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Post by Financial Thing on Oct 28, 2015 2:59:11 GMT
So to clarify, we will be lending to the MT platform as a whole?
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stevio
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Post by stevio on Oct 28, 2015 3:24:50 GMT
I'm new to MT but all the references to interest rates which I've read have quoted 12%. Is the 9-12% a change in direction for MT? In terms of the platform strategy, this is one for Ed to answer. From our side, some flexibility in the rates is very important in allowing us to bring high quality deals to the platform. Some of our borrowers have access to funds at sub-1% per month. We may be able to charge marginally more in return for the speed and consistency of our service, but there are plenty of good deals that wouldn’t be economical with a 12% interest rate. We’d like to be able to offer these deals to you, as well as those paying higher rates. As well as competitive to the borrower, you also need to stay competitive to the lender - as I am sure your aware: - SS have a blanket 12% with provision fund, strong secondary market, trust structure, couple years past history and very low default rate - FS have 10-13% with no provision fund, no secondary market, lending to FS, couple years past history and ok default rate MT's main selling point was: - blanket 12% - Low LTV at 50% or less - Some additional cover via partner loans This new partnership appears to offer: - possible reduction in the 12% - LTVs likely to be higher than 50% - No additional cover via partner loans So your take up of loans is going to depend on: a) Availability of alternatives form SS and FS b) Need for diversification
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arbster
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Post by arbster on Oct 28, 2015 7:17:06 GMT
MT's main selling point was: - blanket 12% - Low LTV at 50% or less - Some additional cover via partner loans This new partnership appears to offer: - possible reduction in the 12% - LTVs likely to be higher than 50% - No additional cover via partner loans So your take up of loans is going to depend on: a) Availability of alternatives form SS and FS b) Need for diversification I'd expect that the majority of MT lenders will be sophisticated enough to understand the case, where presented, for a lower rate of return when associated with a significantly lower risk of default and/or a very clear, quick and assured recovery process. You're right to say, though, that it does run the risk of muddying the very clear proposition that MT has had to date, so communication/information will be crucial.
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stevio
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Post by stevio on Oct 28, 2015 7:47:31 GMT
MT's main selling point was: - blanket 12% - Low LTV at 50% or less - Some additional cover via partner loans This new partnership appears to offer: - possible reduction in the 12% - LTVs likely to be higher than 50% - No additional cover via partner loans So your take up of loans is going to depend on: a) Availability of alternatives form SS and FS b) Need for diversification I'd expect that the majority of MT lenders will be sophisticated enough to understand the case, where presented, for a lower rate of return when associated with a significantly lower risk of default and/or a very clear, quick and assured recovery process. You're right to say, though, that it does run the risk of muddying the very clear proposition that MT has had to date, so communication/information will be crucial. can't see how they will be able to provide "a significantly lower risk of default and/or a very clear, quick and assured recovery process" compared to SS and FS - both of these criteria are subjective, currently being provided to an adequate level by SS and FS and unlikely to be known until too late
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arbster
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Post by arbster on Oct 28, 2015 7:55:07 GMT
can't see how they will be able to provide "a significantly lower risk of default and/or a very clear, quick and assured recovery process" compared to SS and FS - both of these criteria are subjective, currently being provided to an adequate level by SS and FS and unlikely to be known until too late Well, I guess that's the challenge. However, we've seen evidence of other sites offering lower rates, for example where there is a guaranteed buyer for an asset at or above the loan value in the event of default, so recovery of lenders' funds would be guaranteed and quick.
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james
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Post by james on Oct 28, 2015 8:15:32 GMT
Are these loans 36H compliant? 36H being the mandatory requirement for lenders to be able to deduct default losses from interest and for a loan to be eligible for inclusion in the propose alternative finance ISA under the proposals for those things. The critical requirements: " 1) Where the condition in paragraph (2) is satisfied, operating an electronic system which enables the operator (“A”) to facilitate persons (“B” and “C”) becoming the lender and borrower" If not 36H what is the mechanism by which defaults might be deductible from interest or by which the loans might be includable in an alternative finance ISA?
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james
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Post by james on Oct 28, 2015 8:27:20 GMT
From our side, some flexibility in the rates is very important in allowing us to bring high quality deals to the platform. ... Some of our borrowers have access to funds at sub-1% per month. We may be able to charge marginally more in return for the speed and consistency of our service, but there are plenty of good deals that wouldn’t be economical with a 12% interest rate. We’d like to be able to offer these deals to you, as well as those paying higher rates. You've explained the advantage for your business and the borrower but what is the advantage to a lender from accepting a lower interest rate? Is there routinely a material difference in risk of default or some other factor that offsets the opportunity cost of taking the lower interest rate? This is in part just market competition for rates for lenders who are typically limited by the amount of money which they have available to invest, so each lender only needs to find sufficient deals to match their diversification and total money lent targets. How will the split of the total amount of money paid by the borrower in interest, fees and other income sources for Broadoak, MoneyThing and lenders vary with the interest rate paid to lenders and rate and charges paid by the borrower? For example, will there be fixed fees payable to Broadoak and MoneyThing so that the share of the amount paid by the borrower for the loan increases as the interest rate paid to lenders decreases? One of the significances of this question is that platforms often have an incentive to maximise deal flow by offering low rates, with such platforms often using fixed fee structures for their income, so their own income is not affected, while that for lenders is. One potential mitigating approach is fixing a risk-adjusted revenue split between the parties but there are others, including just ignoring the issue. While we're in a high lender demand state the lower rate loans are quite likely to move fairly well. But whenever the state transitions to supply surplus the lower rate ones can be expected to move slowly unless there is some other benefit to lenders for accepting the rate. You may find yourselves needing to actively manage this.
