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Post by zzr600 on Feb 10, 2016 11:03:11 GMT
The underlying issue behind recent market turmoil appears to be too much money chasing after too few investible opportunities. That, and risk of defaults, is driving investors into sovereign debt and pushing yields into negative.
What does this say about the P2P market? The experts in assessing risk clearly don’t see any investible opportunities out there, yet we are being offered to underwrite P2P loans that presumably the bigger banks aren’t touching. I realise that the global P2P market is but a fraction of the sovereign debt market, yet those with deep pockets have decided not to lend in this market typically offering between 4% and 12% returns. Is this because the risks are being understated and we’re being sold a lemon?
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SteveT
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Post by SteveT on Feb 10, 2016 11:19:25 GMT
Banks lend predominantly with money they create themselves, leveraging their core capital enormously. The riskier the loans they involve themselves in, the larger the amount of their (very limited) capital they are obliged to put aside against potential defaults. Hence there has been a significant shift away from higher risk lending, even where the rate is reasonable for the risk, as they can leverage their capital more heavily if they stick to lower risk loans.
P2P lenders are lending their own money (if they have any sense) and make their own decision on risk versus reward. Just because a bank isn't interested in lending on a deal where the risk merits a rate of 12% doesn't imply (in itself) that it is a bad deal. It only means they think they can make more money by lending an equivalent sum multiple times to lower risk lenders.
You pay your money and make your choice ...
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Post by ablrateandy on Feb 10, 2016 12:03:14 GMT
To some extent, yes - you are being sold a lemon. But that is only if you believe that anything that a bank/fund doesn't want to fund is a lemon. Many P2P loans are just too small for funds as the admin behind it is ridiculously complicated. Banks/funds don't always make investments that pay off so they shouldn't be your gauge as to what is a "right" or a "wrong" investment.
The underlying cause of the current problem is that we never solved the last one, merely kicked the can down the road. Now we have a bigger problem because central banks are already creaking at the edges and corporate profits and consumer demand are not very strong at all.
imho the biggest risks to P2P are probably on the other side of the pond where institutional investment is much bigger. You can pick up high yield bonds at 8% now so why invest in peer loans at a similar level? Previously the incentive was to pick up 3-6% in yield but that arbitrage has gone. Don't be surprised to see institutions backing out of the sector over the next few months.
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bigfoot12
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Post by bigfoot12 on Feb 10, 2016 20:38:17 GMT
I don't think that, in general, we are being sold lemons. I'm not sure what we are being sold. Who knows what defaults will look like over the next 10 years? I've never had a satisfactory answer to a question asking how much the overall economy is taken into account; I have asked several platforms. What we do know is that rates have not increased in the P2P world in the last few years, and on several platforms in the last year rates have fallen. At the same time many other products competing for our money have got much cheaper. In 12 months the FTSE is down about 20%; just to maintain the same allocation in my overall portfolio I need to sell some P2P and buy shares. As shares are cheaper perhaps their weighting should be increased? Same goes for much high yield debt, rates have gone from something like (and rounding) 6% a year ago to 10% this week. (I am struggling to get a graph showing this, I can see the current YTM on the ETFs I own, but I can't find a way to get the historical YTM, maybe samford71 has a good graph.) Many investment trusts were trading at a premium not long ago, now many are at a discount, and so on... I am assuming that P2P is slightly riskier than it was a year ago, the rates before defaults (on my platform weighted basis, might be different for you) are reducing, but other things are getting cheaper. So, whereas 12 months ago if I pulled money from one platform it went to another, now any money removed from one P2P platform is used to (slightly) reduce my P2P exposure. |
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Maestro
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Post by Maestro on Feb 11, 2016 19:08:27 GMT
High yield spreads have widened a lot in the last few weeks, almost in the recession territory now. Perhaps time to start nibbling/accumulating high yield soon. Discounts on P2P funds starting to look attractive too but not sure I wanna go there just yet. samford71 are you becoming concerned at all about your commercial property backed loans? With bank stocks/bonds, uk reits getting hammered, I am starting to get concerned about the refinance risk on some of the loans..
