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Post by ablrateandy on Jun 11, 2015 11:12:40 GMT
It's a theoretical at the moment but the answer would likely be "No" or "You would have to make all interest payments up front to do so".
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james
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Post by james on Jun 11, 2015 15:49:16 GMT
Or at least enough interest so that yield for all periods until call = original yield to maturity.
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Post by meledor on Jun 13, 2015 20:51:54 GMT
Sorry - I switched models halfway through and changed the rate and was rounding the pounds just to add to confusion. Exact flow would be : £10,000 paid Nominal (ie amortising) rate 9% per year paid monthly (so 0.75% per month) --> £160.89pcm Final payment at month 84 (including last amortisation) --> £760.89 (ie. £600 "Brucey Bonus") ---> 10.439% AER (Note that IRR will work here but XIRR will be a fraction out due to its calculation methodology (it gets 10.425% by my reckoning).
I managed to get time to have another look at this - I appreciate you have probably got your hands full with the new site so there's no urgency, just intrigued by the maths.
I agree with your AER figure of 10.439% (what I refer to IRR - internal rate of return on an annualised basis I believe equates to AER - I'm not referring to Excel functions).
However the monthly equivalent rate for a 10.439% annual rate is 9.97% (the interest rate which applied to the starting principal and the monthly cash profile amortises the loan to zero). So I am confused why your headline rate is so low at 9% - this has the effect of reducing total interest paid by the £600 "Brucey Bonus" and increasing amortisation by this amount - in effect the £10,000 loan is repaid with £600 on top. If this is the intention then the tax aspect, as has been alluded above, would interesting bearing in mind that HMRC would be deprived of tax on the £600 reduced interest.
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Post by ablrateandy on Jun 13, 2015 21:01:22 GMT
Sorry - I am totally submerged in website-shenanigans at the moment but will come back to this with a full justification of the numbers asap! meledor . Thanks for taking a look again! |
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Post by ablrateandy on Jun 13, 2015 22:41:03 GMT
OK. Right. Yes meledor. Your assumption is right... it is effectively a £10,000 amortising loan with a bonus payment at maturity that is pretty much a separate little item of its own. And yes - I am not sure what HMRC will make of it. If I structure it as a kind of reverse cash-back does that help ('a non-interest benefit for owning it at maturity'?!)? Lots of questions for HMRC on Monday! |
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Post by meledor on Jun 14, 2015 9:04:06 GMT
OK. Right. Yes meledor. Your assumption is right... it is effectively a £10,000 amortising loan with a bonus payment at maturity that is pretty much a separate little item of its own. And yes - I am not sure what HMRC will make of it. If I structure it as a kind of reverse cash-back does that help ('a non-interest benefit for owning it at maturity'?!)? Lots of questions for HMRC on Monday!
Best of luck with those questions! But if you are successful then I look forward to loans paying 1% interest with a huge tax free bonus at maturity. 
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Post by ablrateandy on Jun 14, 2015 9:12:33 GMT
In the good old days when I used to do bond syndicate there were a couple of countries where you could buy a discounted note that redeemed at face value (ie pay £35 now and receive £100 at maturity in 7 years). Lots of fund managers and HNW used to do that and file it as "capital appreciation" rather than "interest" or even in some cases claim that there was neither capital appreciation NOR interest! The UK provisions seem pretty clear though under Income Tax (Trading and Other Income) Act 2005 if we issued a pure discount.
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pikestaff
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Post by pikestaff on Jun 28, 2015 8:11:09 GMT
I would like to see some of the platforms be a bit more creative on the cash-flow structures offered. I'm waiting for someone to offer 10-year zeros at 12%, 38 cents on the dollar please! Reduces default PV and some nice convexity properties. The problem is how will HMRC view many of these structures. General view seems to be that all loans are treated as "simple debts" rather than securities. Also how to ensure it's treated as a capital gain rather than income. If it's a "security" then the uplift is brought into income by the rules on deep discount securities (which are the rules that ablrateandy alludes to in his post above). If it's a "simple debt" (which, as you say, seems to be the general view on p2p lending) then those rules will not apply. Instead, HMRC will fall back on the principles here: www.hmrc.gov.uk/manuals/saimmanual/SAIM2240.htm. I think HMRC's view will be that, if the return goes to all lenders, it must be part of the normal commercial return on the loan and therefore will still be taxable as income. The deferral of tax on the income may nevertheless be beneficial if you expect to be paying a lower rate then than you are now.
