|
|
Post by citadel on Apr 19, 2016 18:49:20 GMT
There seem to be lots of P2P firms bidding for our Business, just wondering, which offers the best Return for the least risk ? I was thinking of a 6 month loan for my funds, rather than the 1 month style available on Ratesetter circa 3-3.5%, but have seem it as much as 13% ??  Any thoughts ??
|
|
|
|
Post by mrclondon on Apr 19, 2016 18:58:50 GMT
There seem to be lots of P2P firms bidding for our Business, just wondering, which offers the best Return for the least risk ? I was think of 6 month loan for my funds, rather the 1 month style available on Ratesetter ciraca 3-3.5%, but have seem it as much as 13% ?? Any thoughts ?? Rates of 12-13% are, in part, compensation for future capital losses, and you should expect to lose roughly half of this return.
Rates on provision fund backed accounts are typically 3 to 7% and give an indication of what mathematical modelling and a awful lot of assumptions suggests is a plausible return after capital losses on a well diversified portfolio of p2p loans.
It is impossible to answer your question, but I'd say AC's QAA at 3.75% (this month only 4.25%) is probably a contender for best return / least risk, and I know you've dismissed it but RS's rolling at 3 to 3.5% would be another. The point is these are short term accounts that are provision fund backed - by keeping an eye on the provision fund coverage ratio you MIGHT be able to exit the market before the provision fund is depleted to a level that would put your own capital at risk.
Only zopa has traded through a recession, but in the absence of other data it should be assumed that returns will be negative on non-provision funds backed p2p loans during recessionary years, and at the start of the next economic cycle.
|
|
|
|
Post by cassiopeia on Apr 19, 2016 19:39:36 GMT
There seem to be lots of P2P firms bidding for our Business, just wondering, which offers the best Return for the least risk ? I was think of 6 month loan for my funds, rather the 1 month style available on Ratesetter ciraca 3-3.5%, but have seem it as much as 13% ?? Any thoughts ?? Rates of 12-13% are, in part, compensation for future capital losses, and you should expect to lose roughly half of this return.
Rates on provision fund backed accounts are typically 3 to 7% and give an indication of what mathematical modelling and a awful lot of assumptions suggests is a plausible return after capital losses on a well diversified portfolio of p2p loans.
It is impossible to answer your question, but I'd say AC's QAA at 3.75% (this month only 4.25%) is probably a contender for best return / least risk, and I know you've dismissed it but RS's rolling at 3 to 3.5% would be another. The point is these are short term accounts that are provision fund backed - by keeping an eye on the provision fund coverage ratio you MIGHT be able to exit the market before the provision fund is depleted to a level that would put your own capital at risk.
Only zopa has traded through a recession, but in the absence of other data it should be assumed that returns will be negative on non-provision funds backed p2p loans during recessionary years, and at the start of the next economic cycle.
Surely any asset backed loan has a built in provision. Therefore a property loan with a LTV of say 50% could withstand a substantial fall in property prices which seems unlikely over shorter periods. Why wouldn't these at 8-12% not have a better return to risk than 3-4% loans relying on a provision fund which could withstand defaults of only 20%? Has anyone calculated how far property prices would need to fall before property loans were hit? The main risk I can see is fraud, something undeclared or platform risk in some cases, but perhaps I'm missing something else.
|
|
|
|
Post by mrclondon on Apr 19, 2016 19:51:35 GMT
Rates of 12-13% are, in part, compensation for future capital losses, and you should expect to lose roughly half of this return.
Rates on provision fund backed accounts are typically 3 to 7% and give an indication of what mathematical modelling and a awful lot of assumptions suggests is a plausible return after capital losses on a well diversified portfolio of p2p loans.
It is impossible to answer your question, but I'd say AC's QAA at 3.75% (this month only 4.25%) is probably a contender for best return / least risk, and I know you've dismissed it but RS's rolling at 3 to 3.5% would be another. The point is these are short term accounts that are provision fund backed - by keeping an eye on the provision fund coverage ratio you MIGHT be able to exit the market before the provision fund is depleted to a level that would put your own capital at risk.
Only zopa has traded through a recession, but in the absence of other data it should be assumed that returns will be negative on non-provision funds backed p2p loans during recessionary years, and at the start of the next economic cycle.
