lowest interest rates, then attempt to sell the loans straightaway on the secondary market.
If I did that under my miniscule-hitter-terms-and-conditions, I'd be making a loss of 0.5% per loan invested in, partly mitigated by a few days' worth of interest, but still loss-making.
If the playing field is not level, I'd at least prefer the degree of slope to be transparent.
Do these big hitters also get preferentially pushed to the front of the selling queue on the secondary markets, I wonder?
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TheDriver
Member of DD Central
Slightly bonkers
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Post by TheDriver on Apr 29, 2018 12:50:50 GMT
Unless things have changed significantly since my time with LC, this is going to make very little difference to the overall interest rate paid by borrowers. That has always been dictated by the rate placed by the BH investors, as the large proportions of loans they hold bias the average towards their figures. If LC want to reduce borrowing rates they will have to lower the starting rate of each band, not the top rate. Perhaps we will soon see a grand announcement that LC are reintroducing the 4% spread/band - by lowering that base!
Of course, they have previously lowered the rate by allocating unrealistic banding in the first place!
What it will do is compress the differential between retail investors and underwriters, thus obviating the opportunity for shopping around for better rates on the SM (LE), removing some "interest" challenge of the platform - maybe that's a sign of a maturing system, as it only works for minimal loan parts and they don't want to encourage small holdings?
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Post by df on Apr 29, 2018 14:03:28 GMT
Unless things have changed significantly since my time with LC, this is going to make very little difference to the overall interest rate paid by borrowers. That has always been dictated by the rate placed by the BH investors, as the large proportions of loans they hold bias the average towards their figures. If LC want to reduce borrowing rates they will have to lower the starting rate of each band, not the top rate. Perhaps we will soon see a grand announcement that LC are reintroducing the 4% spread/band - by lowering that base! Of course, they have previously lowered the rate by allocating unrealistic banding in the first place! What it will do is compress the differential between retail investors and underwriters, thus obviating the opportunity for shopping around for better rates on the SM (LE), removing some "interest" challenge of the platform - maybe that's a sign of a maturing system, as it only works for minimal loan parts and they don't want to encourage small holdings? I assume it will depend on whether underwrites be willing to go for lower rates or not?
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Post by albermarle on Apr 30, 2018 12:39:52 GMT
Unless things have changed significantly since my time with LC, this is going to make very little difference to the overall interest rate paid by borrowers. That has always been dictated by the rate placed by the BH investors, as the large proportions of loans they hold bias the average towards their figures. If LC want to reduce borrowing rates they will have to lower the starting rate of each band, not the top rate. Perhaps we will soon see a grand announcement that LC are reintroducing the 4% spread/band - by lowering that base! Of course, they have previously lowered the rate by allocating unrealistic banding in the first place! What it will do is compress the differential between retail investors and underwriters, thus obviating the opportunity for shopping around for better rates on the SM (LE), removing some "interest" challenge of the platform - maybe that's a sign of a maturing system, as it only works for minimal loan parts and they don't want to encourage small holdings? I assume it will depend on whether underwrites be willing to go for lower rates or not? Since the start of the year there seems to be a significant increase in late payments/in arrears issues. Appears to be the same trend for FC , looking at comments on their board. Q1 + April has seen a poor/slow period for the UK economy and maybe not surprising if SME's are having cash flow issues. Even if not all these loans eventually default ( and I hope not !) it must be getting the underwriters a bit anxious about there long term returns. In normal circumstances a higher perceived future risk should mean lenders , including the big ones actually looking for higher rates . In theory anyway .
