r00lish67
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Post by r00lish67 on Oct 15, 2016 3:24:40 GMT
My personal observations on property loans over on FS:
1) Since about the turn of the year, property lending on FS seems to have been switched to breakneck speed. At first, investors lapped it up, but for the last few months demand has slowed down significantly - maybe as people reach their platform limits, maybe because of the slightly byzantine SM, maybe because more of the loans seem to be becoming unredeemed/defaulted (I have a few).
2) The rapid pace of loan origination seems not to be slowing down, leading to FS being (the only?) a platform increasing their standard interest rates, which is the opposite of where rates are going generally in the marketplace.
3) Because of the structure of lending, the oft-required renewal of existing property loans have to compete with a wide range of new property loans meaning even more supply of loans for a limited lender base.
4) The SM is visually very messy, and becoming brimful of -2% discounted loans, partially due to the tax implications and partially due to ongoing huge availability in the primary marketplace.
So, if what I've said above is broadly true (and I have no stats to back the above points up, so I welcome any challenge), should we be concerned?
I'm not too fussed about the operation of the SM, although it definitely needs tidying up and loans consolidating - terrible presentation. I would love them to change the Tax accrual position so that loans can again be sold near par, but that's probably not going to change and I can see how it benefits others.
I am however concerned that the pace of new loans is just too fast, it seems to be just drowning lender demand as the platform doesn't have the mass market appeal of FC or the popularity of SS/MT. Is there a growing risk of property loan renewals just not being funded within any reasonable timeframe?
My second main concern is that I just don't feel confident that FS are generally handling property very well. As a current non tax-payer, if I had trust in the platform then I would be snapping up the -2% discounted loan parts left right and centre to turn a quick profit. It feels like a significant gamble to do so.
So what are your views? Am i talking out of my hat?
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stevio
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Post by stevio on Oct 15, 2016 6:27:43 GMT
Are there any stats or specific observations of the slowdown of primary market (I haven't invested for last 12m so not noticed)
Anyone care to calculate a default rate? I think you can see numbers defaults in all investments page
Saturation is not always bad thing - you can pick and choose quality, diversification is easy and rates and cash back increased
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r00lish67
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Post by r00lish67 on Oct 15, 2016 8:05:22 GMT
Are there any stats or specific observations of the slowdown of primary market (I haven't invested for last 12m so not noticed) Anyone care to calculate a default rate? I think you can see numbers defaults in all investments page Saturation is not always bad thing - you can pick and choose quality, diversification is easy and rates and cash back increased You're right on that front. In the few hours since I wrote the original post, I've sold quite a few parts I didn't like and bought a few much better looking loans. It certainly does give you the luxury of choice, but it also has quite a few pitfalls. Lesson learnt from my point of view, be more choosy!
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SteveT
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Post by SteveT on Oct 15, 2016 8:25:47 GMT
I think FS are travelling the same path that FC took a year or so earlier, ramping up property lending whilst looking to grow the base of active lenders. And who's to blame them in a market that appears to value AltFi businesses on a multiple of loans originated.
Provided they keep the two sides in balance, I'm not unduly concerned. FC also had to offer higher rates and cashback to fill larger property loans in the first year, but no longer need to, having massively grown institutional funding.
The problem for FS would be if renewal loans routinely stopped filling, locking up more lenders' funds in overdue loans and putting off borrowers that need 12-18 month facilities. However there's only been one that failed to fill so far and that was huge (a single £1m tranche); a lesson in itself.
As on other platforms, there could be tweaks at some stage, especially to reduce renewal headaches on development loans. A switch to monthly interest payments, either retained at drawdown or paid by the borrower, seems an obvious possibility.
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duck
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Post by duck on Oct 15, 2016 8:44:23 GMT
What I have found is that FS has a different 'dynamic' to other platforms.
With other platforms there is a steady stream of incoming payments but with FS this is far more spasmodic. Reading updates this morning I may well be needing to find a home for a decent 5 figure sum this coming week whereas it was only a couple of hundred this week. I'm not saying this is bad, just different.
My business account is now 100% focused on the secondary market and is doing very nicely. Whilst the tax position taken is different I still make it work for me as a basic rate tax payer and since it is beneficial to non tax payers and business account holders I wouldn't like to see it changed.
I hold a couple of distressed loans I find the overall impact to be small since my holding per loan on FS tends to be lower than on other platforms.
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littleoldlady
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Post by littleoldlady on Oct 15, 2016 11:27:14 GMT
IMHO the platform is looking very vulnerable. Expanded lending too fast and took on loans that the likes of SS and MT did not. Why? Are FS terms more generous to borrowers? Seems unlikely as they are the only one of these 3 offering bonuses. So I conclude that they are taking on loans which SS and MT decline. Considering the flaky ones which those two accept the mind boggles at those that they turn down. just MHO.
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mikes1531
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Post by mikes1531 on Oct 15, 2016 14:08:20 GMT
I am however concerned that the pace of new loans is just too fast, it seems to be just drowning lender demand as the platform doesn't have the mass market appeal of FC or the popularity of SS/MT. Is there a growing risk of property loan renewals just not being funded within any reasonable timeframe? I was encouraged to see a couple of loans appear in the past few days that were completely funded in less than 24 hours or so. Not being huge loans would have helped of course, but it's still an improvement over recent funding performance. Not to mention that one of those loans was secured by a third charge, and still paid just 12%. IIRC, the list got as long as 16 available loans at one point, but it's now down to just 10. It will be interesting to see if FS are helped noticeably when SS's list of pipeline loans starts showing rates below the 'standard' 12%. That's supposed to happen next week.
