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Post by chris on Jul 27, 2014 19:33:05 GMT
mikes1531, 15.6% vs 10% is quite a big margin for AC! I take it you worked it out from the final fees paid bit on the repayments section? If that is the case, you can see why members are trying to push for some regular cash back on individual loans to reduce the need for underwriting. I still cannot understand why this is not a regular feature. The result is less underwriting, more normal lender input which equates to happier & more interactive members. AC will most probably still make the same margin, if not more, as when relying on underwriters! This is more a personal reply that anything official from the business as it's the weekend and I haven't looked into the specifics being quoted. That kind of spread isn't unusual within this industry. On that US panel that was streamed via a link mentioned elsewhere in this forum RS admitted that their borrower rates were anything up to 18%. I'm sure that isn't their average and that typically their borrower rates are much lower but that's quite a healthy spread from the rate they pay out. Look at Lendy Marine's website and the borrower rates quoted there are an awful lot higher than those passed on via SS. You can see the same with some of the P2P bridging offerings, etc. We've always been pretty open with our fees and if memory serves Andy H has previously stated that fairly universally AC will take a fee in the 2% region. On top of that there may be broker fees, legal fees, monitoring fees, the costs of draw down, bank charges, professional fees, etc. that all add up and affect the rate the borrower pays without changing the amount retained by AC. We also don't charge any lender fees at all, which is not something many other platforms can boast, and that also needs to be factored in to the rates on offer. With the way things are structured underwriters are more cost effective for AC than the cash back offers that have been discussed on here. We have also experimented with cash back in the past on a couple of loans and it didn't have a huge effect on takeup. FC have used it to great effect in driving the flippers but that isn't something we're actively trying to emulate. There is a long term strategy being played out on both lender and borrower capture and retention where we are trying to make our offering competitive to all, with competition both from other P2P platforms as well as traditional financial services and products. We believe our offering is very attractive and we'll be introducing further changes with the new platform to continue improving things for all parties. Watch this space!
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mikes1531
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Post by mikes1531 on Jul 27, 2014 19:41:23 GMT
Posting deleted. It wasn't complete when my Firefox crashed and submitted it. See below.
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j
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Post by j on Jul 27, 2014 19:49:25 GMT
chris, We're not privy to how much underwriters cost, nor will AC be happy to disclose such info publicly (understandably, I might add). The point being raised here is that some form of tiered cashback (in relation to size of investment) will drive things forward again in terms of normal lenders. As you stated, SS might make a fair bit more than the 12% they pay, even after discounting all their costs. If their offerings are similar to AC in terms of ltv, security, etc, then you can see why lenders would opt to lend with SS (or any other platform for that matter) to get that extra 2-4% than on similar type loans that might be on AC. Also, in terms of cashback on individual loans you alluded to. If memory serves me correctly, that was last offered last year when AC was still a small & new player with nowhere near the investor base they have now, so I don't think that truly reflects on any possible cashback uptake if it was offered now!
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mikes1531
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Post by mikes1531 on Jul 27, 2014 19:51:27 GMT
mikes1531, 15.6% vs 10% is quite a big margin for AC! I take it you worked it out from the final fees paid bit on the repayments section? I worked it out from the monthly payments which were interest-only. If there isn't an interest-only period, then it's not as easy but it can be worked out from the payment schedule. (I also should note that the loan involved was Ce***** Lo**** Br******, not the one that's the subject of this thread, where the borrower appears to be paying 12%.) The margin surprised me, too, but the issue was raised in the CLB loan's Q&A and AC didn't dispute the rate. They also said... I'd suggest they disclosed all the income/fees they stand to gain from each loan -- like I understand some financial advisers/intermediaries now have to do -- but I don't think they'd be happy doing that.
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j
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Post by j on Jul 27, 2014 19:53:00 GMT
mikes1531, 15.6% vs 10% is quite a big margin for AC! I take it you worked it out from the final fees paid bit on the repayments section? I worked it out from the first few monthly payments which were described as interest-only. If there isn't an interest-only period, then it's not as easy but it can be worked out from the payment schedule. The margin surprised me, too, but the issue was raised in the Ce***** Lo**** Br****** Q&A and AC didn't dispute the rate. They also said... I'd suggest they disclosed all the income/fees they stand to gain from each loan -- like I understand some financial advisers/intermediaries now have to -- but I don't think they'd be happy doing that. I never had an issue with how AC or any other platform make margin-wise as long as the rate on offer to me is something acceptable & I'm happy with it. It was just surprising to see 5%+ as I recall AH many months ago alluding to an average margin of 1-3% (if memory serves right), barring the odd loan. This being a case in illustration obviously.
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mikes1531
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Post by mikes1531 on Jul 27, 2014 20:00:31 GMT
I never had an issue with how AC or any other platform make margin-wise as long as the rate on offer to me is something acceptable & I'm happy with it. I don't either, unless the margin is so great that it increases the likelihood that the borrower won't be able to cover it and ends up defaulting, particularly as I note that AC's fees are ahead of interest payments to lenders in the queue for distribution of the proceeds from any security liquidation. So lenders are more likely to lose money in a foreclosure than AC are.
