How can SS afford such high interest rates?

From the FAQ of saving stream www.savingstream.co.uk/#faq

"How do Saving Stream make money?

Lendy Ltd t/a Saving Stream makes its profit from the difference in interest rate that is charged to its borrowers and the rate that it pays its investors. We typically lend to borrowers at 1.5% per month and borrow money from investors at 1% per month.

This margin may seem excessive however the overheads of a) finding such borrowers and b) ensuring the security of an asset are costly and therefore demand this margin. "


I think they also charge a high fee to borrower. 

@nancelot - thanks for pointing that out. I did a little more research into bridging loans and that would appear to be a rate on the high end of normal, but within reason.

arbster - You're probably right, but I'd expect loans with rates of 12%+ to be unsecured. That said, I don't know much about bridging loans. I'm in the process of learning.

A valuation is a snapshot of what one "expert" thinks the security might realise if there was a willing buyer today.  Almost by definition the repayment for a bridging loan comes from either refinancing or selling the security.  The risk bridging loan lenders face is that the sale proceeds might be inadequate to repay the loan even if the loan is at say 70% LTV.

There is a bridging loan on AC which when it can be discussed openly in a few years time will make a fascinating case study on the risks associated with security valuations.  The security is the land and buildings (including a residential house ) of an essentially defunct garden nursery business. The loan was to refinance an existing bridging loan and to continue to finance a planning application to convert the usage to a holiday park with log cabins.  The valuation was done on an as is basis, i.e. no allowance for planning "hope" value, but equally no allowance for land clearance.  Since the loan was drawn the planning has been refused, but with reasoning that effectively rules out ANY and ALL commercial development of the land.  Whilst the security valuation was as-is, there would have been an expectation in the valuers mind that a change of use permission would be feasible, if not to the scheme put forward by this borrower, by a subsequent purchaser of the land.   There is probably months if not years of wrangling before this loan is brought to a closure, but the worse case scenario is the security is essentially worthless - the value of n acres of poor quality agricultural land less the tens of thousands of pounds of clearance costs.  That loan offered lenders a 15% rate, and was purchasable at 18% on the AC secondary market early in its default days before the seriousness of the situation became apparent.  The original valuation was fine, but circumstances have changed.

SS haven't had a (serious*) loan failure YET, but they will. Maybe the LTV will be adequate to allow no capital loss, maybe it wont. If it doesn't, maybe the provision fund will cover the capital loss, but its unlikely to cope on the larger loans.  12% is IMO barely adequate yield for the risk being taken with some of the SS loans - 13% to 15% would be available to lenders on some of these loans on AC or TC, but equally some of the SS loans would only yield 10% elsewhere,  i.e. you are getting a standard yield of 12% on SS irrespective of the risk.


Finally bridging loan rates are typically advertised as something like 0.8% to 1.5% a month.  But remember 0.8% a month will only be available on very low LTV security with mininimal risk of variance in security values over the loan term.  70% LTV's are normally 1.5% at best  and 2%-3% or more is not unheard of if there is any development risk associated with the security (noting there is almost no bank that will take on board development risk since 2008, which is why p2p platforms see rather a lot of such loans).

I've posted several times on this forum, that based on my ten years of experience in the p2p sector, to expect more than 6% after capital losses on p2p loans across an economic cycle is foolhardy.  i.e. lending at 12% you should expect to lose half of all interest earnt to capital losses.  You may do better than that, great if so, but equally well you may do worse.


* EDIT:  There has been one PBL default thus far (007) but this was a small loan with easily realisable security and there was no loss of capital/interest for lenders or fees for SS.

I would take 12% here with a provision fund than 13-15% at AC/TC with possible legal costs to pay, as a general rule.

Thank you for sharing, it is VERY much appreciated by me. I shall review your blog that you have kindly posted.

When posts like yours appear, it goes to show how really good this P2P Independent Forum is, for those prepared to learn.