IFISAcava
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Post by IFISAcava on Jan 30, 2020 9:44:14 GMT
I feel you! I'm currently naturally drawing down (No fees) on our Zopa accounts. The improved rates especially on Access are tempting to put the money into RS rather than make it safer in Marcus or anything fscs protected. I won't deny I'm tempted too. If you need some fortitude to not become overexposed, just remember: 1) Their provision fund has fallen from £14.1m in March 2019 to £9.3m today. 2) Their own forecast suggests it will fall a further £3.5m 3) Their own forecast is predicated on an expected loss figure which was £34.6m in March 2019 and is £28.9m today (realistic?) 4) If you take the £3.5m reduction forecast from 2) and divide it by the average loan term (28 months), that suggests the PF should be falling by (on average) £125k/month. This month it fell £500k. Last month it fell by £1 million. 5) If the PF kept on falling by the same rate as it has been since March 2019 (ignoring their forecasts), it would run out in Summer 2021. RS would obviously take action prior to that in this scenario. 6) All of the time that the rates for us are high, their profits and ability to contribute to the PF are limited. Oh, but the ICR went up from 112% in March 2019 to 120% now, so yeah probably fine Having half-listened to you about LW, I shall probably three-quarters listen to you this time.
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r00lish67
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Post by r00lish67 on Jan 30, 2020 9:50:22 GMT
I won't deny I'm tempted too. If you need some fortitude to not become overexposed, just remember: 1) Their provision fund has fallen from £14.1m in March 2019 to £9.3m today. 2) Their own forecast suggests it will fall a further £3.5m 3) Their own forecast is predicated on an expected loss figure which was £34.6m in March 2019 and is £28.9m today (realistic?) 4) If you take the £3.5m reduction forecast from 2) and divide it by the average loan term (28 months), that suggests the PF should be falling by (on average) £125k/month. This month it fell £500k. Last month it fell by £1 million. 5) If the PF kept on falling by the same rate as it has been since March 2019 (ignoring their forecasts), it would run out in Summer 2021. RS would obviously take action prior to that in this scenario. 6) All of the time that the rates for us are high, their profits and ability to contribute to the PF are limited. Oh, but the ICR went up from 112% in March 2019 to 120% now, so yeah probably fine Having half-listened to you about LW, I shall probably three-quarters listen to you this time. The rate of descent is currently not of quite the same steepness as LW's was. However it is descending. Losing a third of PF cash in 10 months I think disqualifies us from calling it a gentle descent too. Meanwhile, their forecasts seem to get better and better (which is why the ICR looks fine). Those forecasts need to start to come to life. NB: I should add that I do still invest with RS myself and I'm not trying to advocate selling up, just due caution in the face of some admittedly tempting rates.
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benaj
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Post by benaj on Jan 30, 2020 9:55:23 GMT
TBH, I don't understand how these rates work anymore. Lending volume in Jan 2020 is lower than Jan 2019 and Jan 2018. According to RS trend, Access rate has become more "stable" @ 3.0 and 5 year is going down from 6.0% an year ago to 4.5%.
