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Post by goldservice on Oct 10, 2015 10:00:17 GMT
I’ve never done much flipping until recently but so far it looks like this: I sold a £20 part in an E loan 27 days after buying it. It sold for £20.27 at par (in practice, for most sales of £20 parts I get a premium of 5-20p - weird but welcome). The 27p was the accrued interest (for E loans the interest on £20 is about 1p per day.) I paid the sale fee of 0.25% which was 5p. A few days later the buyer should receive the first monthly repayment, plus interest of about 30p. The buyer will have to pay Financially Chuffed’s servicing fee of 1% pa which will be 2p (rounded) for that month. However, I will pay no servicing fee in spite of receiving (via the buyer) 27p of interest. Have I understood this correctly? If so, flippers seem to have it all …
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nick
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Post by nick on Oct 10, 2015 11:15:09 GMT
I’ve never done much flipping until recently but so far it looks like this: I sold a £20 part in an E loan 27 days after buying it. It sold for £20.27 at par (in practice, for most sales of £20 parts I get a premium of 5-20p - weird but welcome). The 27p was the accrued interest (for E loans the interest on £20 is about 1p per day.) I paid the sale fee of 0.25% which was 5p. A few days later the buyer should receive the first monthly repayment, plus interest of about 30p. The buyer will have to pay Financially Chuffed’s servicing fee of 1% pa which will be 2p (rounded) for that month. However, I will pay no servicing fee in spite of receiving (via the buyer) 27p of interest. Have I understood this correctly? If so, flippers seem to have it all … Not quite....I believe the accrued interest that is settled is net of FC's fee, ie the new buyer is not burdened with the fee for interest for the full month. But to check, I've asked FC to confirm. You also need to consider the dead time between bidding and when you actually start accruing interest. Loans normally fill within minutes, but interest only starts accruing at the earlier of the scheduled auction end date and actual drawdown (and this assumes that the loan is actually drawn). In most cases, lenders don't drawdown until after the scheduled auction end date, in which case your money hasn't earn't any interest for 7 days. So in your example you have accrued interest for 27 days but have funded it for 34 days - a significant drag on return. Because of this, I tend to hold E loans for 2 months or more before selling as the effective rate earnt is much higher even accounting for expected defaults (at the quoted rate of 8%/pa or 0.7%/pm) - the only issue at this stage is getting enough diversification, but will come with time. It also reduces the time burden involved churning loan parts - you have 2-3 times less sales volume for any given amount invested.
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SteveT
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Post by SteveT on Oct 10, 2015 14:06:18 GMT
Talking of flipping, 14059 is looking to repay early and take out a new loan, in case anyone's missed the comment.
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pom
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Post by pom on Oct 10, 2015 18:39:26 GMT
Talking of flipping, 14059 is looking to repay early and take out a new loan, in case anyone's missed the comment. Oh dear, seems I sold mine for a 2.2% premium a couple of weeks ago !!
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blender
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Post by blender on Oct 10, 2015 20:12:33 GMT
I’ve never done much flipping until recently but so far it looks like this: I sold a £20 part in an E loan 27 days after buying it. It sold for £20.27 at par (in practice, for most sales of £20 parts I get a premium of 5-20p - weird but welcome). The 27p was the accrued interest (for E loans the interest on £20 is about 1p per day.) I paid the sale fee of 0.25% which was 5p. A few days later the buyer should receive the first monthly repayment, plus interest of about 30p. The buyer will have to pay Financially Chuffed’s servicing fee of 1% pa which will be 2p (rounded) for that month. However, I will pay no servicing fee in spite of receiving (via the buyer) 27p of interest. Have I understood this correctly? If so, flippers seem to have it all … I believe that Goldservice is right. The fee is not split. On repayment day FC can apply only the figures in the schedule for the loan part to the current holder - the whole principal repayment, the whole interest and the whole fee. They do not know that there will be a repayment and so cannot subtract from the accrued interest part of a fee they may not receive. (the numbers can be too small anyway.)
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nick
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Post by nick on Oct 13, 2015 15:42:31 GMT
Not quite....I believe the accrued interest that is settled is net of FC's fee, ie the new buyer is not burdened with the fee for interest for the full month. But to check, I've asked FC to confirm. I believe that Goldservice is right. The fee is not split. On repayment day FC can apply only the figures in the schedule for the loan part to the current holder - the whole principal repayment, the whole interest and the whole fee. They do not know that there will be a repayment and so cannot subtract from the accrued interest part of a fee they may not receive. (the numbers can be too small anyway.) Apologies, I'm mistaken and you are both correct. FC have told me that the buyer has the full burden of the platform fee and no accrual of this fee is made at the time of sale.
