j
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Post by j on Jul 13, 2014 14:49:46 GMT
Could I ask why lenders are happy to take much lower rates on other platforms that are relatively unsecured, but on AC where there is security there are questions about rates being low? In the past, I know we have offered 10%+ on a number of loans and much higher as well, but please remember we price for risk, not liquidity. If I priced for liquidity, the reverse auction would be in full swing. Looking round the market, the starting rates for lenders for 5 years vary from 4% on unsecured personal lending to 6% on secured. We are offering 9%+ on secured lending. As yet we have not lost a single penny, and the one very bad case looks likely that a full recovery in achievable. So we are 100% higher than unsecured personal lending and 50% higher than other secured lenders. I will listen to the arguments made here, but my perception is we are offering market leading rates and security on loans. The market is more competitive, but also we are attracting better quality loans as well. Some will state London retail isn't for them and everyone is entitled to their opinions however we will continue to offer such loans in future. Andrew , speaking for myself only & not others, I can categorically say that I do not invest in RS or FC for two reasons: lower rates for similar loans & lack of security/DD. A comparable property loan on say SS with similar, or in many cases better, ltv/security pays 12%. Whereas AC have dropped their rates for such loans to between 9-11%. This is no slight on AC & many of us still remain loyal customers (my p2p investment is still 95%+ with AC). The point though is that AC will slowly have funds switched from them to other platforms if this trend continues but I'm sure you might have reasons/market forces that have influenced the rate drop.
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Post by westcountryfunder on Jul 13, 2014 15:04:23 GMT
Yes, Andrew, on the whole I am inclined to agree with you, but I think maybe there are (at least) two aspects which maybe unsettling lenders.
1) There is a question mark about the quality of security. Property valuations could well become questionable, especially on a forced sale. Debentures/floating charges are difficult to value if it comes to the crunch. The less said about directors' guarantees, the better. This has always been the case, but I am sure we all agree that security is to be regarded as a long-stop, not a justification to lend.
2) Long drawdown times are a pain, and seriously dilute returns, especially on shorter loans. And on that point I do not understand the need to ask lenders to settle shadow bids as soon as an auction has finished, rather than shortly prior to drawdown.
However, I have confidence in AC. I was a traditional lending banker myself over 20 years ago, and it seems to me you are adopting the right approach, more often than not.
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mikes1531
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Post by mikes1531 on Jul 13, 2014 15:09:59 GMT
I think completion may also be a factor. Is this a reference to delayed drawdown times? Or was it supposed to say "competition"? Additionally FC have encroached on FC's patch by... ? ? ? ? ?
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Post by chielamangus on Jul 13, 2014 15:15:40 GMT
By the way, what determines the shadow bid limit? Is it a percentage of actual (current) investment? Yes, the starting point is a percentage of current loan book (I think 25%) ... so periodically as your loan book grows, you should be able to ask for an increase in the shadow bid limit. Thanks - will chase this up.
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mikes1531
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Post by mikes1531 on Jul 13, 2014 15:22:16 GMT
There are four loans available at the moment -- all offering in the 9-10% range -- and none are attracting a lot of lenders. Yes, large wind turbine loans always have required underwriting, but seeing three small loans -- £135k, £200k, and £335k -- not funded quickly is a big change from what would have been expected just a few months ago. Bringing in underwriters to allow those small loans to proceed is an expense for AC, and they have to weigh up the balance between that cost and the cost of offering lenders more interest so that underwriters aren't necessary. It's a trial and error process, made more difficult by being in a market/competitive situation that has variability to it. It looks to me like the pendulum has swung too far toward low rates, and if AC continue to have trouble filling loans quickly they may find they need to be more attractive to lenders in order to be more attractive to borrowers by showing that they can fund loan requests easily and without delay. AH said there's been a change in how things work. From memory I would explain it like this that now loans are sold on the AM more not so much emphasis on the auction or expectatation of selling it all before it gets to the AM. This seems to mean that every loan that's listed can expect u/wing and has a good chance to fly. I'm sure there will be exception. So if this happens/works you can factor out dead-time thus another reason/excuse for dropping rates. I can understand this trend towards the AM from the lenders' point of view, and have no problem with that. But if that's the way things are heading then I'd expect underwriting to be put in place at the beginning rather than leaving these small loans to struggle through a two week auction with the borrowers nervously watching and waiting during that period to see whether their loan would be funded or not -- and probably delaying drawdown by a similar period. That's not going to encourage borrowers to come to AC.
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merlin
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Post by merlin on Jul 13, 2014 15:28:48 GMT
I think completion may also be a factor. Is this a reference to delayed drawdown times? Or was it supposed to say "competition"? Additionally FC have encroached on FC's patch by... ? ? ? ? ? Sorry but I guess you realised I meant to say FC encroaching on AC's patch.
