j1
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Post by j1 on May 4, 2016 21:11:45 GMT
I have £1k in RS as I dabble round the edges before making a more substantial investment in p2p.
I started looking at FC and thought that the headline rates made it look more attractive but if I look at the 6.4% estimated net return on A++ loans I am not so sure the extra 0.3% over RS is worth it.
1. Am I right in thinking that RS looks to be the "safest" p2p platform due to their provision fund combined with their size?
2. Should I be concerned by other platforms like FC not having a fund or is the argument that sufficient diversification should give the same protection?
3. Should I be looking at loans wider than just A++ to give a fair comparison? Isn't the worry that these sites are over rating their loans just like the US banking crisis?
4. I see lots of people bad mouthing FC and moving to other less well know platforms. Are people not concerned at their immaturity and lack of backing? Do they all require you to review and cherry pick loans?
5. 12% at SS looks very attractive and I like the idea of a secured loan based on a tangible asset but why does it pay so high? Is the only way to be confident that the property / land is worth the estimate by doing your own market research or has their been some neutral valuation carried out?
6. What else should I factor in before deciding where to invest my cash?
Thanks so much for your help in advance!
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Post by wiseclerk on May 4, 2016 21:29:58 GMT
I think many of your questions have been answered comprehensively already, but since it is scattered throughout the forum I'll give it a quick go:
1) "Safest" is a strong expression. But I could agree to 'one of the safer' platforms.
2) It is always a question of risk vs return. So a higher risk maybe worth taking if it is rewarded with a higher return. Of course the art is to gauge how high the probability is that you will achieve the higher return
4) see 2
5) For SS each loan comes with a valuation report. Whether you trust these appraisals or do more research on your own is up to you. I invest on SS and am generally satisfied with the information provided. That said, I do expect dafaults and don't expect the value of the security to be high enough in all cases to fully cover the outstanding debt. But with sufficient diversification and the added buffer by the provision fund I expect the overall return of my SS portfolio to be positive
6) a) How long you want to invest it?
b) whether liquidity is an issue, in case of a personal emergency would you need to access these funds or do you have other liquid assets?
c) tax considerations, e.g. upcoming IF ISA
d) diversification over multiple platforms (ideally spreading across consumer, property, SME, ...; of course subject to your preferences)
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james
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Post by james on May 4, 2016 21:42:05 GMT
Safest depends on what risks you're looking at.
RateSetter and Zopa have the highest charges for exiting from their main markets, with both charging based on any increase in interest rate but pocketing in one way another the capital gain if there's a decrease in interest rate. RateSetter makes this even worse by changing the market rate retroactively, treating your money as if it was originally invested in a shorter term market, making it potentially the most expensive secondary market I know of. So if you may have need of your money, RateSetter and Zopa both are quite high risk, with significant potential capital losses that protection funds will not cover. Compare to places like Ablrate where you can probably sell at a profit or MoneyThing and SavingStream where you can exit at par.
All secondary market exits also subject to availability of buyers and there the typical deal lengths help at the latter three because there are many shorter or sometimes regularly renewing deals available.
A fund is one way of protecting, security is another. Protection funds will run out of money way before the security on all loans on a platform doing secured lending runs out of backing. Quality of security varies, both between platforms and individual loans on each platform.
The reasons why some people with experience of FC dislike FC seem to be many, varied and often sensible. Ditto Bondora.
SavingStream typically does lending where the competing open market rates tends to be between 1.5% and 3% a month and up, for property development and bridging lending. Plenty of margin there. Contrast with highly credit worthy consumers who can typically get long 0% deals on credit cards at a nil to 2-5% for a year or three and the rates at RateSetter and Zopa are actually above what high quality consumer borrowers can get for quite significant amounts of money. Need to consider the alternatives for borrowers before deciding which platforms are actually offering or charging relatively more or less than their borrowers might be able to obtain elsewhere.
You should factor in the importance of diversification across platforms as well as within them and their customer service levels.
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jonah
Member of DD Central
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Post by jonah on May 4, 2016 21:42:18 GMT
Different risks...