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rogerbu
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Post by rogerbu on Oct 28, 2015 9:23:27 GMT
BPF. Will MT be your only retail P2P partner?
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Post by bengilbert on Oct 28, 2015 11:40:34 GMT
In terms of the platform strategy, this is one for Ed to answer. From our side, some flexibility in the rates is very important in allowing us to bring high quality deals to the platform. Some of our borrowers have access to funds at sub-1% per month. We may be able to charge marginally more in return for the speed and consistency of our service, but there are plenty of good deals that wouldn’t be economical with a 12% interest rate. We’d like to be able to offer these deals to you, as well as those paying higher rates. As well as competitive to the borrower, you also need to stay competitive to the lender As an investor myself across multiple platforms, I’m very aware of this. I’d just make a couple of points: -We hope the deal quality, communications and structure (eg Broadoak holding a first-loss tranche) will be attractive. In the end, though, the decision about whether the balance of risk and return is right lies with you – we want to present you with a choice across deals, and the rest is down to you. -I believe risk does vary across deals. This is a big topic which might be worth exploring elsewhere. One thing that is fundamental to how we look at risk is that it should be a given that, in the majority of future scenarios, the security should comfortably cover the amount lent. This isn’t at issue; what we focus on is whether in the low-probability negative scenarios, lenders’ money is still safe. We evaluate security in terms of how we think it would perform in the 5 or 10% worst case scenarios. This is where deals with similar LTVs can diverge quite widely in their risk profiles. As an example, land is often valued on a residual basis: crudely, take the expected value of a development when finished (GDV), subtract the build cost and builder’s profit, and that’s the value of the land at present. But if the GDV drops by, say, 25%, this could conceivably wipe out most or all of the residual value, since the build cost will not fall by the same amount. So, lending even at lower LTVs on land can, in our view, be more risky than lending on existing properties. This isn’t by any means to say that we don’t lend on land (the first deal we list is likely to be a development), just that we look beyond the LTV in evaluating risk.
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Post by bengilbert on Oct 28, 2015 11:42:27 GMT
From our side, some flexibility in the rates is very important in allowing us to bring high quality deals to the platform. ... Some of our borrowers have access to funds at sub-1% per month. We may be able to charge marginally more in return for the speed and consistency of our service, but there are plenty of good deals that wouldn’t be economical with a 12% interest rate. We’d like to be able to offer these deals to you, as well as those paying higher rates. You've explained the advantage for your business and the borrower but what is the advantage to a lender from accepting a lower interest rate? Is there routinely a material difference in risk of default or some other factor that offsets the opportunity cost of taking the lower interest rate? This is in part just market competition for rates for lenders who are typically limited by the amount of money which they have available to invest, so each lender only needs to find sufficient deals to match their diversification and total money lent targets. How will the split of the total amount of money paid by the borrower in interest, fees and other income sources for Broadoak, MoneyThing and lenders vary with the interest rate paid to lenders and rate and charges paid by the borrower? For example, will there be fixed fees payable to Broadoak and MoneyThing so that the share of the amount paid by the borrower for the loan increases as the interest rate paid to lenders decreases? One of the significances of this question is that platforms often have an incentive to maximise deal flow by offering low rates, with such platforms often using fixed fee structures for their income, so their own income is not affected, while that for lenders is. One potential mitigating approach is fixing a risk-adjusted revenue split between the parties but there are others, including just ignoring the issue. While we're in a high lender demand state the lower rate loans are quite likely to move fairly well. But whenever the state transitions to supply surplus the lower rate ones can be expected to move slowly unless there is some other benefit to lenders for accepting the rate. You may find yourselves needing to actively manage this. Good questions. On risk, see above. On the other questions, the investor rate depends directly on the rate that the borrower is paying. Higher and lower investor rates reflect primarily higher and lower end borrower rates, not lower and higher margins for us.
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Post by bengilbert on Oct 28, 2015 11:43:14 GMT
BPF. Will MT be your only retail P2P partner? Yes.
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Monetus
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Post by Monetus on Nov 5, 2015 13:44:12 GMT
Any update on when the first of these loans could be going live?
It's been a bit quiet on the MT front for the past week or so!
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Post by bengilbert on Nov 5, 2015 13:48:04 GMT
Any update on when the first of these loans could be going live? It's been a bit quiet on the MT front for the past week or so! We're just completing legal due diligence on the proposed first loan, and, fingers crossed, it will be ready to list next week. But I don't want to make any promises quite yet!
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webwiz
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Post by webwiz on Nov 7, 2015 9:13:23 GMT
IMO some downward drift in rates on property backed loans is inevitable however lamentable from a lender's viewpoint. Why would a developer go to SS if he could go to BO at a lower rate? It's called competition. As a heavy investor in SS I hope they can continue to offer quality loans at 12% - I hope so but I do not expect so. Where is the floor? Anyone's guess but mine is that anything in double figures will continue to attract lenders in the current rate environment.
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james
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Post by james on Nov 7, 2015 10:02:52 GMT
The rates paid by the borrower may not drop but the platforms could try taking a bigger cut of that rate for themselves and/or their deal-providing partners.
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