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Post by chielamangus on Jul 13, 2014 15:48:02 GMT
Could I ask why lenders are happy to take much lower rates on other platforms that are relatively unsecured, but on AC where there is security there are questions about rates being low? In the past, I know we have offered 10%+ on a number of loans and much higher as well, but please remember we price for risk, not liquidity. If I priced for liquidity, the reverse auction would be in full swing. Andrew The answer I think is that either (a) the lenders on the different platforms tend to be different, or (b) it is the longer standing AC investors who hanker after the halcyon days of higher interest rates. Also, does this forum represent AC investor opinion? The number of different bidders in an auction far exceeds the small number of people that contribute regularly here. IMO AC offer one of the better security/interest investment combinations. The issues at the moment are the drawdown times and the fact that some prospective borrowers seem to be giving everybody the runaround.
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mikes1531
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Post by mikes1531 on Jul 13, 2014 15:56:25 GMT
Could I ask why lenders are happy to take much lower rates on other platforms that are relatively unsecured, but on AC where there is security there are questions about rates being low? I will listen to the arguments made here, but my perception is we are offering market leading rates and security on loans. My guess would be inertia, comfort with longer track records, and perhaps not having heard of AC. I don't know about others, but I used to have most of my P2P investment at Zopa and when I decided that I preferred what AC were offering I starting withdrawing from Z and depositing in AC. I believe that Z are struggling to find enough 'retail' lenders now and that's why they are turning to institutions to provide some of their funding. - but that's JMHO. The point is that investors' money is mobile and can flow out of a platform almost as fast as it came in. I worry about the huge amount of loan parts available on the AC Aftermarket and wonder if that is an indicator of lender dissatisfaction. As yet we have not lost a single penny, and the one very bad case looks likely that a full recovery in achievable. This may depend on the definition of 'full recovery'. Does it simply mean the lenders get their capital back? Or does it mean the lenders receive their accrued interest as well? As I understand the case -- and there may be more info in the private section of the forum that I'm unaware of because I'm still waiting to be given access -- the latter appears unlikely. And until the final result is known -- probably over a year away -- AC lenders won't know whether AC's perfect record is still intact.
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pikestaff
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Post by pikestaff on Jul 13, 2014 17:01:09 GMT
Could I ask why lenders are happy to take much lower rates on other platforms that are relatively unsecured, but on AC where there is security there are questions about rates being low? In the past, I know we have offered 10%+ on a number of loans and much higher as well, but please remember we price for risk, not liquidity. If I priced for liquidity, the reverse auction would be in full swing. Looking round the market, the starting rates for lenders for 5 years vary from 4% on unsecured personal lending to 6% on secured. We are offering 9%+ on secured lending. As yet we have not lost a single penny, and the one very bad case looks likely that a full recovery in achievable. So we are 100% higher than unsecured personal lending and 50% higher than other secured lenders. I will listen to the arguments made here, but my perception is we are offering market leading rates and security on loans. The market is more competitive, but also we are attracting better quality loans as well. Some will state London retail isn't for them and everyone is entitled to their opinions however we will continue to offer such loans in future. Andrew For myself, I just don't feel that comfortable with property at the moment so although I have some development/bridging loans in my portfolio I don't want to increase my exposure too much. I'm much happier with business loans backed with property, because the property value is then just a backup and not the primary means of repayment. But I've always been a property bear. I will be right one day... The only other platforms I'm on are RS and TC. I like the more varied diet on TC, but I am selective and I've been lucky so far. I have followed two sponsors from TC to AC, and will continue to follow them because they offer something different from the standard property fare. With RS it's a question of do you think the provision fund is enough? I do, and it's a piece of money that I don't have to think about too much. That's a big plus and will be more so as more "mainstream" investors come into p2p.
