ashtondav
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Post by ashtondav on Nov 16, 2017 16:33:06 GMT
When (not if) the next recession comes and people freeze in the headlights of financial ruin, are you safer in rolling than five year? In other words if lender demand dries up is each product equally illiquid? Or would you be able to sell out of rolling quicker.
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Post by BrianC on Nov 16, 2017 17:12:29 GMT
Most loans are just for 1 month so even if liquidity stopped you'd be out of rolling in a month.
Worst case scenario I see is that the provision fund goes negative so they have to fund defaults by reducing everyone's rate of interest. In rolling you'd be out in a month with maybe just some lost interest. If the carnage continued then maybe those in 5 year contracts could lose some capital too. I find that unlikely but certainly possible.
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Post by davee39 on Nov 16, 2017 17:24:50 GMT
RS do not make one month loans. As widely discussed on other threads, and in the Terms & Conditions, a serious liquidity problem could lead to rolling being locked up until the end of the loans they are matched with (ie up to 5 years).
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ashtondav
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Post by ashtondav on Nov 16, 2017 18:16:15 GMT
Exactly Dave, so is rolling as risky as five year but with a lower return?
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r00lish67
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Post by r00lish67 on Nov 16, 2017 18:35:48 GMT
Exactly Dave, so is rolling as risky as five year but with a lower return? In the worst case, I'd say rolling is just about as risky, although in the murky world of what would happen if the S**t really hits the fan, perhaps rolling contracts would have their money returned sooner rather than later (as and when repayments come in). That's me speculating though. RS do go into as much detail as possible here but I expect alot will depend on the circumstances of just how bad things are. The other, more clearly defined, benefit of rolling is that in 'normal trading conditions' you're able to liquidate fee-free, which is not true of other other products. Just as with easy access cash savings versus fixed term bonds, this lowers your liquidity risk and the risk that inflation will pick up massively and decimate your real returns, and so you would expect to generally receive a lower rate.
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wapping35
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Post by wapping35 on Nov 16, 2017 20:26:19 GMT
One risk that I would envisage might happen, if a PF event results in a lock in in Rolling, is the Rolling "savers" who do not understand the lock in risk pursing the regulator, press and perhaps even legal redress with RS.
It does seem a lot of Lenders (really they think they are savers) in Rolling believe it is an instant access saving account and the worst that can happen is losing one months interest and they think they will get their capital back within 30 days (not x years).
How the above pans out probably impacts the subject question.
For me Rolling is higher risk than 5 year if as a lender you feel a PF event is imminent (really within 30 days). And at least we have the coverage ratio published which gives a reasonable indication of that.
I certainly would be very wary of Rolling if the coverage ratio fell to 105% or below (i see it is currently 112%).
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ceejay
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Post by ceejay on Nov 16, 2017 20:26:23 GMT
Joining in the speculation ... if the brown stuff were to hit the fan suddenly and massively, so that liquidity dried up across the whole of P2P at once (which is a possible scenario) then my take is that the risk of the rolling and 5 year markets are quite similar. Perhaps a little less for rolling since the underlying loans will be for a wide range of durations up to 5 years, many being less.
However, I think that a slightly more likely scenario is that there will be a short period of transition from "normal conditions" to "meltdown", during which time a chunk of your rolling money ought to become available to you.
Not guaranteed, of course! But we're talking about scenarios and probabilities here, so I do think that the overall risk on rolling is significantly lower than for 5 year.
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spiral
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Post by spiral on Nov 17, 2017 8:17:23 GMT
I invest in rolling on the basis that I expect my money back within 1 month, but know it's no guaranteed.
To date that has always been the case and I'm quite happy.
I'm also happy in the knowledge that if a lock in occurs, 4%+ is not a disastrous return for longer time frames even though that's not what I've played for.
I suppose it's a bit like being offered 100/1 as a one off bet on a number on the roulette table. In all likelihood it won't come up, but statistically the odds favour you placing the bet.
That's a bit like how I feel in playing the rolling market.
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ashtondav
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Post by ashtondav on Nov 21, 2017 17:57:41 GMT
I reckon a good indicator of the next credit crisis will be reducing cover by the PF. Already at 113% compared to a target of at least 125%, we are already looking at decreasing economic health, and increasing bad debt.
If it reaches much below 105% cover that's my trigger to sell out of Rolling, probably 5 year as well and reduce holdings in Zopa and AC. There will be an escape window for the smarter punters - its just a case of where to draw the line.
Certainly I think the RS coverage ratio is an excellent leading indicator, and its flashing orange at the moment....
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Post by skint4achange on Nov 21, 2017 18:01:14 GMT
I reckon a good indicator of the next credit crisis will be reducing cover by the PF. Already at 113% compared to a target of at least 125%, we are already looking at decreasing economic health, and increasing bad debt. If it reaches much below 105% cover that's my trigger to sell out of Rolling, probably 5 year as well and reduce holdings in Zopa and AC. There will be an escape window for the smarter punters - its just a case of where to draw the line. Certainly I think the RS coverage ratio is an excellent leading indicator, and its flashing orange at the moment.... If it is flashing orange to you now, you should have seen it last week when it was at 111%!!! Personally, I will start to worry when the capital fund drops.
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ashtondav
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Post by ashtondav on Nov 21, 2017 18:24:53 GMT
Yes, I saw that but some fluctuation is to be expected. The problem with the capital cover is that before it gets anywhere critical the "lock in" will have occurred and selling out won't be an option. i can accept that, to a certain extent, for my 5 year money but I want to exit Rolling if there is the stench of crisis QUICKLY!
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rscal
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Post by rscal on Nov 22, 2017 12:08:22 GMT
So if an 'event' was declared by RS before the PF ratio gets too low, how are Rolling market loans (as they would be normally repaid to the individual lender) going to be withheld? Do you get some of each repayment (say a fixed proportion < 100% of) paid to your Holding acc and your Rolling acc balance gradually reduce? And I suppose the interest rate will be 'cropped' from what you could have expected by taking a set proportion of the interest paid by the borrower as well?
Can someone explain how Rolling loans are NOT actually liquid 30-day loans in reality but tied to 5 year loans?
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spiral
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Post by spiral on Nov 22, 2017 12:37:32 GMT
Can someone explain how Rolling loans are NOT actually liquid 30-day loans in reality but tied to 5 year loans? Joe Bloggs comes along and borrows £9K from RS over a 5 year term. RS have 3 options, they can match all or some in any of the markets, lets say the match 1/3 in each so 3K in 5yr, 3K in 1yr and 3K in Rolling. I'm not saying this is how they do it, but it could be. After 1 month Joe makes his repayment of say £180. Of this about £60 is due to the 5yr market, no problem here because what is expected is received. £60 is due to the 1 yr market but as this is paid at term, it would be held by RS. £60 is due to the rolling market, however, the sum of loans being repaid that matched this loan would be £3K+ the £60. As the only money from this loan that is due to the rolling market is significantly lower than the repayments due, RS can only return your funds if there are sufficient lenders in the market. This can either be new investors or re-investors. The only part I can't get my head round is how RS credit your account with the repayment in the morning before waiting until later in the day before completing the matches. Theoretically this must mean that money on market and in holding accounts are with borrowers even though not matched to actual accounts.
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