Isn't an asset backed loan effectively got a built in provision. Therefore a loan with a LTV of say 50% could withstand a substantial fall in property prices and even then the investor should get something back. What's the chance of that happening during the period of the loan which might be only a year. Why don't these offer better risk reward than those with 'provision funds' offering a fraction of return?
Commercial property can and does lose over half its value from the peak of a boom to the trough of a recession. If you have an AC account, have a careful read through the documents associated with loan 45 (Leeds) and note the drop in the value of that modern "nice" office building from 2005 to when AC had it valued in 2013, and the amount the previous lender wrote off. Also note the valuations on AC loans 132 (Anglesey) and 129 (Ipswich) from 2013/14 vs what the price the receivers are FAILING to sell them for in 2016, both loans will result in capital losses from the eventual sale of these secured assets (but may receive additional realisations from other sources)
EDIT 1: And if you have a TC account look at the discussion on the TC .net forum regarding the hotel that is about to default with a likely 30 to 50% capital loss for lenders on a loan that drew down only last June. (That's the difference in valuation between a trading hotel, and a now closed non-trading hotel although skewed by the TC security being a second charge not a first so we take the total hit and the 1st charge holder will get 100% of their funds back)
EDIT 2: And these AC/TC examples are in a stable or growing economy (depending on where in the UK they are). SS, FS & MT haven't been writing property loans for long enough for there to be equivalent examples yet, but there will be in due course.
EDIT 3: Take a look on the FS forum board for the "Llandudno Hotel" thread. FS are attempting to persuade us its valued at £1.5m but that is mainly planning hope value. As a hotel the valuation is £575k at best, and probably < £500k. The loan is for £852k so if planning fails FS will be reliant on a personal guarantee to cover the shortfall between the hotel valuation and the loan capital.
|
|
Liz
Member of DD Central
Posts: 2,426
Likes: 1,297
|
Post by Liz on Apr 19, 2016 21:04:29 GMT
Rates of 12-13% are, in part, compensation for future capital losses, and you should expect to lose roughly half of this return.
Rates on provision fund backed accounts are typically 3 to 7% and give an indication of what mathematical modelling and a awful lot of assumptions suggests is a plausible return after capital losses on a well diversified portfolio of p2p loans.
It is impossible to answer your question, but I'd say AC's QAA at 3.75% (this month only 4.25%) is probably a contender for best return / least risk, and I know you've dismissed it but RS's rolling at 3 to 3.5% would be another. The point is these are short term accounts that are provision fund backed - by keeping an eye on the provision fund coverage ratio you MIGHT be able to exit the market before the provision fund is depleted to a level that would put your own capital at risk.
Only zopa has traded through a recession, but in the absence of other data it should be assumed that returns will be negative on non-provision funds backed p2p loans during recessionary years, and at the start of the next economic cycle.
Surely any asset backed loan has a built in provision. Therefore a property loan with a LTV of say 50% could withstand a substantial fall in property prices which seems unlikely over shorter periods. Why wouldn't these at 8-12% not have a better return to risk than 3-4% loans relying on a provision fund which could withstand defaults of only 20%? Has anyone calculated how far property prices would need to fall before property loans were hit? The main risk I can see is fraud, something undeclared or platform risk in some cases, but perhaps I'm missing something else. You make some good points, and may or may not be proved correct in several years time.
|
|
alanp
Member of DD Central
Posts: 168 
Likes: 72
|
Post by alanp on Apr 20, 2016 11:17:57 GMT
There seem to be lots of P2P firms bidding for our Business, just wondering, which offers the best Return for the least risk ? I was think of 6 month loan for my funds, rather the 1 month style available on Ratesetter ciraca 3-3.5%, but have seem it as much as 13% ?? Any thoughts ?? Rates of 12-13% are, in part, compensation for future capital losses, and you should expect to lose roughly half of this return.
Rates on provision fund backed accounts are typically 3 to 7% and give an indication of what mathematical modelling and a awful lot of assumptions suggests is a plausible return after capital losses on a well diversified portfolio of p2p loans.
