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Post by jackpease on Apr 4, 2016 13:33:46 GMT
I've noticed that lots of SS investors also seem to invest with RS. But RS interest rates are much lower than SS, so what's the attraction. Is RS safer or something? You are doing the right thing by using this board to ask questions - I suspect 90% of p2p newcomers don't look at this board. I find it quite scary that newcomers could compare Ratesetter and Saving Stream in the same breath. They are chalk and cheese and it is clear that numerous risk warnings are not really understood. I think that people think that because there is a provision fund and because they are lending against property it is safe - I absolutely think a loss of confidence will easily knock 50% off valuations of some of these commercial properties. Jack P
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boundah
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Post by boundah on Apr 4, 2016 13:49:32 GMT
I've noticed that lots of SS investors also seem to invest with RS. But RS interest rates are much lower than SS, so what's the attraction. Is RS safer or something? I think that people think that because there is a provision fund and because they are lending against property it is safe - I absolutely think a loss of confidence will easily knock 50% off valuations of some of these commercial properties. Jack P IMHO for a 50% reduction in valuations there would have to be a massive shock to the financial system: maybe a huge interest rate spike, or a re-run of 2008. If this were to happen NO asset class would be safe (possibly apart from tenners stuffed into the mattress). I doubt the RS provision fund (or anyone else's) would hold out for long against the tide of defaults - remember these funds are comparatively new and have never had to deal with rate rises.
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Post by jackpease on Apr 4, 2016 14:04:55 GMT
IMHO for a 50% reduction in valuations there would have to be a massive shock to the financial system: maybe a huge interest rate spike, or a re-run of 2008. If this were to happen NO asset class would be safe (possibly apart from tenners stuffed into the mattress). I doubt the RS provision fund (or anyone else's) would hold out for long against the tide of defaults - remember these funds are comparatively new and have never had to deal with rate rises. This has been said before - SS and it's loans won't directly track the state of the property market - they are necessarily at the riskier end of the market so will be more volatile than the wider market. Speculative commercial development based on expected planning permission etc springs to mind. Look at some of the troublesome loans at Assetz - even in a stable/growing property market the security is not readily realiseable. Imagine refinancing/calling in security on some of the SS loans in a falling market. I just really hope that newbies diversify and use SS and RS but if they are simply comparing RS rates with SS rates then I'm not sure they are necessarily understanding the risks Jack P
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brin
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Post by brin on Apr 4, 2016 14:15:19 GMT
IMHO for a 50% reduction in valuations there would have to be a massive shock to the financial system: maybe a huge interest rate spike, or a re-run of 2008. If this were to happen NO asset class would be safe (possibly apart from tenners stuffed into the mattress). I doubt the RS provision fund (or anyone else's) would hold out for long against the tide of defaults - remember these funds are comparatively new and have never had to deal with rate rises. This has been said before - SS and it's loans won't directly track the state of the property market - they are necessarily at the riskier end of the market so will be more volatile than the wider market. Speculative commercial development based on expected planning permission etc springs to mind. Look at some of the troublesome loans at Assetz - even in a stable/growing property market the security is not readily realiseable. Imagine refinancing/calling in security on some of the SS loans in a falling market. I just really hope that newbies diversify and use SS and RS but if they are simply comparing RS rates with SS rates then I'm not sure they are necessarily understanding the risks Jack P Exactly right, add to that, SS do not use there own money, they use ours, they are just the middle men, so when it does all explode in our faces, SS will still be alright, i'm not sure what losses SS will incur when/if it happens, be nice to know if anyone has any info on that.
