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Post by peer2fear on Feb 12, 2020 15:31:04 GMT
I foolishly believed LW was one of my 'safer' P2P investments as I had been enjoying the ~6.5% returns for a fair while until the recent changes. After reading several threads and correspondence I have to admit I'm still confused. I received £7 in interest on a ~£5k investment in Jan 20 and I'm honestly thinking about exiting (or at least reducing) but I'm struggling to understand what the actual fees in % terms would be. Would someone be able to help me approximate? Currently the only thing I understand is that I will get a guaranteed 0.5% selling fee which I'm fine with but I want to know what other fees there might be?
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Post by Ace on Feb 12, 2020 15:38:35 GMT
I foolishly believed LW was one of my 'safer' P2P investments as I had been enjoying the ~6.5% returns for a fair while until the recent changes. After reading several threads and correspondence I have to admit I'm still confused. I received £7 in interest on a ~£5k investment in Jan 20 and I'm honestly thinking about exiting (or at least reducing) but I'm struggling to understand what the actual fees in % terms would be. Would someone be able to help me approximate? Currently the only thing I understand is that I will get a guaranteed 0.5% selling fee which I'm fine with but I want to know what other fees there might be? If you go through the withdrawal process on the platform you can see what you would be charged before pressing the final confirmation button.
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Ukmikk
Member of DD Central
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Post by Ukmikk on Feb 12, 2020 15:52:57 GMT
I foolishly believed LW was one of my 'safer' P2P investments as I had been enjoying the ~6.5% returns for a fair while until the recent changes. After reading several threads and correspondence I have to admit I'm still confused. I received £7 in interest on a ~£5k investment in Jan 20 and I'm honestly thinking about exiting (or at least reducing) but I'm struggling to understand what the actual fees in % terms would be. Would someone be able to help me approximate? Currently the only thing I understand is that I will get a guaranteed 0.5% selling fee which I'm fine with but I want to know what other fees there might be? If you go through the withdrawal process on the platform you can see what you would be charged before pressing the final confirmation button. Make sure you're sitting down when you do.
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benaj
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Post by benaj on Feb 12, 2020 16:25:36 GMT
The Quick Withdraw fee (for selling loans) is 0.5%. The other fee investors ( may) have to pay is the interest shortfall penalty. Since most of the pre-2020 loans have lower performance than actual 5.4% p.a return, the interest shortfall penalty is not 0! The cheapest I seen is 0.8% for selling a loan chunk, selling 2017 loan chunks would be expensive right now. Ace reported interest shortfall penalty for selling the lot is 6.5%. Say if Lending Works decides to reduce rate to 4% in 6 months time, the interest shortfall penalty could be a lot less. On the other hand, if Lending Works decides to raise the rate for new loans, the interest shortfall penalty would be more expensive.....  |
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Post by peer2fear on Feb 12, 2020 16:54:38 GMT
I foolishly believed LW was one of my 'safer' P2P investments as I had been enjoying the ~6.5% returns for a fair while until the recent changes. After reading several threads and correspondence I have to admit I'm still confused. I received £7 in interest on a ~£5k investment in Jan 20 and I'm honestly thinking about exiting (or at least reducing) but I'm struggling to understand what the actual fees in % terms would be. Would someone be able to help me approximate? Currently the only thing I understand is that I will get a guaranteed 0.5% selling fee which I'm fine with but I want to know what other fees there might be? If you go through the withdrawal process on the platform you can see what you would be charged before pressing the final confirmation button. Thanks for that. Bloody hell okay it's a lot worse than I expected (but tell me if this looks in the right ballpark): Available to sell - £4427.86 Transaction fee - £22.13 Interest shortfall discount - £156.38 Total fees - £178.51 So I make that 3.5% for the interest shortfall discount + 0.5% transaction fees = 4% overall i.e. not far off a year's interest. What a disgrace.
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Post by carol167 on Feb 12, 2020 16:59:56 GMT
If you go through the withdrawal process on the platform you can see what you would be charged before pressing the final confirmation button. Thanks for that. Bloody hell okay it's a lot worse than I expected (but tell me if this looks in the right ballpark): Available to sell - £4427.86 Transaction fee - £22.13 Interest shortfall discount - £156.38 Total fees - £178.51 So I make that 3.5% for the interest shortfall discount + 0.5% transaction fees = 4% overall i.e. not far off a year's interest. What a disgrace. You're lucky. I got stung for 5.8% + 0.5% which amounted to a loss of over £3,400.
But of course LW didn't tell us that was going to happen when we had the chance to cash out in December for minimal costs.
