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Hi everyone,

Thanks for your messages on this. In terms of the increase in the number of loans that are appearing as on hold, I would stress that this isn’t indicative of a loanbook that's struggling. It's simply a loanbook that's maturing – the product is nearing two years old, and it's only recently that many of the loans will have started to come to the end of their term.

It will help to give a bit more context around the different ways in which a loan can be on hold:

- Loans can be ‘late-paying’ – meaning they have missed two interest payments. There are currently four such loans on the platform.
- Loans can be overterm – where the borrower has failed to repay the loan at the end of its term. There are currently three such loans on the platform
- Loans can be passed to collection – meaning the property is being sold to fund the debt. There is just one of these on the platform at present, but clearly this could take some time to resolve.

In total, that's 8 loans of a current live loanbook of 213 – or 3.8%.

I’d also emphasise that investors will be the first to be repaid interest if/when it’s repaid – so while of course we clearly can’t ever guarantee all interest will be recovered, given the LTVs we think it’s more likely a situation of interest being repaid on a later date than a permanent drag on the portfolios’ returns.

Having said all that, we do appreciate that we're not currently showing enough information on the performance of individual portfolios – and we understand how the absence of information could inadvertently cause a degree of alarm. Our team is working to change this, and we'll soon be bringing a lot more clarity to your dashboards by breaking down exactly how many of each type of loan are in your portfolio (and the amount invested in them).

Thanks for bearing with us while we work to make this all a bit clearer. I do of course apologise for any uncertainty this has caused and hope this has been of some help in the meantime.

Any other questions, do keep them coming!

Joe

Can you give a timescale for the improved information/clarity? Thanks.

And, secondly, the way we calculate the rate investors earn is a little complicated – pricing risk always is, as I’m sure you can appreciate!

First things first, any loan we make with a headline rate of 8% or below will return 4% to the investor. The 4% we return breaks down as 0.5% from our first loss investment with the balance earned through a borrower fee.

Remember that the interest we make on our first loss investment is only earned if and when investors have earned all their interest themselves. In the event that the borrower can’t repay the full debt, it is this that we use to fund any outstanding interest payable to investors.

While the borrower fee pays for the cost of the underwriting, but also funds the liquidity of the platform. The loans are only made available because we’ve financed them first ourselves with our own substantial liquidity pot – helping investors to get their funds working quickly upon initial investment, and also helping to cut down on any cash drag in your portfolio, as when a loan repays the money can be rapidly reinvested.

For any loan over 8%, it’s a bit more complex. There’s three steps we follow to work it out from the initial overall rate we charge borrowers:

1. First, we work out how much interest to earn on our first loss investment. For loans with a headline rate of over 8%, we earn 1%. Remember, that's 1% on the total loan – which, because we're contributing 5% of the capital in a far riskier position than investors, equates to a higher return on capital.
2. We then determine the borrower fees. This is calculated by dividing the overall rate in half, then subtracting the first loss interest we earn. (E.g. for a loan with an overall rate of 10%, we'd subtract 1% from 5% to give a fee of 4%). This fee is capped at 4.2%.
3. The remainder we pass on to investors.

Let’s put this in practice with a few examples. First let’s look at a 4.99% loan for £1 million – a typical loan you’ll find on our stats page:

1. We’d earn 0.5% of the total loan for our 5% first loss investment (£5,000)
2. Investors would earn a set rate of 4% on their investment of £950,000 (£38,000)
3. We’d earn the remainder as borrower fees (£6,000)

Or, in the case of a borrower taking out a loan at 8.99% on a £1 million loan:

1. We’d earn 1% for our 5% first loss investment (£10,000)
2. We’d earn borrower fees of 3.495% (£34,950)
3. The remaining £44,950 is then passed on to investors – an effective return of 4.73% on their investment of £950,000.

Appreciate that’s quite a lot of detail, but I hope it helps? Let me know if you have any further questions.

hi Joe
thanks for all the info much appreciated -
With regards the not more then 10% in a loan idea,i would guess most people would prefer a smaller % in a set & forget product(and probably a pick your own product).Take your point about OC being able to get the money back but with a delay but only time will tell so large loans may still worry some.
      Its going to take me longer to digest the maths so i may come back to you on that(or one of the more clever people might do it first)But on a quick skim i understand the under 8% loan will return a flat 4% but am still confused as to a 5.5% loan that i have pays me as much as the 7.99% loan i have.Think i need to read more
         

I wanted also to point everyone in the direction of this recent blog post we put together.

We thought it would be a good idea in response to the questions we've had about loans that have been put on hold – explaining a bit more about the different types, and what we do as well to help ensure investors are paid what they're owed.

Thanks for listening to investors and making changes to the site. A step in the right direction. A plus is my late payments have also reduced over the last week