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Post by chris on Jul 27, 2014 20:06:05 GMT
chris, We're not privy to how much underwriters cost, nor will AC be happy to disclose such info publicly (understandably, I might add). The point being raised here is that some form of tiered cashback (in relation to size of investment) will drive things forward again in terms of normal lenders. As you stated, SS might make a fair bit more than the 12% they pay, even after discounting all their costs. If their offerings are similar to AC in terms of ltv, security, etc, then you can see why lenders would opt to lend with SS (or any other platform for that matter) to get that extra 2-4% than on similar type loans that might be on AC. Also, in terms of cashback on individual loans you alluded to. If memory serves me correctly, that was last offered last year when AC was still a small & new player with nowhere near the investor base they have now, so I don't think that truly reflects on any possible cashback uptake if it was offered now! If SS (or others) were offering the same volume of loans, ltv, security, etc. then you'd have a fair point but IMHO they do not. We are operating in different sectors, with a very different borrower profile, acquiring loans in different ways, with different likelihoods of default and losses given default. If we were a pawnbroker then maybe we would offer analogous to SS. To offer a 1 - 2% cashback, which seems to be the minimum to make it attractive, we'd either need to charge the borrowers the extra making us less competitive in that arena, or give up a large part of our already relatively slim margin. We believe there are other ways of achieving the desired results more cost effectively for all and are pursuing those, for now at least.
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Post by yorkshireman on Jul 27, 2014 21:58:01 GMT
What is being offered as security? On the loan page we have “First legal charge over the site with loan in personal name” yet on the credit report we have “First legal charge over garage at **************** loan to gross development value of 60%"
When I read garage as security I assumed that it referred to a fuel station or workshop, however, according to Zoopla the property at the postcode quoted for security is a flat with shared freehold consisting of 2 bedrooms, 1 bathroom and 1 reception and no mention of a garage although I stand to be corrected as I was unable to access the full details of the flat.
This isn’t a flippant question but is the security offered the garage of the flat rather than a fuel station or workshop, (I appreciate that London property prices are in cloud cuckoo land but it would be ridiculous to offer it as security IMO), an error, or someone taking the mick?
It's a garage as in the building I keep my car in, or where most other people keep their junk. The address given on the credit report covers what is a semi-detached house (possinly converted to flats) with an adjacent garage. The plan is to replace the garage with a tiddly narrow 1 bed house,slotted in between the existing house and the substation. The details can be found on Haringey's planning website. Thanks for the info.
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j
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Post by j on Jul 27, 2014 22:01:55 GMT
If SS (or others) were offering the same volume of loans, ltv, security, etc. then you'd have a fair point but IMHO they do not. We are operating in different sectors, with a very different borrower profile, acquiring loans in different ways, with different likelihoods of default and losses given default. If we were a pawnbroker then maybe we would offer analogous to SS. To offer a 1 - 2% cashback, which seems to be the minimum to make it attractive, we'd either need to charge the borrowers the extra making us less competitive in that arena, or give up a large part of our already relatively slim margin. We believe there are other ways of achieving the desired results more cost effectively for all and are pursuing those, for now at least. The boat loans may not be on a par, but I think the property bridging loans certainly are, with lower ltv on SS. It's not a discussion of who's better. AC are more established with an older & bigger pipeline (length of trading one of the reasons). Cashback does has a place, both for AC & SS. AC had the L***s loan last year which got into stagnation until a cahsback offer moved it forward (it was only 0.25% offered on bids over £10k, nowhere near 1-2%). SS also had success with one of their property bridging loans offering 1% cahsback on any sum invested, so it can & does work, imho. We await the developments you allude to which will hopefully make t worthwhile for smaller lenders to bid at the live loan stage rather than wait for units on AM, thus reducing reliance on underwriting.
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mikes1531
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Post by mikes1531 on Jul 28, 2014 1:16:55 GMT
The boat loans may not be on a par, but I think the property bridging loans certainly are, with lower ltv on SS. I think the LTV on the SS loans is not that different to what AC have -- the five SS loans have LTVs in the 60-70% range. If I would earn 12% from either I'd probably favour AC because the company is bigger and has more of a history of this type of loan. With SS offering 12% and AC 10%, the difference is too big to ignore so right now I'm building up my SS investment instead of my AC balance. And the unenthusiastic response AC seem to be getting for their five current offerings is quite a contrast to earlier investor reaction. The small loans, which might have had significant uptake in the past, are filling only slowly, and neither of the two large loans has managed to achieve even 1% funded yet. That must be rather embarrassing for AC, and appears to indicate how unexcited their investors are at the moment.