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rogerbu
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Post by rogerbu on Jun 28, 2015 8:48:13 GMT
Just to pick up the question - 'What do people think about structures that aren't plain vanilla, ie. payments are irregular?'
My biggest concern is that MY repayment stream is no longer calculable by me. AR would need to provide an Excel usable payment schedule.
I already limit my AC exposure as it is so difficult to setup and manage their loans with irregular payment streams.
FC, and some other platforms, provide repayment schedules for all my loans making them easy to manage. AR could be my favorite if they also provide a complete repayment schedule.
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Post by ablrateandy on Jun 28, 2015 9:05:40 GMT
Fair point. At the moment if you go into an individual loan and then to "Repayments" it shows your payments due on that loan. One of the things in plan is to show a combined list of these for people and I can't see a reason why this couldn't be adequately formatted for Excel or an xls download.
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duck
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Post by duck on Jun 28, 2015 9:42:46 GMT
Fair point. At the moment if you go into an individual loan and then to "Repayments" it shows your payments due on that loan. One of the things in plan is to show a combined list of these for people and I can't see a reason why this couldn't be adequately formatted for Excel or an xls download. I actually run my spreadsheets off these repayment schedules (as I do in RS where I have several thousand more loans) and it takes minimal effort .....which is always good.
These schedules work fine for me with one exception, the coloured button doesn't translate when you cut'n'paste. So if for instance you have an orange button (a late payment) this has to be manually entered, again no big deal but text is always easier to work with. That said since with all new loans I will cut'n'paste at the start of a loan there will be no 'adverse' buttons showing, it will only come into play with aftermarket purchases and loans already up and running.
IMHO what can cause problems to running detailed spreadsheets is rescheduling of loans* (Bondora anybody (!) and to a far lesser extent RS) where no notification of the rescheduling is obvious without drilling down into the loan. Again IMHO would be very useful if a note was placed against the individual loan (possibly in 'current investments'?) where rescheduling has taken place .....then with a couple of clicks you can filter out the old schedule from the spreadsheet and insert the new one.
*I don't know if AR expect to have any 'reschedules' (I don't have any visible at present) so adding this comment to cover all eventualities.
Oh yes the subject of this thread, in principal I have no issues if the proposal is attractive, in fact I select a proportion of my loans based on Tax Years so proposal like this tend to get my attraction 
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Post by ablrateandy on Jun 28, 2015 9:52:36 GMT
Our system is probably very different from everyone else's. If we re-scheduled a loan, the cashflows would all be updated instantly to show the new cashflows and the yield would re-calculate. A note would appear next to it stating that it had been re-scheduled. The re-scheduled payments would also feed instantly to the secondary market yields so that rather than being hampered by trying to work out the correct yield, our site will do it for you.
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rogerbu
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Post by rogerbu on Jun 28, 2015 10:12:05 GMT
Our system is probably very different from everyone else's. If we re-scheduled a loan, the cashflows would all be updated instantly to show the new cashflows and the yield would re-calculate. A note would appear next to it stating that it had been re-scheduled. The re-scheduled payments would also feed instantly to the secondary market yields so that rather than being hampered by trying to work out the correct yield, our site will do it for you. Thanks ablrateandy It sounds like your system architecture can provide the XLS format data we need. Your current loan level 'Repayments' / 'Cash Flow' shows a combined Interest & Capital repayment. This is fine for vanilla capital return at the end. But for an amortizing loan or an irregular repayment stream, then combined Interest & Capital won't suffice. Both the Loan level 'repayments' and the Lender level 'repayments' need to split the Interest & Capital elements.
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Post by ablrateandy on Jun 28, 2015 10:33:06 GMT
Gah! I hadn't realised that. Good spot. I'll put that on a list of things to amend. It's all broken down neatly at an admin level so that's an oversight.
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