debeast
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Post by debeast on Jan 18, 2015 17:44:18 GMT
Hi All, I'm at the limit of my free capital to invest and only reinvest what i have in. I've been toying with the idea of extending my mortgage by x amount and putting that into the P2P market. A 4yr fix will set me back about 2.5% and i'll be able to lend it at much higher rates. If i diversify accross platforms/Loans etc . It should be safe(ish) Interested in others opinions on whether i've thought through the risks enough  Or indeed if anyone else has done this! Cheers /beastie |
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Post by Deleted on Jan 18, 2015 17:58:54 GMT
All p2p lending is currently done outside of tax wrappers/ISA, and therefore interest will be subject to tax.
Therefore, if the cost of capital is 2.5%, you would need to earn at least 4.3% before tax, if you are taxable at 40% (+2% for NI), to earn the same rate.
If you only get 6% from a P2P investment, your actual net interest is only around 1%.
Is it worth the risk?
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debeast
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Post by debeast on Jan 18, 2015 18:32:32 GMT
Thanks . Must never forget about that tax man!! 1% on for example 50k = £500 a year But on a 12% loan (therefore 7%) = £3,500 a year Of course all compounded if reinvested. But you are also correct nasty tax man. Will look better when ISA's are available Thanks Any others have thoughts? /beastie |
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Post by Deleted on Jan 18, 2015 18:54:20 GMT
On a 12% loan, the net interest rate would be:
(12 x 0.58) - 2.50 = 4.46%
(I think you forgot to consider the cost of capital, 2.5%)
4.46% net interest is not a bad rate, but based on an assumed 12% return on P2P loans, which is risky and may not be achievable.
I have an offset mortgage at pretty much the same rate, so I have considered the option too of taking out some of the savings offsetting the mortgage, for a better return. However, my position so far is that I can fairly easily get bonds inside of an ISA (tax free) with yield of 5% or more, and with probably lower risks than P2P lending.
P2P lending will indeed look much better inside of an ISA. However, very little details on when and how it will happen. They may only vet a few companies, with the lowest returns (e.g. zopa).
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Post by davee39 on Jan 18, 2015 19:13:37 GMT
Interest rate arbitrage. Excellent.
It works because of the cheap money from Funding for Lending and Savers stuck on 0.1%. I assume this is mainly a rip off of the less astute elderly.
I have only done this via borrowing on interest free credit cards.
Some mortgage deals may be less attractive once fees are taken into account, but it is worthy of consideration, and rather better than borrowing for lending on the stock market
I assume of course that you are looking at the 6% return from Ratesetter, and not the 12%+ on much riskier property offerings.
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Post by uncletone on Jan 18, 2015 19:30:45 GMT
::cough:: Might I ask where the cutoff point was at which I became less astute?
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debeast
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Post by debeast on Jan 18, 2015 19:41:50 GMT
Thank you both If going for ratesetter that would indeed be 1% after everything. I can add more into pension meaning i push myself into the 20% tax bracket. Equaling about 2.18% 'free cash' (if i've calced it correctly this time) or about £1,090 for a 50k investment. Still not amazing but free... /beastie |
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debeast
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Post by debeast on Jan 18, 2015 19:43:49 GMT
::cough:: Might I ask where the cutoff point was at which I became less astute? >30 :-P
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Post by uncletone on Jan 18, 2015 20:28:06 GMT
Reassuring that my three kids are well inside the same category as me then.... 
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Investor
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Post by Investor on Jan 18, 2015 20:42:48 GMT
And not to forget that to get the net 6% at RS would mean being in 5 year term only. If your mortgage is 4yr fix you would be at the mercy of the prevailing BoE base rate for that last year or end up cashing in RS after 4 years losing all, if not more of the gain.
Of course with a non-working, tax efficient partner the sums stack up very favourably ;-)
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mikes1531
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Post by mikes1531 on Jan 18, 2015 20:46:30 GMT
On a 12% loan, the net interest rate would be: (12 x 0.58) - 2.50 = 4.46% @sebtomato: Since NI is not payable on interest income, shouldn't it be... (12 x 0.6) - 2.50 = 4.7% ?? Or is there something I don't understand correctly? debeast: As implied by davee39, you need to check the Ts&Cs of the 2.5% offer carefully, as it's likely that there will be set-up fees for the new arrangement.
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Post by davee39 on Jan 18, 2015 23:28:59 GMT
::cough:: Might I ask where the cutoff point was at which I became less astute? Oops, clearly adrift with the punctuation. Hate to upset my favourite uncle. Since only the over 65's can buy the highly popular pensioner bonds (and many have) I was thinking of a relative, not super rich, with funds on instant access at 0.05% who refuses to move them to a fixed rate account (a slightly better 1.5% for 12 months).
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Post by Deleted on Jan 19, 2015 6:34:45 GMT
Sorry, I didn't know the 2% NI contribution didn't apply to interest income.
I have always assumed that any additional marginal income would be taxed at 42%.
All my savings are currently in an ISA or in an account linked to an offset mortgage, so I don't declare interest gains.
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Post by 4thway on Jan 19, 2015 14:31:31 GMT
I hate to be a party pooper, but I wouldn't borrow to lend.
If you're saying you'll make maybe 1% after everything, you're effectively saying 1% interest is high enough of a return for the risks you're taking. The risks in P2P deserve better rates than 1%.
And the risks are higher than just investing spare cash in P2P for 1% interest, because you're borrowing to do so.
I wouldn't do it. Even though I do think RateSetter is very low risk indeed. But that's just my opinion.
One measly percent.
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debeast
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Post by debeast on Jan 19, 2015 21:05:12 GMT
Yeah 1% is not worth it  Guess i'll have to wait until as ISA arrives then have a look again. /beastie |
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