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TheDriver
Member of DD Central
Slightly bonkers
Posts: 493
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Post by TheDriver on May 1, 2018 9:00:43 GMT
I assume it will depend on whether underwrites be willing to go for lower rates or not? Since the start of the year there seems to be a significant increase in late payments/in arrears issues. Appears to be the same trend for FC , looking at comments on their board. Q1 + April has seen a poor/slow period for the UK economy and maybe not surprising if SME's are having cash flow issues. Even if not all these loans eventually default ( and I hope not !) it must be getting the underwriters a bit anxious about there long term returns. In normal circumstances a higher perceived future risk should mean lenders , including the big ones actually looking for higher rates . In theory anyway . Not a new phenomenon if you were investing during 2015/6! Last year seemed to see a respite in defaults, but unfortunately that improvement seems to have been short-lived. Previously the BH don't seem to have been much concerned about defaults or poor DD, so it will be interesting to see if that changes.
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Post by albermarle on May 1, 2018 16:26:20 GMT
Since the start of the year there seems to be a significant increase in late payments/in arrears issues. Appears to be the same trend for FC , looking at comments on their board. Q1 + April has seen a poor/slow period for the UK economy and maybe not surprising if SME's are having cash flow issues. Even if not all these loans eventually default ( and I hope not !) it must be getting the underwriters a bit anxious about there long term returns. In normal circumstances a higher perceived future risk should mean lenders , including the big ones actually looking for higher rates . In theory anyway . Not a new phenomenen if you were investing during 2015/6! Last year seemed to see a respite in defaults, but unfortunately that improvement seems to have been short-lived. Previously the BH don't seem to have been much concerned about defaults or poor DD, so it will be interesting to see if that changes. I know you and others warned me about the problems with defaults /recovery rates last year. Although I still invested , I was more careful about diversifying and restricted the investments to a lower figure. So thanks for that ! It's not all bad news yet. I am stlll earning >10% + some cashback
The late paying borrowers are still mainly operating / in discussion with LC about staggered repayments and the like . Although one looks dead. So maybe one or two will get back on track, hopefully.... Anyway to get back to the main point - the risks seem to be increasing ,probably due to a flat economy. At the same time LC are restricting the top rates of interest possible on the self select account . So the risk/reward ratio is less inviting as say 9 months ago.
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Post by lendingcrowd on May 3, 2018 12:31:38 GMT
Hi everyone,
Thank you for all your messages and feedback about this change. Please note that the new interest rates for each risk band have now come into force and will apply to all loan auctions from now on.
To reiterate the reasons behind this decision, we believe that fewer bids will be rejected after this change takes place, making the bidding process smoother and more convenient for investors, and leading to more borrowers accepting their loan offers. You may have seen that there have been a number of borrowers rejecting their loans after the auction recently, which makes fewer loans available for investors and thereby reduces diversification opportunities. We accept that there may still be investors who are outbid, but we believe that the number will be much smaller.
The number of bids rejected has become an increasingly significant issue over the last 14 months, as we have seen a large number of new investors joining the platform.
We consider that this change will help us remain competitive in a crowded borrower marketplace while still offering a good return to investors.
Please see below for individual responses to some of your points.
Kind regards, LendingCrowd
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Post by lendingcrowd on May 3, 2018 12:34:24 GMT
I agree completely with the above. It appears that they want to offer borrowers lower rates, but nearly 50% of loans offered are without physical security and some of the remainder are with personal guarantees only, which often prove worthless. To ask lenders to accept lower interest rates on a platform which in my experience to date, has one of the worst rates of default recovery, it just about the last straw. As for the ISA. I am nonplussed by those that wish to invest within an ISA in low return non-secured loans, when any losses within the ISA cannot be offset against tax on other P2P investment. rzys is correct i think. I will certainly quit this platform if they go ahead with this but still fail to offer comprehensively secured loans to invest in. Lending Crowd - how about an answer to this security issue. Berkeley - thank you for your message. We take a form of security on every loan, with at least a Director's Personal Guarantee (backed by a Statement of Assets and Liabilities) being taken for all loans to Limited Companies. For Partnerships and Sole Traders, the individual director(s) are personally liable for covering any loans, and therefore a Personal Guarantee is not needed. In certain cases, and for larger loans, we will also take a Debenture/Bond & Floating Charge over the assets of the business, and may take tangible security as well for particularly high loan amounts. Our in-house Credit Team assesses security on a case-by-case basis.
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