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Post by Ace on Jan 30, 2020 10:08:51 GMT
I feel you! I'm currently naturally drawing down (No fees) on our Zopa accounts. The improved rates especially on Access are tempting to put the money into RS rather than make it safer in Marcus or anything fscs protected. I won't deny I'm tempted too. If you need some fortitude to not become overexposed, just remember: 1) Their provision fund has fallen from £14.1m in March 2019 to £9.3m today. 2) Their own forecast suggests it will fall a further £3.5m 3) Their own forecast is predicated on an expected loss figure which was £34.6m in March 2019 and is £28.9m today (realistic?) 4) If you take the £3.5m reduction forecast from 2) and divide it by the average loan term (28 months), that suggests the PF should be falling by (on average) £125k/month. This month it fell £500k. Last month it fell by £1 million. 5) If the PF kept on falling by the same rate as it has been since March 2019 (ignoring their forecasts), it would run out in Summer 2021. RS would obviously take action prior to that in this scenario. 6) All of the time that the rates for us are high, their profits and ability to contribute to the PF are limited. Oh, but the ICR went up from 112% in March 2019 to 120% now, so yeah probably fine Many thanks r00lish67 , I took heed of your analysis of LW and was very pleased I did. You've cut through the fog of higher rates here. Debit card has been duly trousered (after a foolish hit at 6% last night 😳). Do you have an emergency number in case I'm tempted again 😆
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robski
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Post by robski on Jan 30, 2020 10:33:02 GMT
Struggling myself as well We all know its likely rates will drop again, make hay whilst the sun shines? Well sure but increasing investment is a risk
I have told myself that unless rates go above 7% I am not to invest any more (which for me in reality is putting back money i have withdrawn) Ive also changed my target from 6% to 6.5%, so fully expect to start withdrawing again some weeks. (I treat this as a weekly cycle), otherwise if 6.5% (or more) is available then im on reinvestment duty
We should also bear in mind the action of RS to a significantly depletion of the provision fund is that they will apply an interest haircut.
There is two factors here. I have written before that I think a short term impact would have to be RS themselves stepping in to boost the fund rather than a haircut, and my logic remains the same. Should they introduce a haircut i see a significant impact on liquidity, and probably a significant impact on rates acceptable to investors. One factor damaging confidence, the other damaging RS profits.
The initial liquidity impact will be from people instantly switching from reinvestment to passive withdrawl. Sure you will get some active withdrawl, more than likely those using the access market. Those using the plus and max less likely to instantly withdraw, but the liquity issue will trigger a platform run potentially. Those able to request fee free withdrawl will drain cash, OR trigger a "we cant support requests for withdrawl" type comment from RS. At this point anyone after liquidity will stop investing, the rates required will leap, as those willing to take the risk will see far less competition and will want far more for the added risk of a significant tie in being crystalised (its a risk now, but its a low one)
Investors will look at the interest haircut and factor that in, if you look for 6% but expect to see maybe 25% haircut then you go 6% / (1-0.25) = 8% target I struggle to see any way RS will contain this, I basically see an interest haircut as a short term stage before RS hits wind down, I think they will hit a massive transition phase where they struggle to maintain liquidity and acceptable (to them) rates. Whilst ques form for cash withdrawl, meaning they struggle to operate lending. It could create an interesting scenario in the new markets, I would suspect a complaint to the FCA if you are forced to reinvest with a cap on rates that means its instantly matched, leaving the only option a fee paying withdrawl, that RS may decide not to act on as they see little liquidity and want to carry on lending your cash!
I wonder if their approach may well be only partial PF payments first, say 80% only rather than the interest haircut, platform confidence will be damaged just the same however.
In short I dont see any way for RS to manage that scenario, IMO they must, 100% avoid this happening, they must ensure good underwriting and accept less business (and a shrinking if required) rather than tying to keep volumes up in a bad market
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Stonk
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Post by Stonk on Jan 30, 2020 11:26:57 GMT
I won't deny that I'm tempted too. If you need some fortitude to not become overexposed, just remember: 1) Their provision fund has fallen from £14.1m in March 2019 to £9.3m today. 2) Their own forecast suggests it will fall a further £3.5m 3) Their own forecast is predicated on an expected loss figure which was £34.6m in March 2019 and is £28.9m today (realistic?) 4) If you take the £3.5m reduction forecast from 2) and divide it by the average loan term (28 months), that suggests the PF should be falling by (on average) £125k/month. This month it fell £500k. Last month it fell by £1 million. 5) If the PF kept on falling by the same rate as it has been since March 2019 (ignoring their forecasts), it would run out in Summer 2021. RS would obviously take action prior to that in this scenario. 6) All of the time that the rates for us are high, their profits and ability to contribute to the PF are limited. Oh, but the ICR went up from 112% in March 2019 to 120% now, so yeah probably fine
Personally, ever since my first day on RS, I have always assumed that there would be a haircut of interest (but not capital), which is what would very likely happen if the PF is further significantly depleted. I have my own ideas about how severe such a haircut might be, and that is built into my estimation of what interest rate I require. If I invest at 6.5% then ideally I will receive 6.5% for the full terms of the loans, but if there was a haircut then I should still get a decent return.
