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Post by davefoz on Oct 5, 2022 7:40:34 GMT
Big fan of SOMO - however we are seeing and are likely to see reduced in liquidity, as interest rates in play & offered, become less attractive when held in comparison to FSCS backed rates increase.
A huge frustration on my part is SOMO never seem to impose the default rate of interest, unless legal action is undertaken. In simple terms SOMO do not deliver the rates and loan term advertised.
Surely it’s time they imposed say an automatic 1.2% increase in rate from end date, with a further 1.2% increase in 1 month later moving to full default rate thereafter. This would have a two fold effect of incentivising borrowers to redeem on time, and incentivising lenders to buy near term loan parts, as the rate will soon become premium.
Without such intervention I fear the platform is really going to struggle to manage the transition from operating in a market with near zero base rates to rates normalised 4-5%.
Without a functioning secondary market, the primary market will becomes less attractive as the security of investments starts to come into question.
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billt
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Post by billt on Oct 5, 2022 9:00:26 GMT
Serious concerns for me 3 overdue loans from 2018 and 4 overdue loans from 2019 £ 11,000 in outstanding/rolled interest
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iRobot
Member of DD Central
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Post by iRobot on Oct 5, 2022 10:20:29 GMT
Big fan of SOMO - however we are seeing and are likely to see reduced in liquidity, as interest rates in play & offered, become less attractive when held in comparison to FSCS backed rates increase. A huge frustration on my part is SOMO never seem to impose the default rate of interest, unless legal action is undertaken. In simple terms SOMO do not deliver the rates and loan term advertised. Surely it’s time they imposed say an automatic 1.2% increase in rate from end date, with a further 1.2% increase in 1 month later moving to full default rate thereafter. This would have a two fold effect of incentivising borrowers to redeem on time, and incentivising lenders to buy near term loan parts, as the rate will soon become premium. Without such intervention I fear the platform is really going to struggle to manage the transition from operating in a market with near zero rate base rates to normalised 4-5%. Without a functioning secondary market, the primary market will becomes less attractive as the security of investments starts to come into question. TheBridgeCrowd / SoMo never intended to have an SM. AIUI, the vast majority of their investors still don't use it. When it was launched back in March 2017 it was done so reluctantly as it was feared it would increase administration and, therefore, reduce returns to Lenders. The comms accompanying the (formal) Apr '17 launch stated: " After much deliberation, consultation with you and consideration we have launched the Secondary Market" - they had 'deliberated' (or resisted, imo) for well over a year. Those same comms also included: " should you need it urgently" and the SM mechanism includes the ability to add a discount (to loans that are eligible for the SM) in order to secure that 'urgency'. It seems to me that the discount can equally add an incentive to lenders to buy near term loans. I've said it before, but I'm personally not in favour of Platforms offering mechanisms that allow - and actually encourage - loan 'flipping'. Every investor should enter all loans knowing they will have to hold to term and possibly beyond. On that basis, every loan would fill on its merits - not because Lenders invest blindly in the hope / expectation they'll not have to concern themselves with the viability of the investment as they 'should' be able to sell on an SM before loan-term risk becomes an issue. I'll accept that an SM may be necessary for an Investor to release capital urgently and, should that be a necessity, then all interest received to date should be clawed back and passed over the buying party on the transaction. Now, that would be an incentive for Lenders to participate in 'near term loan parts' 
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Greenwood2
Member of DD Central
Posts: 4,241
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Post by Greenwood2 on Oct 5, 2022 14:35:13 GMT
Big fan of SOMO - however we are seeing and are likely to see reduced in liquidity, as interest rates in play & offered, become less attractive when held in comparison to FSCS backed rates increase. A huge frustration on my part is SOMO never seem to impose the default rate of interest, unless legal action is undertaken. In simple terms SOMO do not deliver the rates and loan term advertised. Surely it’s time they imposed say an automatic 1.2% increase in rate from end date, with a further 1.2% increase in 1 month later moving to full default rate thereafter. This would have a two fold effect of incentivising borrowers to redeem on time, and incentivising lenders to buy near term loan parts, as the rate will soon become premium. Without such intervention I fear the platform is really going to struggle to manage the transition from operating in a market with near zero rate base rates to normalised 4-5%. Without a functioning secondary market, the primary market will becomes less attractive as the security of investments starts to come into question. TheBridgeCrowd / SoMo never intended to have an SM. AIUI, the vast majority of their investors still don't use it. When it was launched back in March 2017 it was done so reluctantly as it was feared it would increase administration and, therefore, reduce returns to Lenders. The comms accompanying the (formal) Apr '17 launch stated: " After much deliberation, consultation with you and consideration we have launched the Secondary Market" - they had 'deliberated' (or resisted, imo) for well over a year. Those same comms also included: " should you need it urgently" and the SM mechanism includes the ability to add a discount (to loans that are eligible for the SM) in order to secure that 'urgency'.It seems to me that the discount can equally add an incentive to lenders to buy near term loans.I've said it before, but I'm personally not in favour of Platforms offering mechanisms that allow - and actually encourage - loan 'flipping'. Every investor should enter all loans knowing they will have to hold to term and possibly beyond. On that basis, every loan would fill on its merits - not because Lenders invest blindly in the hope / expectation they'll not have to concern themselves with the viability of the investment as they 'should' be able to sell on an SM before loan-term risk becomes an issue. I'll accept that an SM may be necessary for an Investor to release capital urgently and, should that be a necessity, then all interest received to date should be clawed back and passed over the buying party on the transaction. Now, that would be an incentive for Lenders to participate in 'near term loan parts' Someone was listening, 2% discount on several lots of one loan on the SM with 35 days left.
