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Post by mrclondon on Aug 28, 2014 21:53:31 GMT
Anyone investng in virtually all P2P/P2B platforms (with the probable exception of Zopa & Ratesetter) should expect capital losses. The further away from (say) 5% the headline rate is, the more likely it is that capital losses will occur. Isn't this just another way of saying "Don't invest in SS, or any p2p paying much more than 5%"? Almost any capital loss, over 10%, will wipe out any gains from getting more interest than from a guaranteed account. Whilst most if not all investors accept that there is more risk here, how many of us actually expect losses? Unfortunately far too few expect losses, and without a measure of selectivity on the loans, losses are a risk I believe many are failing to quantify correctly. This goes beyond the discussion in this thread of the nuances of the SS model. Perhaps a couple of examples of my own experience will help :- 1) Yes Secure (which most lenders ended up with actual losses) - all the loans I bid on had headline rates of between 22 and 35% pa. After a 3 year period I exited with an XIRR of 8% which after accounting for the tax treatment of losses (at 40%) was more like a before tax rate of 1% pa 2) Funding Circle reports my gross yield as 10.5% , after 4 years my XIRR is 6.2% which after accounting for the tax treatment of losses (at 40%) is more like a before tax rate of 3% pa OK both of these are/were providers of unsecured loans, and not that applicable to SS. Hopefully in two years time we can look back and see that most of the secured platforms have delivered better returns. But who knows. Higher and advanced rate tax payers in particular need to be very aware that the inability to offset capital losses against interest has a dramatic impact on returns. I think the statement you proposed "Don't invest in SS, or any p2p paying much more than 5%" is a bit too strong ... as it really depends on your tax rate, and your skills at sorting out the wheat from the chaff of the loans on offer on each platform. To invest in SS or any platform and expect 12% return is simply not going to happen, but you might get more than the 5%/6% of zopa / ratesetter. With adequate diversification across loans on a secured loan platform the probability of a major loss of capital is unlikely ... but you have only to look at some of the ThinCat secured loans which have been total capital losses to realise that it really is the luck of the draw. This post, and others like it, is not intended to put people off P2P just to act as a wake up call to those who are not quantifying the risk correctly. I have significant 5 figure sums in quite a few P2P/P2B platforms, and I'm personally comfortable with the risk I'm taking, but it should scare most people.
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webwiz
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Post by webwiz on Aug 28, 2014 22:04:52 GMT
Well it scares me!
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kermie
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Post by kermie on Aug 28, 2014 23:02:03 GMT
A bit of fear is not such a bad thing - hopefully it means you have a better appreciation than your average Joe as to the risks 
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Post by Deleted on Aug 28, 2014 23:28:10 GMT
Putting aside financial expertise, common sense says to me you can't get a hefty double figure return on your money without accepting quite a lot of risk.
If that were not the case we would have money experts everywhere telling people to put all their money in P2P and crowd funding platforms and withdraw their money from banks, building societies and national savings etc. That isn't happening.
I would say it's a good gamble to invest a % of your money in such platforms to chase a decent return but I think putting the majority in would be foolish because of the unknowns - not least the newness of these schemes and lack of track record/history.
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webwiz
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Post by webwiz on Aug 30, 2014 13:28:43 GMT
Which is where the repost by pepperpot (4 above this one) of SS's comment re insurance is critical - an orderly wind down of the loan book is likely to apportion the losses on the bad loans to the holders of those loans, and hence those who do their due diligence on each loan before piling in might escape the worst. We'd also need to know if such insurance covers the total of the loan book plus any associated further costs, at any given point in time. If a loan defaults (and any asset sale does not cover the loan) there is no reason to suppose that Lendy will need to go into administration, as the loss will be felt by the investors. It is clear from the T&C (clause 5.2.4) that the loss will be born only by those investors who bought into that particular loan. Therefore there is a case for diversifying one's SS investment across several/many loans. If Lendy does go bust the insurance cover only pays for the administration of an orderly run down of the loans, not any losses. If Lendy goes under without any loan defaults (unlikely?) then investors should not lose anything. If Lendy goes bust because of a bad loan or loans (but why should it?) then AFAICS the investor losses will be the same as if Lendy had survived. Any company can go bust, but I see no particular danger in the SS model for Lendy. My concern is that a loan will go bad and the asset will prove to be worth less than allowed for. SS seems to have been set up to provide boat loans and may not have the expertise to evaluate property assets.
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j
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Post by j on Aug 30, 2014 16:05:45 GMT
We'd also need to know if such insurance covers the total of the loan book plus any associated further costs, at any given point in time. If a loan defaults (and any asset sale does not cover the loan) there is no reason to suppose that Lendy will need to go into administration, as the loss will be felt by the investors. It is clear from the T&C (clause 5.2.4) that the loss will be born only by those investors who bought into that particular loan. Therefore there is a case for diversifying one's SS investment across several/many loans. If Lendy does go bust the insurance cover only pays for the administration of an orderly run down of the loans, not any losses. If Lendy goes under without any loan defaults (unlikely?) then investors should not lose anything. If Lendy goes bust because of a bad loan or loans (but why should it?) then AFAICS the investor losses will be the same as if Lendy had survived. Any company can go bust, but I see no particular danger in the SS model for Lendy. My concern is that a loan will go bad and the asset will prove to be worth less than allowed for. SS seems to have been set up to provide boat loans and may not have the expertise to evaluate property assets. Very good analysis webwiz. Would be good is savingstream can offer confirmation this is the scenario, should anything goes awry.