In the current environment, each day a load of money is repaid and automatically re-invested, a lot of it at GR. This gets eaten up as the day goes on, and then we enter a phase of higher rates but slower matching for those who understand the system. Does anyone know what proportion of all matching happens at GR? Obviously we want RS to be viable and contribute healthily to the PF, and of course they are less able to do either of those things when lender rates are high, but let's not forget they are still matching an awful lot of loans at the GR, a rate which they themselves chose and is presumably profitable.
Remember, before the Big Changes and GR came in, if market rates were high, then almost everyone got matched at those high rates -- the system told you about it, and chose them as the default. Now, any lender coming along with money gets coerced into investing at GR, irrespective of the true market rate. RS have done a clever thing there.
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jlend
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Post by jlend on Jan 30, 2020 12:22:07 GMT
The last time I asked only 7% of lenders set their own rate.
That may be higher given the changes, but I assume the vast majority will be using the Going Rate and Market rate still.
The average lender rate in 2019 was 4.4% which gives some idea of the cost of money to RS, even with the peaks that many lenders get.
Be interesting to see the 2020 average rates when they are available and see how they vary over time. It may or may not be true that average rates are now materially higher.
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robski
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Post by robski on Jan 30, 2020 12:36:26 GMT
Interesting thoughts Stonk
I dont really agree RS have been clever, by their own admission they didnt expect the lending amounts at the rates we saw to happen so they pushed the GR down for plus and max. Which appears to have pulled access up, rather than lowering the others down as they expected. I read this as they dont really understand their lenders, and assume we are all idiots.
I think RS were sneaky, I think they considered that many wouldnt change behaviour, and thought we would see rates supressed, and initially you did, a large wall of money that originated in access was cheap compared to plus and max. I think over time you are seeing investors wake up to this. I think you see this in 5 year as well, the amount of MR money moving with the suppression of rates here is slowly declining
There is no way to get any real values on the lending rates, however if you log on around the time the batch runs are complete you see the lump of cash at GR, you can also assess the que above and guess where is likely to match. You will see amounts come in at GR throughout the day, I guess new dumb money, plus of course reinvestment of loans repaid during the day on people set at GR.
We know RS (because they told us) got a bit burned by the switch to max, this was a 2% impact, so they were unhappy at the time with a lot matching at 6%. They were used to a lot of money matching at 3.x% on access. Now these are frequently matching higher.
We dont know how they push streams of borrowers into differing markets, there would appear to be more in the main markets now, where there is cash sitting at lower rates in 5 year.
If you ask me they are simultaneously sneaky and incompetent at managing this.
If it was me, I would be focusing on why investors seem to want the returns they do, and cut my cloth accordingly on business written, there from my loan book are plenty of loans being written at god rates that leave plenty for a decent investor return and what should be enough to fund the PF and RS costs, rather than trying to force investors to accept less. They should focus on writing sensible amounts of good business, sometimes less is more.
What RS have lost is a massive amount of liquidity, it wasn't lent (clearly by the volumes lent data), so must have been withdrawn. I always felt they looked at the great dollops of cash on 3.x% in access and thought, damn we need to find a way to be able to lend that out rather than the more expensive funds on the other markets. The less liquidity there is the more rates will spike. They assumed merging the pools would give them loads of cheap funds and force rates down, the assumed wrong.
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robski
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Post by robski on Jan 30, 2020 12:39:03 GMT
The last time I asked only 7% of lenders set their own rate. That may be higher given the changes, but I assume the vast majority will be using the Going Rate and Market rate still. The average lender rate in 2019 was 4.4% which gives some idea of the cost of money to RS, even with the peaks that many lenders get. Be interesting to see the 2020 average rates when they are available and see how they vary over time. It may or may not be true that average rates are now materially higher. Was it 7% of lenders or 7% of capital do you know? If you apply the 80/20 rule then if the 7% are mainly large players then thats a hell of a lot of the capital.