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Post by chris on Jul 28, 2014 6:44:28 GMT
The boat loans may not be on a par, but I think the property bridging loans certainly are, with lower ltv on SS. I think the LTV on the SS loans is not that different to what AC have -- the five SS loans have LTVs in the 60-70% range. If I would earn 12% from either I'd probably favour AC because the company is bigger and has more of a history of this type of loan. With SS offering 12% and AC 10%, the difference is too big to ignore so right now I'm building up my SS investment instead of my AC balance. And the unenthusiastic response AC seem to be getting for their five current offerings is quite a contrast to earlier investor reaction. The small loans, which might have had significant uptake in the past, are filling only slowly, and neither of the two large loans has managed to achieve even 1% funded yet. That must be rather embarrassing for AC, and appears to indicate how unexcited their investors are at the moment. That's obviously your choice and something we need to keep in mind. When you're charging your borrowers ~30% it's quite easy to pass on 12% of that. But the rates are that high for a reason, and the volume of loans remains much smaller than on here. We're focussed on a different market, are at a different point in our growth, and adding 2% cost on to our loans would make it much harder to get the loan volume we need to continue to grow the site. There will always be a few loans in that region if there is borrower demand and the risk profile deems it a fair return. If there's a place in the market for Zopa and RS giving lenders 5 - 6% returns then there should be a place for us offering ~10% returns. There's a constant balancing act and internal discussion around our strategy, along with constant measurement and analysis. If our strategy isn't working it will be changed.
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Post by chris on Jul 28, 2014 6:51:01 GMT
If SS (or others) were offering the same volume of loans, ltv, security, etc. then you'd have a fair point but IMHO they do not. We are operating in different sectors, with a very different borrower profile, acquiring loans in different ways, with different likelihoods of default and losses given default. If we were a pawnbroker then maybe we would offer analogous to SS. To offer a 1 - 2% cashback, which seems to be the minimum to make it attractive, we'd either need to charge the borrowers the extra making us less competitive in that arena, or give up a large part of our already relatively slim margin. We believe there are other ways of achieving the desired results more cost effectively for all and are pursuing those, for now at least. The boat loans may not be on a par, but I think the property bridging loans certainly are, with lower ltv on SS. It's not a discussion of who's better. AC are more established with an older & bigger pipeline (length of trading one of the reasons). Cashback does has a place, both for AC & SS. AC had the L***s loan last year which got into stagnation until a cahsback offer moved it forward (it was only 0.25% offered on bids over £10k, nowhere near 1-2%). SS also had success with one of their property bridging loans offering 1% cahsback on any sum invested, so it can & does work, imho. We await the developments you allude to which will hopefully make t worthwhile for smaller lenders to bid at the live loan stage rather than wait for units on AM, thus reducing reliance on underwriting. The problem with cash back on the bridging loans, well all our larger loans really, is that underwriting gives an up front guarantee of funding the loan to the borrower whereas cash back does not. 0.25% cash back is not going to fill a £1-2m loan for us. If our next round of changes don't have the desired effect then no doubt we'll revisit cash back but there are no plans to do so at the moment.
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bigfoot12
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Post by bigfoot12 on Jul 28, 2014 7:56:55 GMT
... underwriting gives an up front guarantee of funding the loan to the borrower whereas cash back does not. I'm sure this was the reason given for one large borrower's move to AC from TC. I think that it would be better if AC's and any other brokers fees were fully disclosed. This would give make it clearer if we thought the borrower could afford the loan. Also the underlying rate paid by the borrower might indicate what the borrower thinks his own credit quality is. We need to remember that on short loans like the one named on this thread the APR can look high. I don't know how all of the fees are paid by the borrower, but much of the work in valuations, taking security other legal fees is the same whatever the length of the loan. And the cost for a larger loan is not always that much more. When these are combined into the APR they can have a disproportionate impact on smaller short loans.
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Post by chris on Jul 28, 2014 8:20:06 GMT
... underwriting gives an up front guarantee of funding the loan to the borrower whereas cash back does not. I'm sure this was the reason given for one large borrower's move to AC from TC. I think that it would be better if AC's and any other brokers fees were fully disclosed. This would give make it clearer if we thought the borrower could afford the loan. Also the underlying rate paid by the borrower might indicate what the borrower thinks his own credit quality is. We need to remember that on short loans like the one named on this thread the APR can look high. I don't know how all of the fees are paid by the borrower, but much of the work in valuations, taking security other legal fees is the same whatever the length of the loan. And the cost for a larger loan is not always that much more. When these are combined into the APR they can have a disproportionate impact on smaller short loans. There's competitive information in full disclosure of all fees and their structure so I'll pose the question to the management team but think it unlikely this would be implemented.
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mikes1531
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Post by mikes1531 on Jul 28, 2014 12:34:26 GMT
When you're charging your borrowers ~30% it's quite easy to pass on 12% of that. But the rates are that high for a reason, and the volume of loans remains much smaller than on here. When a borrower is willing to pay ~30% a lender can't help but worry about the credit quality. And while I expect that SS/Lendy's boat loans are at that sort of rate, I'd be surprised if the rates on their property bridging loans were that high. But I really haven't a clue. And I haven't a clue what APRs AC's borrowers are paying once all the fees are included in the calculations. For all I know that could be the standard rate throughout the industry. There's no question in my mind that SS can't grow as an investing destination until they can offer investors a larger range of opportunities. AC have a real advantage in that regard.
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