Knowing when to stop?

Hi pom,

I think it's important to distinguish what type of P2P lending you are considering.

There is asset secured P2P lending.
There is unsecured P2P lending.
There is P2P lending with a provision fund.
There is equity based P2P lending.
There is startup equity based P2P lending.
There's even P2P lending which isn't P2P lending.

I think they are all very different and have very different risk profiles.

About 50% of my savings are in asset secured P2P lending. (other P2P about 10%), (cash 5%), (Index-linked bonds 10%), (funds 20%), (alternative Investments 5%).

I started 14 months ago, and had no intention of investing more than 10% in P2P. I didn't suffer a default for months, so kept going! Now I have taken a hit I'm more cautious. Be prepared to expect the unexpected. I thought assets valued at 40% LTV would be safe, but that was a dangerous assumption.

Which funds are those? I don't know of any that fit the description so I'm wondering if there's something I'm missing that could be interesting.

Just curious if you don't mind sharing. What happened with the default on the 40% LTV loan? I also would've assumed that was a safe bet!

Having noticed that most investors, on all of the platforms which I invest in, seem to be pretty flush with money, I am wondering if I am stark raving mad!  I am 81, single, own my bungalow valued at around 180k, have an income of around 9.5k and savings of around 18k in other words I am as poor as a church mouse.

I have all of my savings, apart from a 1 year monthly saver in which I save £200/month at 4%, invested in four P2P platforms and have a total of 23 loan parts.  So far I have had no losses but have earned worthwhile interest from SS which is the platform I have been using for a couple of years.

I guess the answer to the original question is - "depends on your age, family, dependents, how cautious you are, whether you are prepared to loose everything and whether you are prone to worry"  Even after getting professional advice and doing your own DD (I have done neither) only you can make the final decisions regarding your financial affairs.  

With respect, I wouldn't describe someone with around £200k in assets as being as poor as a church mouse. Your limited income seems to be mainly because you've chosen to tie up most of your money in a property and also to have chosen not to make that money available to yourself using equity release, downsizing, relocating to a cheaper area, renting or something else. There are parts of the UK where you can buy a terraced two bedroom house for less than £50,000 and bungalows start at about £35,000 if you exclude park homes and caravans.

In essence, I think that you have a key choice to make: do you want to have limited income or do you want to use the money in the property to improve your income position?

Last week I invested a few thousand Pounds at 14% raw rate, almost 15% annualised rate, for five months via Ablrate. They typically expect to be offering 10-12% in the loans they put together. That and other P2P can exceed the cost of the interest on an equity release mortgage. Not without risk, but it can be a viable way to help to boost your income with the possibility, not guaranteed, that your actual wealth won't decline. And if it does decline, have you actually lost anything compared to your more restricted income situation now, if you were taking income from the invested money?

Around 20% of 65 year-olds in normal health are expected to make it to age 92 or older. At 81 if your health is still OK your odds are better than that. Even so, £180,000 in a property over say 20 years is another £9,000 a year of potentially available income, if all was available via equity release. Perhaps £5,000-£10,000 if realistic equity release level combined with higher interest investments was used.

Given your age, if you haven't done it already, you can defer your state pension and have it increase by 10.4% inflation-linked for life. Say you decided that deferring to increase your state pension by five years worth, a 52% increase, looked like some nice extra secure income. And that yes please, you'd like that higher income to start immediately, not wait five years for it, but you're comfortable with it not increasing with inflation until the end. What you could do is start the equity release type that allows gradual drawing and pay yourself "income" out of the capital of 1.52 times your current state pension. And start deferring your state pension. Five years later you can resume your state pension and start getting the higher income from that. If you want you can use the higher income above the 52% to repay the interest and borrowing, but why, if you don't care about inheritance, or don't mind it not being 100% of the starting value of the property?

Or instead of drawing gradually you could draw all five years and invest the later four years in P2P with a range of terms, to match the years when you need the money. This way your P2P income would quite probably be enough to pay much of the equity release interest, though probably not all of it. At the start all of it, but since you're gradually spending it to live on while deferring, towards the end there would be much less than the full amount invested.

In both of these approaches there would be some capital borrowed after five years. Really up to you to decide what to do with that. If you want to reduce it you could say use the inflation-linked increases in your new, higher state pension to start doing it. Initially it wouldn't cover all of the interest but gradually over time it would become enough to pay the interest and reduce the amount borrowed.

The nice thing about this state pension deferral is that it' s effectively guaranteed by the government, so you can be sure you're going to get it. Not even P2P risk.

By "income" here I mean primary intention of investment interest or higher state pension but also potentially drawing on capital gradually if that's what it takes to boost your spendable money to a more desirable level.

23 loans is not really a lot numerically , I roughly estimate if 'life' were to conspire against you that about 4 of them may become compromised. You can do the sums to estimate what the outcome would be. You probably will not get much notice that an individual loan is going sour. And then you will have to watch as the sorting out process rolls along , it takes a long time to achieve some recovery of funds , I got about 50% from FC over some years and I think that I have been lucky. I quite like p2p lending and I am increasing mine but there is a lot of change going on and its very hard to quantify the risk , whatever we mean by that.

Its possible that you will do well in 50 years when the artist turns out to be the next flavour of the month that nobody wanted when he was alive but everyone wants when he is dead.

It does bring it home to you that the value of assets sometimes has an error attached that is considerable. I believe that residential property can have its complications if it becomes delapidated and the unpaid interest blooms or there is some more complicated legal charge structure.  I dont know a great deal about the pitfalls being new to the game but I am keen to learn.