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Maestro
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Post by Maestro on Feb 12, 2016 19:41:09 GMT
Maestro . I'm always concerned but I'm sort of paid to be paranoid! Basically I'm trimming weaker property loans where I can. Anything above 70% LTV is gone and stuff above 60%, especially if commercial, hotel, resort, or high-end residential is on the sell or consider selling list. No sub tranches at all, unless total LTV is sub 50%. Not really convinced we are heading into crash. For a crashes to happen typically requires some policy errors to be made and while there are plenty of areas where that could come from (hello China), most of the time these things are avoided when the market is very focused on those tail-risks, which it is right now. It's the unexpected/unknown policy errors that cause the problems. However, we're seeing a slowdown and a "low-intensity" recession is not out of the question. Thank you for your perspective. Hopefully markets are just trying to come to terms with the wealth destruction caused by oil collapse, general economic slow down and volatility is short lived. I'd need to see banks, high yield stabilise soon or I'll start lowering my exposure to the assets you mentioned.
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p2pmaster
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Post by p2pmaster on Feb 15, 2016 8:40:02 GMT
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pikestaff
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Post by pikestaff on Feb 15, 2016 9:12:37 GMT
...Basically I'm trimming weaker property loans where I can. Anything above 70% LTV is gone and stuff above 60%, especially if commercial, hotel, resort, or high-end residential is on the sell or consider selling list... I agree about high end but what is your view of the BTL end of the market? I'd be worried there as well, with the tax changes, or do you think the sell-off won't happen?
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bigfoot12
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Post by bigfoot12 on Feb 15, 2016 10:16:36 GMT
I am a little worried about BTL, and I wouldn't buy one now, but I think from a lending point of view that it is unlikely that the valuation is very wrong, nor are prices likely to fall very much further than the overall housing market. So even if the valuation is wrong by 10% and BTLs fall by an extra 10% because of regulation 60%-70% LTV should still be okay. Obviously if housing overall is also falling then losses might appear on BTL first.
2-3 bedroom flats and houses favoured for BTL tend to be quite easy to sell quickly.
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shimself
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Post by shimself on Feb 15, 2016 15:51:19 GMT
...Basically I'm trimming weaker property loans where I can. Anything above 70% LTV is gone and stuff above 60%, especially if commercial, hotel, resort, or high-end residential is on the sell or consider selling list... I agree about high end but what is your view of the BTL end of the market? I'd be worried there as well, with the tax changes, or do you think the sell-off won't happen? I'm hoping that THC (ie Lancashire, Bolton, Manchester, Liverpool, eg 2 bed terrace for 60K) will hold up.
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Post by propman on Feb 16, 2016 14:18:42 GMT
I think that the interest tax change was partly introduced to shift the BTL market to larger portfolios (notably exempting widely held vehicles and possibly >15 unit entities), while the SDLT change is partly to increase the holding period. Govts have been trying to energise a professional residential lending market for decades. For all the Guardian noise, there will always be a substantial portion of the populations who cannot afford to buy. We are not going to be able to increase social housing much so a private rental market is a requirement. Engineer a drop in the attractiveness of private renting across the board and you just put rents up!
A substantial long term provider has to provide a service and can be properly regulated, while they are far less likely to need to sell and thereby turn out tenants before they are ready.
JMHO
- Propman
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shimself
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Post by shimself on Feb 20, 2016 16:33:25 GMT
..... We are not going to be able to increase social housing much ..
- Propman Why not able to? (I understand our interest as investors is more what will (won't) happen rather than why)
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Post by propman on Feb 22, 2016 12:34:07 GMT
Private social landlords already use their surpluses to invest in more social housing so I don't see much increase from there, especially as they are required to replace property sold on under increased right to buy rules (although I think this latter will in medium term have a small effect). Public social landlords have few resources and I cannot see this increasing much as any additional resources found will be allocated elsewhere. Few people (as a proportion) are directly affected while education, NHS etc. will always appeal to a wider cross section.
The other source is private developers required to provide social housing before they can develop new housing. This has already reduced the areas in which it is profitable to develop. I think increasing this requirement will reduce development and so produce no significant overall increase in social houses produced.
So in my opinion significant increases in social housing are unlikely.
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