hendragon
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Post by hendragon on Jan 18, 2015 12:30:39 GMT
e-money union sent me an e-mail this week about a new type of loan, called an offset pension loan. At first sight this seems to be a dubious path for p2p to be taking. Opinions would be welcome. In addition I would like to post the e-mail here, however I am unsure if I can legitimately do so. (mods could you please advise?)
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am
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Post by am on Jan 18, 2015 15:06:01 GMT
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hendragon
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Post by hendragon on Jan 18, 2015 15:49:33 GMT
the e-mail as follows:-
We have an attractive new loan opportunity live on the platform. We are continually being approached by asset rich, cash poor borrowers and this applicant is no exception. The borrower has been referred to us by a Professional Financial Adviser who is known to us.
What's different? The borrowers have offered as security the proceeds of their own self invested private pension (SIPP). The borrower is a tenant, so do not own their own home and the pension fund is their main asset. Whilst we are unable to take a Legal Charge over the pension, we can comfortably assess the ability to service and repay the loan, bearing in mind the new pension freedoms due to come into effect April 2015. I have decided to call this unique product the Offset Pension Loan.
The pension fund valuation for this loan has been verified by the fund managers at £365,000 and we have confirmation that this pension can be cashed in any time after February 2016. The pension is also structured as low risk, pending drawdown position to prevent capital value loss.
The gross loan is for £17,870 repayable over 5 years. The eMoneyUnion Peer to Peer loan agreement will recognise the existence of the SIPP and the commitment of the borrower to repay the loan from their assets once the SIPP is realised. We have made it a requirement that an "expression of wish" document is completed and retained by the Pension Scheme Administrators so the loan is repaid in full from the scheme in the event of the borrower's death before or when the pension is cashed in.
Why are they coming to us you may ask? The borrower has had a number of financial issues in the past so has been declined by the mainstream, so we have been approached by the IFA as a common sense alternative.
This loan will get the borrower back on track, redeeming other unaffordable credit and allow them to ease themselves into retirement, therefore creating a positive financial outcome for the borrower whilst paying an attractive yield to the lenders.
We have introduced the Risk Grade P1 paying a yield of 12% p.a. As this is a new risk grade, no eBidPal settings are active; you can however bid on this 1st loan via the eMarketPlace and will need to set your eBidPal levels for automatic lending on this Risk Grade going forward.
P1 loans will only be offered between 2 and 5 years and will qualify for eProvision fund cover..........................
There is something about this that strikes me as fundamentaly flawed. Any thoughts welcome
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pikestaff
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Post by pikestaff on Jan 18, 2015 17:29:37 GMT
It's easy to see how this kind of product could be abused /mis-sold. The pension reforms will let people blow their pension fund on a Lamborghini as soon as they are 55. Why wait until 55? Buy that Lambo today!! In this particular case, however, it looks as if the proposal may be a sensible solution for the borrower, who would be using a small part of their pension fund to secure a loan to replace other unaffordable credit. As far as I can see the loan will be amortising so if all goes well they won't have to dip in to their pension to repay it, but it would not be a disaster for them if they did. Just as long as they don't make a habit of it and run up more bills to be repaid in the same way  From a lender perspective I'd worry about enforceability. If push came to shove, could the borrower be forced to cash in pension to repay the loan or would the court take a dim view? If the borrower died while the loan was outstanding would the trustees of the pension fund be happy to honour the wish form? Arguably these risks are in the price. 12% is extremely steep for a loan secured on good quality assets with a very low LTV. |
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Post by yorkshireman on Jan 18, 2015 19:35:21 GMT
Apart from the "expression of wish" document I don’t see this as differing from the personal “guarantees” which have proved to be worth sweet FA in many cases on other P2P platforms.
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hendragon
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Post by hendragon on Jan 18, 2015 19:37:42 GMT
afaik an expression of wish document is not legally binding
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Post by yorkshireman on Jan 18, 2015 19:41:18 GMT
afaik an expression of wish document is not legally binding QED, don’t touch this type of loan with a bargepole!!
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pikestaff
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Post by pikestaff on Jan 19, 2015 9:45:43 GMT
afaik an expression of wish document is not legally binding The reason it's not legally binding is to keep the pension funds outside the beneficiary's estate for tax purposes. This is usually a technicality and it would be very unusual for the trustees to disregard a beneficiary's wishes. The issue here is that it's a very unusual request. The trustees won't have seen one before so there must be a slight risk that they find it objectionable and decide to distribute the funds to someone else (eg the borrower's spouse or children). There's no reason in principle why this question could not be asked before the loan is made, but (depending on the scheme) the trustees might charge for this. The best you could expect from the trustees would be something along the lines of "without fettering our discretion in any way we can confirm that we would not find such a request objectionable". As I read the proposal, the wish form only comes into play if the borrower dies before the loan is repaid. Otherwise the loan will be repaid either from the borrower's general resources or from the proceeds of pension drawdown. My bigger concern is whether the borrower's commitment to draw down his pension can be enforced. Re yorkshireman's bargepole, well it's all in the price. If the borrower could give good security over the assets in the pension fund he would be able to borrow much more cheaply from a mainstream lender. I tend to the view that 12% is generous and if I was in emoneyunion I might venture a small amount. But only a small amount because I don't really know!
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