Rolling loan matching at 6.5% in a 2.9% market?

Aug 2, 2019 9:27:45 GMT robski said:

Honestly I struggle to see the point in rolling now

It locks your capital to a loan just like 1/5 year now, when it didn't, and you could set all your capital to go back to holding then it made sense.
Now it just seems to be a way to get a lower rate on your tied capital. If there is any kind of run on RS then your going to be just as locked into rolling as 5 year, fee or not.

With there being at least a 2% difference between rolling and 5 year then even with the fee it makes sense to stick it in 5 year to me.
You may say, ah but I may need the capital before it would repay, to which I would counter you should probably not be using RS anyway.
The only point it would seem to make sense to go to rolling is if the fee of 1.5% is around the same as the difference in rates

I think the highlighted passage is misleading. I would say that the expected fee should be less than the extra interest not the rate. So that if money expected to be required in 6 months, the rate difference would need to be > twice the fee rate.

PS sorry, couldn't turn off BOLD!

Aug 2, 2019 10:14:29 GMT robski said:

Aug 2, 2019 9:35:58 GMT propman said:

I would go back to no one should be investing in that market now (previously it was much less risky) if they require money in 6 months. If (some would say when) there is a liquidity crisis in RS everyone could be locked into loans until they repay/default/reduce etc.

I am really talking people here who are holding, will not specifically require the capital to have liquidity, and as such I think an annual rate difference of around the 1.5% seems to be a good balance on risk vs fees.

I guess my point is that the liquidity risk went up significantly when the rules changed in "rolling", yet the interest return did not reflect that. Considering the same loans (basically) seem to end up on both markets then there would seem to be too high a differential in interest rates after considering the 1.5% to make the rolling market a good one.

I don't disagree with you and was careless in using the word "need". I would say that where some people have alternate sources of funds or only require for non-essential purposes (ie would "like" rather than "need"), but would rather utilise funds allocated to P2P, then they may wish to use this product. There is a second question on what is an acceptable Risk Adjusted Rate. Just becaose someone accesses that 4.5% is there acceptable return on this market doesn't invalidate the market merely because for the majority of the time this is unobtainable. There is a second question over whether the majority of participants are under assessing the appropriate risk premium (which I believe theyy are).

When RS changed the way the market functioned, I am not convinced that this increased the appropriate risk premium. It was always the case that you would be locked into the full loan if there was insufficient liquidity in the market. I would say that them recognising this by making it a requirement to withdraw could be seen as greater transparency. The only added issue is that you can nolonger choose the loans to withdraw from. There is also a big plus for rate tarts like myself in that you get to keep any good rates achieved rather than being forced back to relending after a month (max) and therefore getting minimum absolute return from the higher rates and that chasing the higher rates would usually mean any extra return was cancelled by cash drag. Inteerstingly this aspect seems to run contra to the other changes which seem to be aimed at making it harder to benefit from being choosy over the rates accepted!