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Post by Deleted on Aug 26, 2014 20:42:29 GMT
Why do people who own million-pound assets want to borrow money at 12%+ when Tesco are offering £12k loans at 4.1% and HSBC are offering variable mortgages fixed for two years at 1.59%?
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ramblin rose
Member of DD Central
“Some people grumble that roses have thorns; I am grateful that thorns have roses.” — Alphonse Karr
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Post by ramblin rose on Aug 26, 2014 21:23:25 GMT
Because you need a regular income to get those sorts of loans. There are a lot of people who are asset rich but unable to access more standard loans because they don't fit the standard borrower profile. They then use their assets to obtain the loans they need (for all kinds of reasons, but not untypically to finance business ventures) and then repay either by having sold another asset, by using an inheritance they will receive or any way they are able. Or, they don't, so the asset they have used to get the loan gets sold itself to pay off the loan.
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Post by Deleted on Aug 26, 2014 21:51:48 GMT
How can you be sure it's the first charge? If there are other loans and mortgages backed by the same asset, how can you be sure you'll get paid?
If I were in a tight spot, I might consider taking out multiple exotic loans on the same asset on the understanding that I'll end up losing it. It's going to generate a higher amount of money than simply selling the asset, especially if it's the type of asset that takes time to sell.
I'm not completely pooh-poohing the idea, but it sounds a bit too good to be true when credit's so cheap. Why would the most canny and entrepreneurial people be forced into the worst interest rate deals?
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Post by Deleted on Aug 26, 2014 21:56:07 GMT
I admit I still find it strange that we have people who seemingly own multi million pound property and yachts and supercars yet they borrow £50,000 or whatever at high rates of interest so presumably banks won't lend to them.
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Post by Deleted on Aug 26, 2014 22:02:01 GMT
With the target for price inflation at 2% and the best ISA on the market set to fall to 1.38% in November, people are desperate to get these superior rates. It's entirely understandable.
We do however need to remain sceptical. So far I can't fault SavingStream at all. They seem to vet the borrowers very closely, as reflected in the speed at which new loans are filled. This is encouraging.
Nevertheless it does seem odd that someone who already made their millions struggles to get credit us plebs can get at the drop of a hat. If the real reason is they're bankrupt, what makes anyone think they'll pay back these new loans 100% of the time?
Even houses are depreciating goods, but yachts I would imagine are more-so, and more prone to undetected problems impacting their value.
Not telling anyone not to do it: this is one of the best P2P platforms out there. Just expressing some human doubt.
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mikes1531
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Post by mikes1531 on Aug 27, 2014 0:13:51 GMT
How can you be sure it's the first charge? If there are other loans and mortgages backed by the same asset, how can you be sure you'll get paid? If I were in a tight spot, I might consider taking out multiple exotic loans on the same asset on the understanding that I'll end up losing it. It's going to generate a higher amount of money than simply selling the asset, especially if it's the type of asset that takes time to sell. This obviously is something that we have to trust SS to prevent happening. I'm certainly no expert, but it's my understanding that charges against property have to be registered with the Land Registry, so when the appropriate searches are made it should be clear whether or not there are other charges backed by the same asset. With boats, there should be some sort of document proving the borrower owns the boat, and I expect that anyone who makes a loan against that boat will want to take possession of that document for the term of the loan. That should prevent multiple loans against the same boat. AIUI, SS also have an arrangement with the marina where the boat is stored that prevents the boat from being moved during the term of the loan.
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mikes1531
Member of DD Central
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Post by mikes1531 on Aug 27, 2014 0:27:47 GMT
We do however need to remain sceptical. So far I can't fault SavingStream at all. They seem to vet the borrowers very closely, as reflected in the speed at which new loans are filled. This is encouraging. I fear you're giving too much credit to P2P investors, as I expect many of them simply see the 12% interest rate and jump in without fully appreciating the risk they are taking. And while I hope you're right about SS vetting borrowers, I expect SS concentrate on vetting the security. If the security is good, and SS are confident that the security could be sold for enough to cover the amount being borrowed, then the borrowers' credentials are pretty irrelevant. Think about how a pawnbroker works... if the value of the jewellery -- or whatever is being pawned -- supports the amount being borrowed, the pawnbroker might not even care who the borrower is, much less run any checks on them. No proof of income is required!
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Post by Deleted on Aug 27, 2014 0:57:48 GMT
How confident would you say we should be? I've heard of people putting in five figures, and there's only so many loans so we must be talking £2k or something per loan.
Is that wise in your opinion?