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iRobot
Member of DD Central
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Post by iRobot on Oct 6, 2022 16:40:56 GMT
Someone was listening, 2% discount on several lots of one loan on the SM with 35 days left. And seems to have worked. All seven loan parts with the 2% discounted have gone leaving the one which wasn't discounted. (Although they could have been withdrawn, I suppose.)
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Greenwood2
Member of DD Central
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Post by Greenwood2 on Oct 6, 2022 16:55:07 GMT
Someone was listening, 2% discount on several lots of one loan on the SM with 35 days left. And seems to have worked. All seven loan parts with the 2% discounted have gone leaving the one which wasn't discounted. (Although they could have been withdrawn, I suppose.) Did seem worth the risk £100 in pocket and should pay back quickly (and if not should be OK). Always happens when I have no funds! Although I've only seen loans at a discount once before.
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aj
Member of DD Central
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Post by aj on Oct 12, 2022 8:19:24 GMT
Back on the original topic, It seems to be up to Somo when they decide to impose 'penalty' interest. I've had loans where it happens quite quickly and others where it drags on and on at the standard rate. From past updates I think their discretion in choosing where to apply it might be a useful tool, my gut tells me a cooperating overdue borrower gets a longer cheap rate than a combative one.
As for increasing rates, we will undoubtedly see this come through in the form of better rates on the primary market. Loans bought a year ago will be trickier to sell, but as long as repayments keep on coming* it shouldn't disrupt the platform much.
*I'm of the opinion there will be a fall in house prices over the next 12-24 months; by how much is still to be seen.
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Greenwood2
Member of DD Central
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Post by Greenwood2 on Oct 13, 2022 15:25:52 GMT
More loans at a discount on the SM today.
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michaelc
Member of DD Central
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Post by michaelc on Oct 13, 2022 17:54:55 GMT
More loans at a discount on the SM today. Does that imply difficulties selling at par ?
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Post by Ace on Oct 13, 2022 18:01:37 GMT
More loans at a discount on the SM today. Does that imply difficulties selling at par ? I think it's just people trying to ensure that it's their loans that get sold ahead of the others on offer. 1% discount is a fairly small price to pay for early access to one's cash.
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michaelc
Member of DD Central
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Post by michaelc on Oct 13, 2022 19:00:28 GMT
Does that imply difficulties selling at par ? I think it's just people trying to ensure that it's their loans that get sold ahead of the others on offer. 1% discount is a fairly small price to pay for early access to one's cash. Oh yes just logged in for the first time in a while. Lets hope the SM shrinks soon...
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Greenwood2
Member of DD Central
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Post by Greenwood2 on Oct 14, 2022 8:21:11 GMT
Plenty of choice for buyers at the minute, not so good for sellers.   |
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Post by davefoz on Oct 14, 2022 9:08:26 GMT
More loans at a discount on the SM today. Does that imply difficulties selling at par ? For me yes … we have an unprecedented number of loans available on the secondary market. Some might take a view on 2nd charges, however presently you can’t sell a sub 60% LTV 1st charge with over 100 days left returning 7.8%. Therefore I personally wouldn’t buy anything below 8%. The other concern is loans to value. Hitherto SOMO has operated in a rising housing market. A 10 / 20% correction, could see borrowers handing over the keys rather than being able to sell. Add to that the real terms reduction in interest rates *, and the platform faces a real challenge. (* As I type - presently I can invest in an instant access account at 2.75% or 1 yr fix at 4.45% FCSS protected - 6 months ago 7.2% vs 1% for a 1yr fix was attractive, now one has to question wether a 2.75% premium to a 1yr bond is worth the risk ?) For me SOMO needs to get a grip of the loan terms and enforce them. Those redemptions will create liquidity and stimulate the secondary market. Too many loans are allowed to drift.
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nick
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Post by nick on Oct 14, 2022 9:17:06 GMT
Given that 2yr gilts have more than doubled in the past 2 months I'm surprised that there hasn't been much more selling on secondary markets. On a pure fair value basis, most loans are worth well below par and that's before factoring increased credit risk due to falling security values and higher risk of refinancing failures.
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Greenwood2
Member of DD Central
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Post by Greenwood2 on Oct 14, 2022 15:06:14 GMT
Does that imply difficulties selling at par ? For me yes … we have an unprecedented number of loans available on the secondary market. Some might take a view on 2nd charges, however presently you can’t sell a sub 60% LTV 1st charge with over 100 days left returning 7.8%. Therefore I personally wouldn’t buy anything below 8%. The other concern is loans to value. Hitherto SOMO has operated in a rising housing market. A 10 / 20% correction, could see borrowers handing over the keys rather than being able to sell. Add to that the real terms reduction in interest rates *, and the platform faces a real challenge. (* As I type - presently I can invest in an instant access account at 2.75% or 1 yr fix at 4.45% FCSS protected - 6 months ago 7.2% vs 1% for a 1yr fix was attractive, now one has to question wether a 2.75% premium to a 1yr bond is worth the risk ?) For me SOMO needs to get a grip of the loan terms and enforce them. Those redemptions will create liquidity and stimulate the secondary market. Too many loans are allowed to drift. There are plenty of loans on the PM and SM over 8% currently and there is still one on the SM at 9% with a 1% discount. There is no guarantee of a willing buyer on the SM on any platform, always assume you may have to hold to the end. To stay invested shorter term loans available on the SM may be a better choice than longer loans on the PM until the markets settle, but who knows. Somo did say a while ago that rates are likely to rise and it may be more difficult to sell on the SM not that there is anything you can do about that, apart from offering a discount.
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