markr
Member of DD Central
Posts: 766 
Likes: 426
|
Post by markr on Sept 27, 2017 8:41:16 GMT
What they are probably doing here is making it easier to fund large loans, and subsequent loans to a borrower, by making sure they get the full 0.5% from each investor - rather than just £20. It means that on average 0.25% of your portfolio will always be un-lent. I think for a mature account only investing repayments, it won't be as bad as 0.25% because of a positive feedback effect that will tend to make repayments spiky. Suppose your repayments are building up and on the Nth day of the month they cross the 0.5% threshold. Autobid has a look on the PM and buys you a loan. Because of the way the PM and FC loans work, the first repayment day for the new loan will be the Nth day of the following month, making it even more likely that the threshold will be triggered again that day. Of course, SM purchases, early/late payments and weekends will be forces acting to destabilise this pattern but, I believe it will still be strong enough to reduce the average cash drag to below 0.25%.
|
|
al
Posts: 49
Likes: 13
|
Post by al on Sept 27, 2017 9:18:42 GMT
Seems that the formula is greater of 0.5% or £20. It makes it seem somewhat unlikely that reinvestment will go into buying on the secondary market - soon as your repayments top the threshold, there wiill be a wodge for the PM Investments Of The Day. I'd hope this wasn't the case, since sellers should not have to rely solely on the drawdown of new investment for their liquidity. But, I suppose the alternative without a threshold would be that reinvestment only went on the SM, buying piddling parts at a couple of quid a pop.
|
|
blender
Member of DD Central
Posts: 5,719
Likes: 4,272
|
Post by blender on Sept 27, 2017 9:38:33 GMT
What they are probably doing here is making it easier to fund large loans, and subsequent loans to a borrower, by making sure they get the full 0.5% from each investor - rather than just £20. It means that on average 0.25% of your portfolio will always be un-lent. I think for a mature account only investing repayments, it won't be as bad as 0.25% because of a positive feedback effect that will tend to make repayments spiky. Suppose your repayments are building up and on the Nth day of the month they cross the 0.5% threshold. Autobid has a look on the PM and buys you a loan. Because of the way the PM and FC loans work, the first repayment day for the new loan will be the Nth day of the following month, making it even more likely that the threshold will be triggered again that day. Of course, SM purchases, early/late payments and weekends will be forces acting to destabilise this pattern but, I believe it will still be strong enough to reduce the average cash drag to below 0.25%. An interesting idea, that for a stable account, and after a very long time, the action of autobid will tend to make your repayments fall on particular days. I reckon that would only work if your return was twelve times 0.5% - which could easily be the case is most choose 'balanced'. Others could delve into this idea in more detail. I just assumed a graph of available funds would be a sawtooth with a peak at 0.5% and an average of 0.25%. It's still small.
|
|
markr
Member of DD Central
Posts: 766
Likes: 426
|
Post by markr on Sept 27, 2017 10:36:49 GMT
A portfolio of 60 month amortising loans returning 7.5% is going to return over 2% per month to cash, so most accounts will be buying 4 or 5 loans per month. With planning, it would be possible to get all your payments clustered around a single day (for example by making a deposit on the same day each month to "prime the pump"), but even without I think there'd be a tendency to phase-lock to a monthly cycle eventually. I might use all this new-found free time now I'm not flipping to write a Monte Carlo FC portfolio simulator to test it!
A potential worry for FC is that the "February effect" may actually tend to make everyone's portfolio to peak on the 1st of the month!
|
|
blender
Member of DD Central
Posts: 5,719
Likes: 4,272
|
Post by blender on Sept 27, 2017 13:47:48 GMT
You're right. I forgot the principal. That comes from having only property loans! Doh! With the new system FC are now in control of all the repayments, can predict what they will receive to re-lend each day, and can optimise systems to fill the new loans efficiently. Without those pesky investors getting in the way and wishing to make decisions. A shame that property loans are going, because the team could have made decisions about interest rates without having to worry about enticing lenders to bid.
|
|