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pikestaff
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Post by pikestaff on Aug 27, 2014 7:58:32 GMT
It depends how much money you can afford to lose. I'm not saying you will lose it, but there has to be a reason why rates are so high. And don't forget that if lenders are getting 12% the borrowers will be paying considerably more.
One thing to be aware of with SS is that you are actually lending to the company (Lendy Ltd) and not to the ultimate borrowers. If I was on SS I would regard the whole of my investment as a single (limited recourse) exposure to Lendy Ltd and limit it accordingly.
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pikestaff
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Post by pikestaff on Aug 27, 2014 8:03:32 GMT
And while I hope you're right about SS vetting borrowers, I expect SS concentrate on vetting the security. If the security is good, and SS are confident that the security could be sold for enough to cover the amount being borrowed, then the borrowers' credentials are pretty irrelevant. Think about how a pawnbroker works... if the value of the jewellery -- or whatever is being pawned -- supports the amount being borrowed, the pawnbroker might not even care who the borrower is, much less run any checks on them. No proof of income is required! Indeed. Perhaps I've been watching too much telly but the crooks always seem to have a yacht!
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Post by Deleted on Aug 27, 2014 8:50:50 GMT
I see the biggest risk as one of the SS bosses running off with the money or using it finance an extravagant lifestyle involving expensive escort girls and high living. I've read such reports in the past involving other finance chiefs.
THat's why it's sensible to spread your risk and not put everything in a plan like SS.
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Post by savingstream on Aug 27, 2014 9:28:17 GMT
To put an end to this unappetising thread. Saving Stream will be publishing a letter from each loans 3rd party legal firm that represents Lendy's (and therefore the investors) interest. The letter will confirm the security of which the loan is over and the registered legal charge that acts as the security.
On a side note, any FD who has access to company accounts (that have investors) could run off with the investors money. The fact that Lendy Ltd is now 2 years old and is going from strength to strength with a solid loan book and promising pipeline should negate the risk of a director running off with investors money.
Saving Stream does not have £7m in cash sitting in their account, these funds are used to make loans to borrowers and then returned to investors once the loan has ended. I think that if we didn't return these funds when requested by lenders that you would probably have heard about it by now.
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markr
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Post by markr on Aug 27, 2014 10:47:43 GMT
I admit I still find it strange that we have people who seemingly own multi million pound property and yachts and supercars yet they borrow £50,000 or whatever at high rates of interest so presumably banks won't lend to them. Apart from one exception, the boat values are mostly less the £100k (or not much more) and (again with one exception) the LTVs on the property loans are above 60% so the people who own multi-million pound property are borrowing slightly less multi-million pounds. If the opportunity cost of not taking the loan is greater than the interest they will pay, then it makes sense to take the loan.
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Post by davee39 on Aug 27, 2014 11:00:20 GMT
I see the biggest risk as one of the SS bosses running off with the money or using it finance an extravagant lifestyle involving expensive escort girls and high living. I've read such reports in the past involving other finance chiefs. THat's why it's sensible to spread your risk and not put everything in a plan like SS. Sorry, I think posts like this, possibly intended to be humorous, go against the 'fair and friendly' spirit of this board. (And please stop reading the rubbish in the Daily Mail). They also cloud the discussion relating to the 'risk' involved in lending at 12%, and consideration of changes in the SS business. Asset based pawnbroking : Easy to understand and the assets are fairly easy to value for a quick sale. Boats are interesting and I have followed up my tiny contributions with explorations on the builders websites. Property : A specialist area which has bankrupted two major UK Banks, and the entire Irish economy. It seems to me that those chasing high yields here (Or stupidly low yields on FC) may be blind to the risks involved. I have no doubt there is money to be made in property, but there is also money to be lost. However it is precisely because banks have lost so much money that they are refusing to lend, opening up the market to alternative providers. None of the property loans have matured, I think a fair judgement can only be made once we have a repayment history.
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Post by Deleted on Aug 27, 2014 11:30:06 GMT
I've never seen the term 'opportunity costs' used in the context of debt before. That's really brightened my day. At the risk of bearing the opportunity cost of not trolling, I approve of this beautiful perversity!
It was never my intention to pooh-pooh the platform. It just remains a mystery why people who seem to have done very well for themselves are opting for such a high cost of finance.
A 12% return against a 100% loss risk can be worthwhile but it means it has to be overwhelmingly unlikely anyone will fail. Every loss wipes out eight successes so if you have fifteen loans and two fail, you lose.
If the platform loses a cluster all at the same time, it's done.
Anyone else confident that house and yacht prices are going to stay inflated?
I hope SS continues to do brilliantly.
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