Platform going bust is one, with bigger platforms hopefully less likely but no guarantees. Personally I reduce the total I will put on some smaller platforms due to their size as keyman risk worries me.
Loans defaulting... This varies from loan to loan or sector to sector. E.g. You expect some defaults on FC due to the unprotected nature, but if you ever get a default on RS which isn't covered by their protection fund, it will be in the news.
sector concentration.... SS do a lot of similar commercial loans. If the economy has a hiccup, and all commercial property goes down X%, that could hurt. Diversity in loans, platforms and loan types helps here.
Inflation, taxes, voids, lock in and fees. Please read all the small prints. FC has a 1% fee for example, so that 6.4 becomes 5.4 and that is before tax and defaults! Selling on secondary markets costs for some platforms. Others have somewhat opaque early redemption fees for lenders.
Lots to read up on, but this place has a lot of helpful folk around!
On point 4 specifically... No. There are sites such as W which is property which is diversified for you. AC also have automated packaged accounts for business lending, green lending, quick lending or 30 day lending. RS and Z have approaches for individual person lending. FC can automate their approach on their site, but please please please please read up on it before turning autobid on!
Or read loan proposals on a range of sites.
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Post by GSV3MIaC on May 5, 2016 10:09:45 GMT
Hi J .. there are lots of good answers already here, as mentioned .. the 'pinned' posts at the top of each individual forum are useful resources, especially the ones marked 'FAQ'. Personally (this is not advice) I view RS as fairly safe, and boring, and the return you get is pretty much what you see, unless there is a financial catastrophe, in which case all bets are off. On many other platforms you really do need to allow for some bad debt losses .. so that 12% headline rate could easily become 6%, if you are unlucky and back the wrong horses. Heck, you can get 18% over on FC on E rated loans (which after compounding they're going to tell you is 20%) .. you can actually GET 20% on some ReBS loans... until bad debts and taxes claw some back.
You are doing well to step in gently. Don't invest more than you can afford to lose (really!) or at least 'live without for some number of years until the liquidator gets through'. Most platforms let you register, and play with a few pounds, before you ramp up (if you want to). Don't rush ... muggins mistake #1 is trying to get £xxk invested one wet afternoon. If you can buy, then someone else is either selling, or declining to buy, and there may be a good reason.
Platforms' risk band assessments are notably dubious, and best viewed as a guide. Make up your own mind .. personally I've been (as you've seen if you've been reading) avoiding new investment into FC since they started telling me what rate to invest in a particular business at. For a £25k loan you really can't expect them to spend £10k doing an in-depth analysis of the business and the guarantors, so diversity is really your only safeguard. At the end of the day it is your money, and the safeguards are not exactly bullet proof in P2P, so keep an eye on it yourself. My views on 'autobid' of the FC type are well known .. 'don't', it mostly invests in what other people didn't want.