It is impossible to answer your question, but I'd say AC's QAA at 3.75% (this month only 4.25%) is probably a contender for best return / least risk, and I know you've dismissed it but RS's rolling at 3 to 3.5% would be another. The point is these are short term accounts that are provision fund backed - by keeping an eye on the provision fund coverage ratio you MIGHT be able to exit the market before the provision fund is depleted to a level that would put your own capital at risk.
Only zopa has traded through a recession, but in the absence of other data it should be assumed that returns will be negative on non-provision funds backed p2p loans during recessionary years, and at the start of the next economic cycle.
Whilst I recognise that for some this may not be an issue because they already have this aspect covered, but I personally would not be looking to invest in P2P at these rates UNLESS I had maximised what I can put into zero risk, high street bank Current & Regular Saver accounts paying 4-6% pa.
|
|
|
|
Post by dualinvestor on Apr 20, 2016 11:41:20 GMT
Surely any asset backed loan has a built in provision. Therefore a property loan with a LTV of say 50% could withstand a substantial fall in property prices which seems unlikely over shorter periods. The problem with such an assumption is although the LTV may be 50%, what is the basis of that valuation? It could be Open Market Value or Going Concern, if so both could be substantially higher than the value that can be obtained in a distressed sale. Also I disagree with the presumption that asset values do not decline steeply over shorter periods, especiallly when sentiment turns against a particular sector, e.g. (although I sincerely hope doubt there is any such security held in respect of these) holiday properties in Spain, Portugal, France could experience significant and rapid falls should Britain vote to leave the EU on 23 June.
|
|
|
|
Post by propman on Apr 20, 2016 13:34:14 GMT
As well as going concern values, many development valuations are of the completed development. Values during construction would be much lower, especially if construction runs into issues or the market turns down.
As for investment properties, these sell at modest yields on the rental income (which will usually be reviewed periodically, but not downwards). However the "risk premium" is currently low in many markets on the assumption that property is in short supply and so could be relet easily. In a downturn this can change fast as people are unwilling to sign up to a new lease and tenants financial security comes into doubt, especially as many occupiers have managed to agree "pre-pack" deals with creditors whereby leases have been given up and outstanding rent largely unpaid. Not only does the certainty of future income decline, but new tenants would require higher incentives to take on new leases and might negotiate reduced rents. As a result both the rents may reduce and the multiple of rent at which they are valued decreases. This causes a large decrease in open market value that can happen rapidly. Add that in a downturn there are likely to be few buyers while the market at the moment is generally constrained by supply and to agree a sale will mean agreeing to go below the price that could otherwise be achieved.
Finally, the security is not usually added on to an agreed deal, there is only a viable loan with the security. So while most unsecured loans will continue to be paid through a downturn, property backed loans are generally dependent on the sale, rent or refinancing of the property. So if the security is looking less certain then a high proportion will not be able to pay, so a lot of loans will go bad together. This has the knock-on effect that the market will have more for sale as other lenders are faced with the same situation. The impact taken together is that these loans are likely to mainly pay out in full for the majority of the time, in a down-turn then losses will be significant. As a result we really are lending against an unknown situation as there is little evidence either way as to how well the portfolio will perform in a down-turn. So these are more akin to a cliff-edge bond where previous performance is not a useful guide to the future.
- PM
|
|
|
|
Post by Financial Thing on Apr 20, 2016 15:48:17 GMT
Pat on the back mrclondon for your comments on commercial property values. My dad bought a market value high street retail S.E. property in 2006 that has dropped in value by 30%. When people hear commercial they tend to think stability. Not always the case. Properties are only worth what people will pay at the time it needs to be sold and prior valuations sometimes mean little. |
|
stevio
Member of DD Central
Posts: 2,065
Likes: 894
|
Post by stevio on Apr 20, 2016 16:00:26 GMT
There seem to be lots of P2P firms bidding for our Business, just wondering, which offers the best Return for the least risk ? I was think of 6 month loan for my funds, rather the 1 month style available on Ratesetter ciraca 3-3.5%, but have seem it as much as 13% ?? Any thoughts ?? Rates of 12-13% are, in part, compensation for future capital losses, and you should expect to lose roughly half of this return.
Rates on provision fund backed accounts are typically 3 to 7% and give an indication of what mathematical modelling and a awful lot of assumptions suggests is a plausible return after capital losses on a well diversified portfolio of p2p loans.
