bg
Member of DD Central
Posts: 1,368 
Likes: 1,929
|
Post by bg on Feb 18, 2019 15:25:28 GMT
It's ridiculous. Any loan can be redeemed by a borrower at any time. I fail to see how a buyer can be caught out by buying a loan at a 1% discount (as at least some of these loans were) if the loan then suddenly repays. By all means stop a loan from being offered for sale at a premium if repayment is imminent but there is no need to halt par/discounted sales. The problem is for tax payers purchasing on the SM, many (most?) discounted parts are actually being offered at an effective premium to face value once the inherited tax liability is taken into account. IMO this is a long overdue measure to protect investors. However FS need to be prepared to reopen trading if/when it becomes apparent that the redemption is no longer imminent.
I notice the Sal****** Rd, Herts loan has been similiarly suspended today.
Yes but many people wither don't pay tax as they are utilising their personal allowance or are buying in an ISA. If I want to sell at a 1% discount to someone in that position then it should not be a problem. Furthermore, any loan can be redeemed at any time. Asking for a redemption statement does not mean anything. Many loans have been pulled from the SM because of this and then get reinstated a few weeks later because no redemption happened.
|
|
arby
Member of DD Central
Posts: 910
Likes: 959
|
Post by arby on Feb 18, 2019 15:25:30 GMT
Therein lies the issue; you say you're OK with sales at par or discount, but not at a premium. If trading is allowed, it will become just a pure gamble on whether redemption occurs or not, with limited regard to the underlying loan. There is enough gambling in p2p already that this additional form of gambling isn't really needed. I don't know of any logical reason to ever buy at a premium. If there were funding limits on an attractive loan and yoy feel that 12% minus 1 months interest (so about 10%) is still a fair reward? Also, if you buy at +1% and still feel you can still sell at +1% in 3 months time then it cancels out. I would personally rather buy at a premium on the few loans I really like than at a discount on some more risky ones, but others have different views of risk and there is no one correct strategy of how to invest.
|
|
|
|
Post by mrclondon on Feb 18, 2019 15:27:15 GMT
I don't know of any logical reason to ever buy at a premium. Whilst I agree in general terms, it is not always possible for me to complete due dilligence to my satisfaction whilst a loan is open in the PM. I will in such circumstances buy at par or 0.1% discount (which generally will be a premium after inherited tax liability) in the SM in the following weeks if I'm convinced of the merits of the loan, and the opportunity presents itself.
|
|
Godanubis
Member of DD Central
Anubis is known as the god of death and is the oldest and most popular of ancient Egyptian deities.
Posts: 2,011
Likes: 1,013
|
Post by Godanubis on Feb 18, 2019 15:27:40 GMT
Therein lies the issue; you say you're OK with sales at par or discount, but not at a premium. If trading is allowed, it will become just a pure gamble on whether redemption occurs or not, with limited regard to the underlying loan. There is enough gambling in p2p already that this additional form of gambling isn't really needed. No I'm not. I'd happily leave all loans trading at all time. Having said that, if FS know that a loan is going to be repaid tomorrow, I can understand why someone who buys it at a 1% premium is annoyed if it pays back. 1% loss in a day. That is what FS are trying to stop happening so stop people selling at a premium if that is the case, don't allow people to sell at a premium if there is a known redemption upcoming. I don't follow your comments on gambling. I would be interested to hear from anyone who bought any loan with accrued interest at a premium as to why they bought it other than a very inefficient way to offset CGT
mrclondon yours is a tiny cost and well researched. The figures mentioned were for loans with a lot of interest and at 1% premium
|
|
|
|
Post by mrclondon on Feb 18, 2019 15:33:46 GMT
Yes but many people wither don't pay tax as they are utilising their personal allowance or are buying in an ISA. If I want to sell at a 1% discount to someone in that position then it should not be a problem. To an extent I agree, BUT the way FS present the SM market at present make it impossible for tax payers to know the actual effective rate to maturity, as the only figure quoted is for non-taxpayers / IFISA investors.