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Post by chris on Apr 4, 2016 14:35:20 GMT
This has been said before - SS and it's loans won't directly track the state of the property market - they are necessarily at the riskier end of the market so will be more volatile than the wider market. Speculative commercial development based on expected planning permission etc springs to mind. Look at some of the troublesome loans at Assetz - even in a stable/growing property market the security is not readily realiseable. Imagine refinancing/calling in security on some of the SS loans in a falling market. I just really hope that newbies diversify and use SS and RS but if they are simply comparing RS rates with SS rates then I'm not sure they are necessarily understanding the risks Jack P Exactly right, add to that, SS do not use there own money, they use ours, they are just the middle men, so when it does all explode in our faces, SS will still be alright, i'm not sure what losses SS will incur when/if it happens, be nice to know if anyone has any info on that. As interest is retained up front they'll also be retaining the majority of their fees up front - the up front fee and the monthly interest override. They're likely to have an exit fee in place as well which would be lost if the loan incurred losses, although the precise order of losses will depend on their T&Cs so their fees may be paid before lender capital for example. Ironically if all their loans are structured that way I think it actually increases platform risk - with other platforms if the platform itself goes bust then there is enough residual income to be made from the outstanding loan book for that to be handed over to a third party to be run down. Such arrangements are part of the FCA's operating requirements. However if the majority of income is generated up front and exit fees are dependent on loans being repaid then if the platform somehow runs out of money in the interim there's no funding in place to pay for the run down of the loan book.
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ilmoro
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Post by ilmoro on Apr 4, 2016 14:36:45 GMT
This has been said before - SS and it's loans won't directly track the state of the property market - they are necessarily at the riskier end of the market so will be more volatile than the wider market. Speculative commercial development based on expected planning permission etc springs to mind. Look at some of the troublesome loans at Assetz - even in a stable/growing property market the security is not readily realiseable. Imagine refinancing/calling in security on some of the SS loans in a falling market. I just really hope that newbies diversify and use SS and RS but if they are simply comparing RS rates with SS rates then I'm not sure they are necessarily understanding the risks Jack P Exactly right, add to that, SS do not use there own money, they use ours, they are just the middle men, so when it does all explode in our faces, SS will still be alright, i'm not sure what losses SS will incur when/if it happens, be nice to know if anyone has any info on that. If its an old T&C loan then Lendy/SS would take the hit as they are responsible for all repayments & shortfalls as they are the borrower as far as we are concerned. They would seek to recover the loan but in the event of a partial recovery they would be on the hook. Its also their cash in the PF so although not part of their assets they are foregoing part of their margin so that could be counted. p2pindependentforum.com/post/59555edit further to chris comment, yes an exit fee and new T&Cs SSSH/SS fees are first recovery.
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brin
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Post by brin on Apr 4, 2016 15:28:12 GMT
Exactly right, add to that, SS do not use there own money, they use ours, they are just the middle men, so when it does all explode in our faces, SS will still be alright, i'm not sure what losses SS will incur when/if it happens, be nice to know if anyone has any info on that. edit further to chris comment, yes an exit fee and new T&Cs SSSH/SS fees are first recovery. SS get there fees back 1st...Now why doesn't that surprise me. 
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Post by jackpease on Apr 4, 2016 15:44:13 GMT
SS get there fees back 1st...Now why doesn't that surprise me. They are in it to make a living just as we are. I'm far more worried about platforms that don't appear to have any means of making money out of both borrowers and lenders in good times and bad - a platform making a profit is far more likely to look after it's lenders than one on its knees Jack P
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adrianc
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Post by adrianc on Apr 4, 2016 16:02:48 GMT
edit further to chris comment, yes an exit fee and new T&Cs SSSH/SS fees are first recovery. SS get there fees back 1st...Now why doesn't that surprise me. Umm, you do know they aren't a charity, right?
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ilmoro
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Post by ilmoro on Apr 4, 2016 16:17:57 GMT
SS get there fees back 1st...Now why doesn't that surprise me. Umm, you do know they aren't a charity, right? Dont, just dont..... bad adrian 
[Admin Note]
I've just removed the 3 posts beneath this one that added nothing to the discussion of the risk profile distinctions between RS and SS. The level of noise from off-topic posts is getting to the point in many threads it is drowning out the vital info that newbies need to read and understand.
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Post by meledor on Apr 4, 2016 17:03:03 GMT
To concentrate on the size of SS provision fund is looking at this the wrong way round imo.