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Post by dualinvestor on May 6, 2016 7:46:00 GMT
I have £1k in RS as I dabble round the edges before making a more substantial investment in p2p. I started looking at FC and thought that the headline rates made it look more attractive but if I look at the 6.4% estimated net return on A++ loans I am not so sure the extra 0.3% over RS is worth it. 1. Am I right in thinking that RS looks to be the "safest" p2p platform due to their provision fund combined with their size? 2. Should I be concerned by other platforms like FC not having a fund or is the argument that sufficient diversification should give the same protection? 3. Should I be looking at loans wider than just A++ to give a fair comparison? Isn't the worry that these sites are over rating their loans just like the US banking crisis? 4. I see lots of people bad mouthing FC and moving to other less well know platforms. Are people not concerned at their immaturity and lack of backing? Do they all require you to review and cherry pick loans? 5. 12% at SS looks very attractive and I like the idea of a secured loan based on a tangible asset but why does it pay so high? Is the only way to be confident that the property / land is worth the estimate by doing your own market research or has their been some neutral valuation carried out? 6. What else should I factor in before deciding where to invest my cash? Thanks so much for your help in advance! In whatever form of investing generally the greater the return the higher the risk. Z exclusively lends to retail borrowers with high credit ratings, for all except its new products, has a provision fund and the longest trading record. RS is similar except it also does do some business lending against security, sources some of its borrowers through third parties and also has a provision fund. Headline rates on both of those platforms are, usually, far better than could be obtained on a normal fscs guaranteed deposit, but are far below the gross rates offerred on most of the other platforms. Lending on the other platforms is radically different and aimed at an entirely different, sub prime, market. The APRs for borrowers on Z and RS may be at the top end but are more or less what can be obtained in the retail borrowing market as a whole, on the other platforms the rates they pay are far higher than can be obtained from conventional sources, eg on FS borrowers pay a minimum of 33% APR before even taking into account arrangement and other fees. Therefore in most, if not all, of those loans the borrowers do not have a "bankable" proposition. This does not mean that all, or indeed any, of them will default but there is a significant possibility that some will. To protect against that the platforms take security, the quality thereof can be variable. They will never lend more than a certain proportion of the value (LTV), but you have to consider yourself the prospects of sufficient funds coming from that to cover costs, possible prior charges and your loan. Other considerations as mentioned by other above, particularly platform security and diversity are hugely important but at the end of the day remember this cliche "If something seems too good to be true, it usually is." So promised returns of 6%-16% when fscs guaranteed funds are significantly below that must also come with the liklihood that you may lose some or all of your capital.
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Greenwood2
Member of DD Central
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Post by Greenwood2 on May 6, 2016 7:53:08 GMT
If you read the front pages of the platforms they are very warm and fuzzy and full of great promise. Make sure you also read the T&Cs carefully and compare and contrast!
As far as I'm aware none of the platforms give advise (although the way some things are talked up you might think they have), non of the platforms guarantee the security on loans and non of them guarantee their protection funds, it's all up to you to do your own due diligence. Usually higher rates mean higher risks and more effort required to minimise your personal risk.
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Post by propman on May 6, 2016 8:11:13 GMT
As someone who works in property I am most likely to be in financial distress when the property markets crash so limit my exposure to it. Good answers above. The only thing I have to add (other than reiterating that your personal circumstances and other investments need to be considered, so if you have VCTs, large additional exposure to SMEs will not be diversified much by adding SME lending. While bank shares will have correlation to personal loans) is to consider tail risk. Risks are not equal. There are:
1) reasons for volatility in returns (eg defaults on unsecured, unprotected loans). These should be factored in to a realistic estimate of likely returns. 2) "normal" capital risks: these include defaults on loans that form a significant part of your portfolio, but also market factors that will hit regularly but only in occasional years such as property market corrections that are likely to lead to losses significantly in excess of the interest earned for the years concerned. Remember that secured loans typically have little support except the security and may rely on refinancing to repay. As a result, if the value or marketability of the asset falls, you will face defaults just when the security becomes insufficient and will be selling into a fire sale market. 3) Rare events: this would include a resolution event on RS when the PF becomes insufficient to meet all claims. You need to be comfortable with the effects of these "cliff-edge" events on your lifestyle and have thought through how they will impact you before committing your funds, 4) Exceptional market events, this is where long term loans have significant risks as large increases in rates will leave them unsaleable except at a huge loss as well as having a significant economic cost of retaining an asset that could be bettered for return at less risk. 5) platform risk: this could lose a high proportion of your capital in the event of a major fraud and the professional fees sorting out the residue are likely to hit returns as well as a significant delay to pay outs.
Best of luck
- PM
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Post by Financial Thing on May 9, 2016 17:17:15 GMT
All good answers here....
I used to think platform size equated to safety but now I'm not sure size of platform should make one feel more or less comfortable in regards to safety. You would naturally think the larger the platform, the safer the platform but history has shown billion £ companies can fold as easily as small companies. Smaller companies are often are able to plod along through tough economic times due to less exposure / expenses to shoulder. Vice versa also.
P2p investments are calculated gambles. One Directors decision could make a company crumble (hopefully the apple variety rather than the bankrupt variety).
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