It is impossible to answer your question, but I'd say AC's QAA at 3.75% (this month only 4.25%) is probably a contender for best return / least risk, and I know you've dismissed it but RS's rolling at 3 to 3.5% would be another. The point is these are short term accounts that are provision fund backed - by keeping an eye on the provision fund coverage ratio you MIGHT be able to exit the market before the provision fund is depleted to a level that would put your own capital at risk.
Only zopa has traded through a recession, but in the absence of other data it should be assumed that returns will be negative on non-provision funds backed p2p loans during recessionary years, and at the start of the next economic cycle.
How did Zopa do in a recession? What sort of rates were they able to offer?
|
|
|
|
Post by dualinvestor on Apr 20, 2016 16:27:32 GMT
I think Zopa's performance in the recession to the type of loans referred to here would be like comparing apples to pears. Bad debt on some of their then products, especially "listings" were quite high but generally not in the "distressed" sector. However at the time their maximum loan was £15,000, none of it lent to businesses and, as far as I am aware, they did not take security.
|
|
bigfoot12
Member of DD Central
Posts: 1,817
Likes: 816
|
Post by bigfoot12 on Apr 20, 2016 19:05:19 GMT
How did Zopa do in a recession? What sort of rates were they able to offer? I think Zopa's performance in the recession to the type of loans referred to here would be like comparing apples to pears. Bad debt on some of their then products, especially "listings" were quite high but generally not in the "distressed" sector. However at the time their maximum loan was £15,000, none of it lent to businesses and, as far as I am aware, they did not take security. I was lending with Zopa at that time and as far as I can remember I agree with dualinvestor . Loans I made in 2008 had 12.8% (by number includes some easteregg -ing) fall into some sort of default process just over 7% of my total loans is still outstanding (mostly written off, a few still in arrangements). My IRR was much worse as many of the loans which didn't default repaid early. Assuming an average loan maturity my gross annualised return was 2.1%, but after 40% tax it was 0.6%. (Remember back then you could put your money in a savings account at 7%, National Savings had a 5 year bond at 4.5%...)
|
|
bababill
Member of DD Central
Posts: 529
Likes: 245
|
Post by bababill on May 3, 2016 2:13:55 GMT
I am currently facing an issue where a commercial property was valued on Funding Knight at £300,000 or 120 day sale value £275,000 on the 29th of Aug 2015. Now as of April 2016 the receiver values it at £150,000.
Therefore we the lenders will most likely incur losses. Furthermore even if £150,000 is realised there will be disbursements to the administrator/receiver thereby increasing our losses.
I appreciate there can be variations in valuations. What I don't understand is why don't P2P companies and or banks get second references/opinions rather then relying solely on one valuation?
|
|
bigfoot12
Member of DD Central
Posts: 1,817
Likes: 816
|
Post by bigfoot12 on May 3, 2016 7:33:10 GMT
... why don't P2P companies and or banks get second references/opinions rather then relying solely on one valuation? Because they are expensive and time consuming and slow.
|
|
pikestaff
Member of DD Central
Posts: 2,188
Likes: 1,546
|
Post by pikestaff on May 3, 2016 7:38:54 GMT
I am currently facing an issue where a commercial property was valued on Funding Knight at £300,000 or 120 day sale value £275,000 on the 29th of Aug 2015. Now as of April 2016 the receiver values it at £150,000. Therefore we the lenders will most likely incur losses. Furthermore even if £150,000 is realised there will be disbursements to the administrator/receiver thereby increasing our losses. I appreciate there can be variations in valuations. What I don't understand is why don't P2P companies and or banks get second references/opinions rather then relying solely on one valuation? I don't know the circumstances of your specific loan or valuations but this kind of difference is not unheard of in commercial property. Multiple valuations would cost money and you'd usually get much the same answer (to within 10%) on any given set of inputs and assumptions. To a large extent, the inputs and assumptions will have been discussed and agreed with the valuer before the valuation is performed. I have commissioned a couple of valuations myself. It's not quite a matter of "what answer did you have in mind?" but it's not far off. Always read the assumptions in a valuation very carefully and understand who has commissioned it.
|
|
Any thoughts ?? 