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merlin
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Post by merlin on Aug 30, 2014 18:05:58 GMT
I have another concern and that is the direction of travel of SS/Lendy. When I signed up I thought it was about lending on boats and maybe the odd high value car and no mention of entering the property business. Now the SS property business has reach proportions that completely over shadow the boat/car business. My chief concern with property is that we could be currently living in a fools paradise and the current bubble in the South East could burst anytime soon. If that happened many of us currently well invested in SS property loans could find ourselves well and truly stuffed. Of course there is no way of knowing what is going to happen with property prices in the short term but as sure as God made little apples there must be a correction sooner or later!
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j
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Post by j on Aug 30, 2014 18:21:12 GMT
I have another concern and that is the direction of travel of SS/Lendy. When I signed up I thought it was about lending on boats and maybe the odd high value car and no mention of entering the property business. Now the SS property business has reach proportions that completely over shadow the boat/car business. My chief concern with property is that we could be currently living in a fools paradise and the current bubble in the South East could burst anytime soon. If that happened many of us currently well invested in SS property loans could find ourselves well and truly stuffed. Of course there is no way of knowing what is going to happen with property prices in the short term but as sure as God made little apples there must be a correction sooner or later! This point would also apply to all other platforms where one would have a property-backed loan, not just SS. Someone said on one thread recently they'd feel more comfortable with around 55-60% ltv, as opposed to the circa 70% we tend to currently see on most p2p platforms. I'm starting to lean towards this also.
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merlin
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Post by merlin on Aug 30, 2014 22:07:24 GMT
j1 agree with you about valuations and other P2P providers generally. FC is probably a good example where they seem to have moved into the mortgage/property business rather suddenly. Now if there where to be a sudden downturn in the property market with an associated devaluation of property values FC investors could rapidly find their trousers around the ankles. This is not as unlikely as it may seem right now, for if Russian money which is believed to be fuelling the inflation of property prices in the South East were to be suddenly withdrawn as a result of the disagreement over the Ukraine, then the scene is set for a major readjustment of property prices. As well as FC, AC, SS and others would also have similar problems and quite a few investor shirts would be lost in the fall-out.
PS It should also be born in mind that if the above scenario were to be played out it would almost instantly be impossible to sell/offload holdings as buyers would likely leave the market rapidly.
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Post by davee39 on Aug 31, 2014 11:01:23 GMT
I agree entirely with the doubts expressed regarding the property rush.
At least on FC the risk entirely falls on the lenders in those loans, and any failures would not immediately threaten the platform, apart from reputational damage.
With SS I am not so sure that the business is strong enough to survive an illiquid market, where the bridging loans cannot be re-financed. Based on the scramble which occurs when new loans are listed I doubt my contribution will be missed, but the over reliance on property loans has encouraged me to slowly move elsewhere. I have just calculated that the loan book is now 91% property and this proportion looks set to increase.
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j
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Post by j on Aug 31, 2014 12:17:44 GMT
I agree entirely with the doubts expressed regarding the property rush. At least on FC the risk entirely falls on the lenders in those loans, and any failures would not immediately threaten the platform, apart from reputational damage. With SS I am not so sure that the business is strong enough to survive an illiquid market, where the bridging loans cannot be re-financed. Based on the scramble which occurs when new loans are listed I doubt my contribution will be missed, but the over reliance on property loans has encouraged me to slowly move elsewhere. I have just calculated that the loan book is now 91% property and this proportion looks set to increase. Going into property is probably SS's way of expanding. Just as AC, FC etc have done to allow a quicker step-up in volume & turnover. Boat loans are neither big enough nor have a fast enough frequency to cater for investor appetite out there. As you say, whether that is the right move or not remains to be seen
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shimself
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Post by shimself on Aug 31, 2014 13:50:36 GMT
I agree entirely with the doubts expressed regarding the property rush. At least on FC the risk entirely falls on the lenders in those loans, and any failures would not immediately threaten the platform, apart from reputational damage. With SS I am not so sure that the business is strong enough to survive an illiquid market, where the bridging loans cannot be re-financed. Based on the scramble which occurs when new loans are listed I doubt my contribution will be missed, but the over reliance on property loans has encouraged me to slowly move elsewhere. I have just calculated that the loan book is now 91% property and this proportion looks set to increase. Going into property is probably SS's way of expanding. Just as AC, FC etc have done to allow a quicker step-up in volume & turnover. Boat loans are neither big enough nor have a fast enough frequency to cater for investor appetite out there. As you say, whether that is the right move or not remains to be seen Well when they started off what they knew about was BOATS. The office is in Portsmouth. Boats was the usp. I seem to remember something about Boats not being all that straightforward unless you knew your way around Now it's all property, heaven knows how the borrower came to them (admittedly it might have been matey at the yacht club), maybe they were the last port of call (sorry), seeing as the borrower is paying >15%  , 20% even??? it seems likely. I haven't seen anything about expertise in this field have you?
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geoff
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Post by geoff on Aug 31, 2014 14:40:03 GMT
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merlin
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Post by merlin on Aug 31, 2014 14:56:55 GMT
With all that property experience its just a bit surprising then, that they went for the boatie business first! Or was this boat gambit just a sprat to catch a mackerel? The boats being the sprat and us the mackerel, perhaps?
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Post by yorkshireman on Aug 31, 2014 19:19:15 GMT
With all that property experience its just a bit surprising then, that they went for the boatie business first! Or was this boat gambit just a sprat to catch a mackerel? The boats being the sprat and us the mackerel, perhaps? It all sounds a bit fishy to me.
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, 20% even??? it seems likely. 