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Post by mrclondon on Jul 13, 2014 17:18:40 GMT
I will listen to the arguments made here, but my perception is we are offering market leading rates and security on loans. The market is more competitive, but also we are attracting better quality loans as well. The problem for you at present is that the secured loan flavour of P2P simply hasn't been going long enough to be able to compare recovery rates, and hence form a view as to long term estimated capital losses. You've been going c. 18 months and have only just hit the first real problem loan, FS is exactly 12 months since launch and a few defaulted loans wiser but not enough to form a long term view, SS c. 7 months with 1 defaulted marine loan I think, but has only started on property bridges in the last 3 months, Relendex after a few false starts got their first loan away 4 months ago, FE has had just 1 secured loan so far. FC has been in the secured asset loan sector since 2011, but they form too small a proportion of the loan book to be able to really form an opinion about recovery rates, and their property bridges have only started in the last few months. Asset security at TC is of course variable, but recovery rates on those loans with good security looks ok. Your message at the investor's day a few months back that you and the AC team have the experience of dealing with distressed loans, together with a legal team tasked with ensuring the security is as watertight as possible is the reason I have three times as much with AC as with any other platform. Long term (assuming stable bank rates) AC may well be able to offer 9% and with an excellent recovery record come out on top of the actual returns. But in the absence of hard data, who is to say that SS (12% flat rate on funds committed) won't equal your return even with smaller recoveries ? Or FS on their 13% loans with normally 3 days drawdown delay. OK, I know you probably don't view either SS or FS as your competitors but they are soaking up funds that could be at AC. Then there is the current 14 month bridging / SE London property refurbishment loan on TC (Ham* Op*) split into 2 tranches 11% senior debt 75% LTV + reverse auction of the remainer mezzanine debt currently c. 13%. Another issue is understanding who your customers are. What is needed is an insight into where your bigger lenders have their P2P funds - I somehow doubt it is zopa/ratesetter/funding circle. Yes, these three get most of the press coverage. Your challenge, and I've said it before, is how to market yourselves to P2P lenders who have started with the platforms "recommended" by the media. Late edit: At present my greatest concern with AC is the degree to which funding the underwriting operation is apparently taking margin off retail investors. Or put more succinctly "Are AC attempting to grow too fast ? "
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mikes1531
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Post by mikes1531 on Jul 13, 2014 17:26:59 GMT
Could I ask why lenders are happy to take much lower rates on other platforms that are relatively unsecured, but on AC where there is security there are questions about rates being low? brought up an important point -- Provision/Safeguard Funds, or another undertaking from the platform to keep lenders whole if borrowers default. AC rely on security, and they're about to be tested. FS also rely on security, and they've already had to go though the liquidation process -- with mixed results, though the amounts at stake were small enough that AIUI they dug into their own pocket to keep lenders from losses but haven't promised to do that in the future. So Z and RS -- and other similar -- lenders may feel more confident that they'll receive the advertised returns and not have to wait through protracted recovery processes, and therefore be willing to accept lower returns as a result.
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mikes1531
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Post by mikes1531 on Jul 13, 2014 17:31:51 GMT
And on that point I do not understand the need to ask lenders to settle shadow bids as soon as an auction has finished, rather than shortly prior to drawdown. AIUI, the request to settle shadow bids as soon as an auction has finished is a website software issue. AC do wait until drawdown is imminent before emailing their shadow bidders to ask them to settle up.
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pikestaff
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Post by pikestaff on Jul 14, 2014 7:26:31 GMT
Another issue is understanding who your customers are. What is needed is an insight into where your bigger lenders have their P2P funds - I somehow doubt it is zopa/ratesetter/funding circle... You might be surprised. My total exposure to p2p is over £200k so I may not be a really big lender but neither am I small. Over £50k of that is in RS, and my impression from TC's old forum is that quite a few TC investors are there too. I am no longer in FC but I'm sure that it will still have its share of big investors as well. At the moment I've got much less on AC than on the other platforms, which is solely because too many of the loans are too similar and too focused on property for my taste. I'd like to be favouring AC, because my confidence in TC's management is not what it was, but I am struggling to find enough to lend on at the moment.
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pikestaff
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Post by pikestaff on Jul 14, 2014 7:37:13 GMT
pikestaff brought up an important point -- Provision/Safeguard Funds, or another undertaking from the platform to keep lenders whole if borrowers default. AC rely on security, and they're about to be tested. FS also rely on security, and they've already had to go though the liquidation process -- with mixed results, though the amounts at stake were small enough that AIUI they dug into their own pocket to keep lenders from losses but haven't promised to do that in the future. So Z and RS -- and other similar -- lenders may feel more confident that they'll receive the advertised returns and not have to wait through protracted recovery processes, and therefore be willing to accept lower returns as a result. Important yes. Equally important is to critically review whatever safeguards are on offer. I am comfortable with RS because they have a large portfolio with lots of small loans and I can see that the provision fund is well covered and properly stress tested. I have given Wellesley a miss because the portfolio is much more granular, and big loss could wipe out the fund. I know there are other protections as well but it's too "eggs in one basket" for me. I think Wellesley are taking too much off the top and not leaving enough for lenders. Zopa is just not competitive compared to RS.
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Post by yorkshireman on Jul 14, 2014 8:00:51 GMT
Could I ask why lenders are happy to take much lower rates on other platforms that are relatively unsecured, but on AC where there is security there are questions about rates being low? To expand that question. Other than for diversification, why are lenders happy to lend at just over 6% for 5 years or under 5% for 3 years on Ratesetter when AC offer more transparent security for shorter terms or even FC’s property loans at 7-8% for 12/18 months with first charge security?
Yes, I’ve been critical of AC and pilloried FC but I’m mystified by the preference for RS.
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