The average LTV of my SS portfolio of loans is 60% (which I guess would be fairly typical for others). Assume we have the quoted 50% reduction in property values (which is a bit higher than in the 2008 crisis). This would give a loss given default (LGD) of 16.7% (10%/60%). Assume also that all the loans default (PD=1) which is rather unlikely, then ignoring the benefit of the provision fund my expected loss is 16.7% or just under 17 months interest. I believe such an outcome is quite manageable in terms of likelihood in the foreseable future and the context of my overall investments.
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mikes1531
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Post by mikes1531 on Apr 4, 2016 17:47:28 GMT
... further to chris comment, yes an exit fee and new T&Cs SSSH/SS fees are first recovery. Before lender capital? That does surprise me. It wouldn't surprise me that the platform fees would rank ahead of lender interest, but ahead of lender capital does seem a bit much.
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Post by chris on Apr 4, 2016 17:54:53 GMT
To concentrate on the size of SS provision fund is looking at this the wrong way round imo.
The average LTV of my SS portfolio of loans is 60% (which I guess would be fairly typical for others). Assume we have the quoted 50% reduction in property values (which is a bit higher than in the 2008 crisis). This would give a loss given default (LGD) of 16.7% (10%/60%). Assume also that all the loans default (PD=1) which is rather unlikely, then ignoring the benefit of the provision fund my expected loss is 16.7% or just under 17 months interest. I believe such an outcome is quite manageable in terms of likelihood in the foreseable future and the context of my overall investments. Is that a like for like comparison though? For some of the loans on offer they are simple property loans on already standing structures that would be devalued in that way as per the 2008 crisis. But others are empty fields speculating on planning permission, which may not be forthcoming, and carry the development risk beyond that. Even without a recession it's possible for some of these loans to end up with recoveries far less than the stated valuations, and it'll be down to SS's risk mitigation and advance planning to prevent that from turning into losses for lenders. A recession compounds those risks, and this is a market segment strewn with previously successful businesses that have been wiped out by a few bad deals. SS's loan book is still very young and effectively untested, and where refinances have happened there are borrowers who will have effectively not paid anything beyond a few fees for two years by the time the loan becomes due. Interest in the interim has been paid for by the lenders themselves, taken out of the amount loaned. SS's website says that to date around £23m (19% of the loans made to date) has been repaid by borrowers thus far, but as I understand it a substantial portion of even that has been refinanced on platform with lenders effectively paying back the loans to themselves. So there are still substantial questions to be answered about performance of the loans that only time will tell. If properly managed there is money to be made in this segment and that will ultimately be the measure by which SS are judged in the long term. I personally believe it to be far higher risk than many lenders perceive though. This isn't my area of expertise so if I'm off base I'll be happy to apologise and get input from those who do assess risk in this arena, it's just the information I've picked up via other conversations that have been had.
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Post by chris on Apr 4, 2016 17:56:04 GMT
... further to chris comment, yes an exit fee and new T&Cs SSSH/SS fees are first recovery. Before lender capital? That does surprise me. It wouldn't surprise me that the platform fees would rank ahead of lender interest, but ahead of lender capital does seem a bit much. I think you'll find it fairly common - it's how AC's fees are technically prioritised at the moment although to date we've waived that priority and are discussing changing the T&Cs to formalise that.
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mikes1531
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Post by mikes1531 on Apr 4, 2016 18:01:22 GMT
... but there is always an asset available, the original amount taken out by the developer would (hopefully) be max 70% ltv, and as works proceed so the asset becomes more valuable and the ltv% becomes lower... : That's not the way I understand it. ISTM that in many cases the initial loan is for 70% of the property purchase price, so the LTV starts out at 70%. Then, as the development work progresses the further advances usually are 70% of the money expended. So after £100k of work is done, the borrower is advanced a further £70k. This is repeated multiple times during the development phase, so the LTV stays at 70% throughout the development. OK, the LTV might be a bit lower between advances when £50k of work has been done and the next advance hasn't been claimed/made yet, but there's also the question of how much a part completed project could be sold for -- there may have been £400k of work done, but it's probably unlikely that another developer could be found who would be willing to pay £280k (70%) for the right to carry on the project, since the work completed to that point might not have been done the way the new developer would have done it, so some reworking is bound to be required.
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