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Post by aloanatlast on Oct 13, 2015 16:37:20 GMT
I believe that Goldservice is right. The fee is not split. On repayment day FC can apply only the figures in the schedule for the loan part to the current holder - the whole principal repayment, the whole interest and the whole fee. They do not know that there will be a repayment and so cannot subtract from the accrued interest part of a fee they may not receive. (the numbers can be too small anyway.) Apologies, I'm mistaken and you are both correct. FC have told me that the buyer has the full burden of the platform fee and no accrual of this fee is made at the time of sale. The buyer pays the whole fee to FC, but then, he gets all the interest. To compensate, he pays the seller extra money. The question is how this is calculated. Accepted that none of it goes to FC at that point.
Suppose I have 2 identical loan parts on sale at par. One sells just before the monthly repayment comes in, one just after. Is there a difference in the outcome?
My naive assumption is that there isn't, because
1) the principal part of the sale price is reduced by the principal repayment 2) the accrued interest part of the sale price, on the first sale, will be the same as what I am about to receive in interest less fee
But I've never checked.
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blender
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Post by blender on Oct 13, 2015 17:08:51 GMT
As discussed above, the difference is the whole value of the fee - plus of course the risk of a missed payment, and we know what that can lead to.
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Post by aloanatlast on Oct 13, 2015 23:24:04 GMT
Can't see any justification for not deducting the fee. It's not like they'd be collecting a fee, they'd only be adjusting the adjustment paid to the seller by the buyer.
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blender
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Post by blender on Oct 14, 2015 8:06:19 GMT
They would be anticipating a fee which may not be paid. Two other things:
The fee is not defined in the same way as interest - pro-rata to the lender for the time the principal is held. It is now a charge on the borrower's interest payments, effected by subtracting part of each monthly interest payment made.
The treatment of interest and fees from a tax viewpoint is different, and they need to be kept separate in any payment - you could not reduce the accrued interest paid by the buyer to the seller to reflect some notional and contingent fee payment in the future, and still call it interest (even if FC's systems could cope with that).
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nick
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Post by nick on Oct 14, 2015 9:45:24 GMT
I think is simply down to FC not being particularly sophisticated. I see no real reason why the fee should be accrued in exactly the same way as interest. The argument that the accrual is anticipating the fee can equally applied to interest, e.g. there is no guarantee that interest will be paid at the end of the month and acknowledge that the default risk on the accrued interest element is laid off on the buyer. There is no issue from a tax perspective in netting payments (which is what occurs on a monthly basis anyway) provided both are charged and shown gross - so the statement would have to show the gross accrual for interest and fee, not a big deal.
Anyway, interesting, but not hugely material - assuming you sell 1 day before the end of the month, the gross effect would be 0.08%, which is probably going to be lost in rounding unless you are dealing with higher value loan parts (although it could make the difference to rounding down vs up to save that 1p!).
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eddie
i have put up with a great deal from the likes of you people, a very great deal....
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Post by eddie on Oct 15, 2015 18:48:42 GMT
ha ha, didnt get out quick enough, another loss £190, that brings the losses to £2,300 and net profit £2,100. they are the current figures and they will be worse befor the rbr loans are paid out. i feel better about getting out now as i had ben in two minds about it.
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kaya
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Post by kaya on Oct 15, 2015 19:14:24 GMT
Wonder what the secondary market default rate is compared to the..... whats it called? Primary market? Auction market? wish i had asked myself that question 2 years ago. Actually this is a good question. Personally, my 'Due Dilligence' performs much less well on the secondary market, i.e. my intuitive feel for a loan works better during a live auction (since I have little idea what DD really means anyway). However, fixed-rate auctions have destroyed any intuitive success I might have had.
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acky
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Post by acky on Oct 16, 2015 10:48:08 GMT
My property part sales at par have dried up the last 48 hours. Are others finding the same? I guess with more on the PM than has been the case for a week or so, FC feel they need all the Autobiddies there and are not pointing them to the SM at the moment.
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Steerpike
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Post by Steerpike on Oct 16, 2015 11:09:38 GMT
My property part sales at par have dried up the last 48 hours. Are others finding the same? I guess with more on the PM than has been the case for a week or so, FC feel they need all the Autobiddies there and are not pointing them to the SM at the moment. Yesterday was about 50% of Thursday in the previous week, so yes.
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