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Post by peer2fear on Feb 12, 2020 17:00:29 GMT
Okay so now that that's cleared I guess my next question is what next? I'm not sure whether it's wise to exit as I'm currently drawing down on my investment (albeit at about £30/week) so it's going to take a while to get it all out. At the same time, I only received £7 in interest in January so if that's going to carry on then is it wise to just take the hit and exit?
I have to say I thought I was fairly clued up on P2P but I'm finding the changes on this platform to just be totally impossible to understand. Apologies, I'm sure this has been covered before but I thought I was lending at 6.5%?! So how can there be an interest shortfall discount when they reduced the rates in Dec 19? Surely I should be paid a premium for my loan parts since the rates are now 5.4% for the growth product.
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Post by Ace on Feb 12, 2020 17:01:26 GMT
If you go through the withdrawal process on the platform you can see what you would be charged before pressing the final confirmation button. Thanks for that. Bloody hell okay it's a lot worse than I expected (but tell me if this looks in the right ballpark): Available to sell - £4427.86 Transaction fee - £22.13 Interest shortfall discount - £156.38 Total fees - £178.51 So I make that 3.5% for the interest shortfall discount + 0.5% transaction fees = 4% overall i.e. not far off a year's interest. What a disgrace. Yep, looks about right, much better than mine. I found that selling a smaller amount can reduce the percentage fee. I assume they sell the lowest fee loans first. Though that probably means you're left with a higher percentage of troublesome loans.
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Post by peer2fear on Feb 12, 2020 17:03:23 GMT
Thanks for that. Bloody hell okay it's a lot worse than I expected (but tell me if this looks in the right ballpark): Available to sell - £4427.86 Transaction fee - £22.13 Interest shortfall discount - £156.38 Total fees - £178.51 So I make that 3.5% for the interest shortfall discount + 0.5% transaction fees = 4% overall i.e. not far off a year's interest. What a disgrace. You're lucky. I got stung for 5.8% + 0.5% which amounted to a loss of over £3,400.
But of course LW didn't tell us that was going to happen when we had the chance to cash out in December for minimal costs. I feel for you Carol! This is a platform I had promoted with friends and family previously as I'd had nothing but good experiences with the old product. Does that mean that the interest shortfall discount is constantly fluctuating or is it fairly stable and based on the underlying interest rate of the loans in your portfolio?
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Post by carol167 on Feb 12, 2020 17:04:35 GMT
Okay so now that that's cleared I guess my next question is what next? I'm not sure whether it's wise to exit as I'm currently drawing down on my investment (albeit at about £30/week) so it's going to take a while to get it all out. At the same time, I only received £7 in interest in January so if that's going to carry on then is it wise to just take the hit and exit? I have to say I thought I was fairly clued up on P2P but I'm finding the changes on this platform to just be totally impossible to understand. Apologies, I'm sure this has been covered before but I thought I was lending at 6.5%?! So how can there be an interest shortfall discount when they reduced the rates in Dec 19? Surely I should be paid a premium for my loan parts since the rates are now 5.4% for the growth product.
You seem to be where we were about a week ago - we're all trying to figure it out. We all thought the same....
[Edit : And for the record LW was my favourite platform that I had nothing but praise for until the January interest statements hit us with the reality of what they've done. ]
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Post by peer2fear on Feb 12, 2020 17:05:56 GMT
Thanks for that. Bloody hell okay it's a lot worse than I expected (but tell me if this looks in the right ballpark): Available to sell - £4427.86 Transaction fee - £22.13 Interest shortfall discount - £156.38 Total fees - £178.51 So I make that 3.5% for the interest shortfall discount + 0.5% transaction fees = 4% overall i.e. not far off a year's interest. What a disgrace. Yep, looks about right, much better than mine. I found that selling a smaller amount can reduce the percentage fee. I assume they sell the lowest fee loans first. Though that probably means you're left with a higher percentage of troublesome loans. Great observation! Just put in a trial amount of £2000 and the interest shortfall discount reduced to £35.59 i.e. 1.8%. Good thing to know for those considering an exit/reduction.
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Post by peer2fear on Feb 12, 2020 17:10:05 GMT
Another thought - for those in non-ISA products (like myself) and who are exceeding their personal savings allowance (also myself), would this 'interest shortfall discount' be tax deductable? If not then this is even worse of a s**tshow than I thought...
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squid
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Post by squid on Feb 12, 2020 17:12:48 GMT
I believe the magnitude of this situation is becoming apparent..