|
|
bg
Member of DD Central
Posts: 1,368
Likes: 1,929
|
Post by bg on Feb 18, 2019 15:50:42 GMT
Yes but many people wither don't pay tax as they are utilising their personal allowance or are buying in an ISA. If I want to sell at a 1% discount to someone in that position then it should not be a problem. To an extent I agree, BUT the way FS present the SM market at present make it impossible for tax payers to know the actual effective rate to maturity, as the only figure quoted is for non-taxpayers / IFISA investors. I don't think any platform shows effective rates net of tax and I wouldn't expect them to.
|
|
|
|
Post by mrclondon on Feb 18, 2019 15:56:32 GMT
To an extent I agree, BUT the way FS present the SM market at present make it impossible for tax payers to know the actual effective rate to maturity, as the only figure quoted is for non-taxpayers / IFISA investors. I don't think any platform shows effective rates net of tax and I wouldn't expect them to. No other platform has the issue of inherited tax liability on SM purchases. I'm not talking of displaying rates net of tax, I'm talking about the effective gross rate once the inherited tax liability is taken into account.
For most tax payers buying on the FS SM is buying at an effective premium , but that is not being made apparent to investors. It is potentially misleading, and isn't acceptable IMO when retail investors are involved (seems at odds with financial promotions regulations etc)
|
|
bg
Member of DD Central
Posts: 1,368
Likes: 1,929
|
Post by bg on Feb 18, 2019 16:05:54 GMT
I don't think any platform shows effective rates net of tax and I wouldn't expect them to. No other platform has the issue of inherited tax liability on SM purchases. I'm not talking of displaying rates net of tax, I'm talking about the effective gross rate once the inherited tax liability is taken into account.
For most tax payers buying on the FS SM is buying at an effective premium , but that is not being made apparent to investors. It is potentially misleading, and isn't acceptable IMO when retail investors are involved (seems at odds with financial promotions regulations etc)
Yes but to do that you need to know the buyers marginal tax rate. I disagaree that currently its impossible for tax payers to know the effective rate to maturity. You know what the inherited tax liability is so you can work it out (and the onus should always be on the investor to work out their tax situation). Of course you never know what the actual maturity date will be as typically the loans run late - while some may close early.
|
|
|
|
Post by mrclondon on Feb 18, 2019 16:15:35 GMT
No other platform has the issue of inherited tax liability on SM purchases. I'm not talking of displaying rates net of tax, I'm talking about the effective gross rate once the inherited tax liability is taken into account. For most tax payers buying on the FS SM is buying at an effective premium , but that is not being made apparent to investors. It is potentially misleading, and isn't acceptable IMO when retail investors are involved (seems at odds with financial promotions regulations etc)
Yes but to do that you need to know the buyers marginal tax rate. I disagaree that currently its impossible for tax payers to know the effective rate to maturity. You know what the inherited tax liability is so you can work it out (and the onus should always be on the investor to work out their tax situation). Of course you never know what the actual maturity date will be as typically the loans run late - while some may close early. Easily fixed with a toggle dropdown on the SM page to select 0%/20%/40%/45% and for the webpage to render the appropriate column of pre-calculated data. Its not a trivial calculation, and its impractical to do for each and every loan part that may be of interest on the SM, unless as you've posted on the AC board you dump out from the FS website the full SM list every 15 mins and do your own analysis on the data. Thats fine for those with the technical skils to do so, and the overall level of investment on FS to make the upfroont effort worthwhile. I suspect other sophisticated/HNW investors on FS do similiar, but I'm talking about making life easier for the majority of FS lenders who are small retail investors by displaying the effective gross rate at the point of purchase.
From AC board hereI along with a friend spent over 2 years building our own web app that pulls in data from many P2P sites and produces various reports, alerts and analysis along with having various tools.[...] What is cool is we can also see a global overview of all platforms added together. Does loads of other stuff like showing the depth of SM's (depending on the platform), graphs of loans stats on a global and individual loan basis ( so on FS we can see graphs of the discount each individual loan is offered for sale at, snapped every 15 mins).[...]
|
|
|
|
Post by mrclondon on Feb 18, 2019 16:28:57 GMT
Apologies for persisting on this subject today, these are the last words from me for now.