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jlend
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Post by jlend on Jan 30, 2020 12:49:02 GMT
The last time I asked only 7% of lenders set their own rate. That may be higher given the changes, but I assume the vast majority will be using the Going Rate and Market rate still. The average lender rate in 2019 was 4.4% which gives some idea of the cost of money to RS, even with the peaks that many lenders get. Be interesting to see the 2020 average rates when they are available and see how they vary over time. It may or may not be true that average rates are now materially higher. Was it 7% of lenders or 7% of capital do you know? If you apply the 80/20 rule then if the 7% are mainly large players then thats a hell of a lot of the capital. They said the number was similar for lenders and capital. This sounds reasonable given the average lender rate of 4.4% last year. It sounds like quite a few people on this forum who use to set their own rates are winding down on RS, so the number and amount of money setting their own rates could even have gone down.
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ashtondav
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Post by ashtondav on Jan 30, 2020 13:33:16 GMT
I think the little red pencil will be removed.
As will my money...
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cb25
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Post by cb25 on Jan 30, 2020 13:41:35 GMT
I think the little red pencil will be removed. As will my money... As would mine, but why do you think RS would do that?
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aju
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Post by aju on Jan 30, 2020 13:46:36 GMT
I think the little red pencil will be removed. As will my money... That would definitely move me to depart, not quickly but gradually as for me the rates in the GR zones for all 3 products are not good enough for the risks. Since both of us will soon be paying tax we are moving stuff either out as in Zopa or transfering over to ISA as in RS. If I can get quick fee free access at the rates I seem to have got recently then Access will be my direction. I'm concerned we are over stretched in P2P now that we are nearing State Pension age, Mrs Aju has some leeway but to be fair I'd rather it be in more accessible fee free than in longer term fee to withdraw products. Thats me though just being over cautious perhaps but being retired for the last 11 years has meant one can better understand burn down rates and how to sustain funds relative to risks involved. (Mind you I'm no expert here as many will have guessed perhaps from some of my musings ) BTW, Access gave us another 6.0% from a 5.9% request last night - I need to set my punt rate higher so that it doesn't lend outside my control - would rather store up larger sums before hitting the lend button
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Stonk
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Post by Stonk on Jan 30, 2020 13:50:00 GMT
I think the little red pencil will be removed. As will my money...
But can it be? Is it not actually the case that RS rely on us, the true rate-setters (as distinct from the GR sheep), to fund their lending in abnormal conditions? A lot of the time RS do not need us: there are enough sheep deposits (haha) to cover what is lent. Right now, however, things are a bit abnormal -- I would suggest because RS set the GR too low and there's been a greater exodus than they expected -- and we can step in and plug the gap.
If there was no ability to rate-set and all lenders got was GR, there may come a point where RS cannot fund their lending because there simply aren't enough lenders and no way to change the GR flexibly to meet demand.
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robski
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Post by robski on Jan 30, 2020 14:32:50 GMT
Was it 7% of lenders or 7% of capital do you know? If you apply the 80/20 rule then if the 7% are mainly large players then thats a hell of a lot of the capital. They said the number was similar for lenders and capital. This sounds reasonable given the average lender rate of 4.4% last year. It sounds like quite a few people on this forum who use to set their own rates are winding down on RS, so the number and amount of money setting their own rates could even have gone down. Ok thanks. I am surprised but then equally I am not I don't think a lot of people really get the risk on RS, it may seem great getting 3% with little to no effort Personally i think somewhere around 5% is realistic for a non FSCS protected, non guaranteed provision fund paying loan, thats upto 5 years long, and can technically place 100% of that capital at risk (not all loans are amortising so no guarantee of reducing the capital and gaining some interest) So add on some withdrawl fees for early access and its not a strong proposition to me Hell personally I would be wanting 3% from a building society or bank if I was locking away for 5 years. There is an inflation/interest rate movement risk over that timeframe which would have me wanting 1-2% premium over short term
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