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squid
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Post by squid on Feb 12, 2020 17:23:06 GMT
Anyone else have a quote of over 7.5% to withdraw from loans?
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Post by befuddled on Feb 12, 2020 19:45:15 GMT
Everyone, In fact it's really quite straightforward, below from LW... I don't see how anyone could be confused or disappointed... The brunt of it is, the Shield failed, our interest was reduced by an "arbitrary amount" to fund Shield, therefore I wasn't getting 5.4% as I expected, rather 5.4% minus "arbitrary rate", so the loans I sold were not worth 5.4% to new owner, they were worth 5.4 minus arbitrary rate. I had to re-stock the "arbitrary rate". As LW can dip into this "arbitrary rate" mechanism, and set the rate, whenever they want, effectively we, the investors are their "get out of jail free" card, to be used at any time... So to be attractive to new investors they maintain a headline high rate, and when it becomes unachievable, dip into existing investors interest and capital... "Nice work if you can get it" From LW Further to my email dated 6th February 2020 we have now completed our investigation into your complaint.
Whilst I understand the concern our changes in terms and conditions has given you I am unable to uphold your complaint. The reason for this is
Lending Works is a marketplace where borrowers are approved for loans which are funded by retail investors. In addition to retail investors funding loans directly to borrowers, investors can sell loans to other investors in order to access money which is still on loan. The balance between these three potential groups of customers (i.e. the borrowers, a retail investor making a new investment on the platform, and a retail investor selling loans) is completely interconnected and the funds literally pass from one person in one of those groups to a person in another, via Lending Works’ platform.
We try to make all of our products as simple as possible, as we feel that many financial services can be unnecessarily complex. That said, behind the scenes, there is a great deal of complexity to the way any large-scale peer-to-peer lending platform works. That complexity can be categorised into one of many high-level groups, such as the complexity involved in performing high-quality credit risk management or the financial engineering in terms of the cash flows of a portfolio of loans and all of the functions those loans can perform (such as overpayments, early settlements, missed repayments, repayment arrangements, etc).
Occasionally, due to these complexities, the relationship between people in these different groups can become unbalanced, and we feel it is our responsibility to ensure the balance is restored. As per our announcement at the end of November 2019, an imbalance had occurred, and we had to change our underlying Shield model slightly to be able to restore the balance for the good of all of our approx. 40,000 consumer customers.
In particular, some of the past annual cohorts of loans did not perform as well as originally expected, therefore the Lending Works Shield needed to receive a greater contribution going forward to ensure that it could fulfil its role of spreading the credit risk between all of the investors in any given annual cohort equally. To ensure that the Lending Works Shield can continue to perform this function, we were required to divert some of the interest that the loan portfolio is generating from retail investors to the Shield (before diverting retail investors’ interest we already diverted all of Lending Works’ net interest margin). The level of the contributions will fluctuate over time as the repayment cashflow of the portfolio of loans matures. The most severe impact will be felt in the first half of 2020, then in the future the impact will be less severe so rates on current loans will increase again.
The net result of these points is the interest rate paid to any retail investor will fluctuate from time to time, but the average annualised return we expect investors to receive is the interest rate we display on our website and in your Dashboard.
We appreciate that the interest rate shortfall you were required to pay to sell your loans caused you concern. The reason the interest rate shortfall was higher was due to the short-term fluctuation in interest rates to ensure the shield can continue to fulfil its purpose. I would not waive the interest rate shortfall as there is another person who acquired those loans that you sold, and that person must be compensated for the loans that they are acquiring to ensure they receive the expected interest rate that is advertised at the time they make their investment.
In terms of your Quick Withdrawal, your fee would have been 0.5% and the balance would have been interest shortfall that was paid to the investor who purchased your loans. I have attached your loan terms and conditions you would have seen when you invested on Lending Works platform which provides further information on the way Quick Withdrawal works. (please note the Quick Withdrawal fee was reduced from 0.6% to 0.5% recently)
I acknowledge the issues this situation has caused you but taking into account my comments above, I am sorry that we are unable to any refund of your Quick Withdrawal fees.
Please note that, under terms of our Complaints Procedure, this is our final response. If you are dissatisfied with this response you may refer your complaint to the Financial Ombudsman Service. You need to do this within six months of the date of this letter. For more information please read the enclosed guide ‘Your Complaint and the Ombudsman www.financial-ombudsman.org.uk/publications/ordering-leaflet/leaflet (we are happy to send a paper copy upon request)
The address of the Financial Ombudsman Service is:
Financial Ombudsman Service
Exchange Tower
London E14 9SR
Yours sincerely,
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