For most people buying on the SM the useful rule of thumb is that for an effective face value of par the discount needed is
20% taxpayer: 0.1 discount for every 15 days age of the loan part (12% yield) or 14 days (13% yield)
40% taxpayer: 0.1 discount for each week age of the loan part.
Buy at a smaller discount than this rule of thumb and you are buying at an effective premium to face value, buy at a bigger discount than this and you are indeed buying at a discount to face value.
|
|
Godanubis
Member of DD Central
Anubis is known as the god of death and is the oldest and most popular of ancient Egyptian deities.
Posts: 2,011
Likes: 1,013
|
Post by Godanubis on Feb 18, 2019 16:46:31 GMT
Tax is not an issue if you have all your funds in FISA  |
|
|
|
Post by charlata on Feb 18, 2019 17:51:39 GMT
Apologies for persisting on this subject today, these are the last words from me for now.
For most people buying on the SM the useful rule of thumb is that for an effective face value of par the discount needed is
20% taxpayer: 0.1 discount for every 15 days age of the loan part (12% yield) or 14 days (13% yield)
40% taxpayer: 0.1 discount for each week age of the loan part.
Buy at a smaller discount than this rule of thumb and you are buying at an effective premium to face value, buy at a bigger discount than this and you are indeed buying at a discount to face value.
I don't understand the focus on par value. The loans are issued at an arbitrary value, basically the value that the market will stand, if you happen to mistakenly buy on the sm at an effective premium of a small fraction of a percent what does this matter? These are loans where estimating probability of default, or loss given default to within 10% error would be impossible. It all smacks of spurious accuracy over something which can be calculated, but which is completely dwarfed by risks we can only guess at.
|
|
|
|
Post by mrclondon on Feb 18, 2019 18:00:46 GMT
charlata - this protracted discussion came about because FS have started to suspend from the SM loans which are likely to redeem in the very near future. If you buy a loan part at an actual or effective premium, and it redeems shortly thereafter you are guaranteed to lose money. This is simply a small measure to protect lenders (the majority of whom are retail investors) from guaranteed loses, when FS are aware such loses are likely.
|
|
|
|
Post by pigbreeder on Feb 18, 2019 18:16:19 GMT
Apologies for persisting on this subject today, these are the last words from me for now.
For most people buying on the SM the useful rule of thumb is that for an effective face value of par the discount needed is
20% taxpayer: 0.1 discount for every 15 days age of the loan part (12% yield) or 14 days (13% yield)
40% taxpayer: 0.1 discount for each week age of the loan part.
Buy at a smaller discount than this rule of thumb and you are buying at an effective premium to face value, buy at a bigger discount than this and you are indeed buying at a discount to face value.
Always find your posts useful. Just to make sure I understand, in example 1 with a 1% discount you want to buy loans that have been live for 150 days or less. If you are a non taxpayer or the funds are held in an IFISA what is the implication here? If I have completely misunderstood I would still like to know!
|
|
|
|
Post by mrclondon on Feb 18, 2019 18:23:41 GMT
Apologies for persisting on this subject today, these are the last words from me for now.
For most people buying on the SM the useful rule of thumb is that for an effective face value of par the discount needed is
20% taxpayer: 0.1 discount for every 15 days age of the loan part (12% yield) or 14 days (13% yield)
40% taxpayer: 0.1 discount for each week age of the loan part.
Buy at a smaller discount than this rule of thumb and you are buying at an effective premium to face value, buy at a bigger discount than this and you are indeed buying at a discount to face value.
Always find your posts useful. Just to make sure I understand, in example 1 with a 1% discount you want to buy loans that have been live for 150 days or less. If you are a non taxpayer or the funds are held in an IFISA what is the implication here? If I have completely misunderstood I would still like to know! Non tax-payer / ISA is simple - the return from the point of purchase to the expected maturity date is as per the effective rate column on the FS website. Or put another way the stated discount is the actual discount as there is no correction needed for tax.
Your example is spot on, if as a 20% tax payer you buy a 12% loan on the SM at a 1% discount at less than 150 days active you will be buying at an effective discount to face value.
This is one of the reasons the new 12 month loans on the PM are slow to fill, the max discount currently allowable of 1% is "exhausted" after 5 months for basic rate tax payers.
|
|