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jjc
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Post by jjc on Oct 15, 2016 15:08:13 GMT
On the shortage of lenders I noticed this on their last newsletter (which could indicate there’s something interesting cooking in the pot): The recent SharesLive exhibition and conference was a very busy one for FundingSecure. We received a lot of interest, together with visits from numerous investors, existing and new. The event saw a wide range of visitors, including both domestic and overseas investors. In addition there were representatives of companies, pension and trust funds - all keen to invest in our peer-to-peer platform.
If FS can address both ends of the funding loop, investors at drawdown (monthly interest & pepperpot ’s simple suggestion on the SM tidy-up probably enough) & buyers on the SM (where their model offers them an opportunity to target companies looking for enticing returns), demand could/should rocket. Now a golden opportunity with SS adjusting rates. Wrt the increased deal flow there are 2 aspects that concern me – to what extent the bar might be (has been already?) dropped too far allowing poor quality deals/borrowers on, & how FS’ small team will be able to monitor a large number of development loans*. The first could be at least partly addressed by taking interest upfront (& paying lenders monthly) 2 pigeons 1 stone. As to monitoring if lenders were to see regular site visits (by FS, valuer or broker) with a few quick pics to demonstrate progress (not complicated or expensive) that could transform confidence, & a lot more lenders would hold through redemption (hence also minimising renewal funding risks). FS have valuers & brokers dotted around most regions of the country, it shouldn’t be hard to organise & could be commercially interesting. eg make monitoring optional for deals under £X size, borrowers that choose this service pay for it (more income for valuer/broker & net cost to FS zero/negative) whilst lenders & borrowers get a slightly lower rate reflecting the lower risk of a monitored development. Ups quality, ties the broker to their deals, & allows FS to offer a wider profile of risk. All in all not many tweaks needed to transform the platform. Like SteveT I’m not unduly concerned but think they need to do something soon to improve lender confidence & demand. * anyone added up the number of these currently live / in funding? Add say 10 new/month moving forwards, where will we be in 6-12M's time? |
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Post by Deleted on Oct 15, 2016 15:15:36 GMT
I think FS looks attractive to borrowers because of the no upfront fees and all interest rolled up. Lets them concentrate on getting on with things, but for lenders it doesn't seem to be as popular as SS/MT et al. A big marketing push for new lenders might help, or institutional money, otherwise eat humble pie and blatantly copy what other property/bridge platforms (that appear not to be struggling for funds) have done. Agree with the SM, one listing per loan, not per loan part, would tidy it up greatly. Expand that listing to see individual loan parts, a basic form of the FC SM would be perfectly suited. Hint hint, fundingsecure  I remember very well that the FC secondary market used to be very similar to what FS SM is today. Then FC wrote the loan part listing/aggregation routine and the nice filtering part and it improved a lot (and was also much nicer). FS should simply put a programmer to check the current FC model and try and produce something similarly professional looking.
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daveb4
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Post by daveb4 on Oct 16, 2016 8:17:00 GMT
One way to reduce the number of repeated loans is not to organise a new development for 6 months knowing this will never happen in probably 75% of their new development loans. Development Loans for new builds I think have to be 12 months. Perhaps try and take interest up front so can be paid monthly and interest rate therefore can be slightly lower 11/12%.
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hendragon
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Post by hendragon on Oct 16, 2016 8:46:34 GMT
I am minded to ask how many of the property loans have redeemed, rather than defaulted or renewed. This may also apply to loans like the Italian library. The circle has to break somewhere surely.
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r00lish67
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Post by r00lish67 on Oct 16, 2016 13:27:22 GMT
I am minded to ask how many of the property loans have redeemed, rather than defaulted or renewed. This may also apply to loans like the Italian library. The circle has to break somewhere surely. Isn't there also the category of just 'not redeemed, renewed or defaulted but we just extended it', of which a few that spring to mind are 1442701959 (now in it's 8th month of extension), 2420070522, 1327419387, and I'm sure plenty more. As is often observed on this forum (not just FS), the situation is both a) the nature of property lending and b) often unacceptable or at least concerning to lenders. One of the only P2P platforms that have generally avoided the wrath of lenders in this respect (so far) is SS, simply because they've mostly had an incredibly liquid SM and have interestingly opted to allow lenders to buy and sell significantly overdue (or even defaulted) loans whilst we're locked out over on FS/FC in short order. This isn't me necessarily praising SS by the way - it's jam today, but their liquidity could be significantly hit by a few more defaults, which seems increasingly likely to be coming given the amount of overdue loans and 'interesting' borrowers involved. If/when it does, the lack of ability to discount loan parts could leave many investors locked in until resolution. Given that on FS we do have the ability to appropriately discount loan parts, couldn't we be given the ability to trade loan parts with this status? I'd feel more comfortable with lending more if I knew that I could still sell at some price when it's in 'unexpected' extension territory. If I was feeling particularly cavalier, I might even buy a few (at a very good discount! :-)
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littleoldlady
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Post by littleoldlady on Oct 16, 2016 19:18:17 GMT
It is a bizarre anomaly that SS allow sales of loans in default but do not allow discounts or premiums whilst FS do allow variable pricing but not on loans within 30 days of term. Common sense would say that discounts are a prerequisite to allow sales of loans which are in any way not in good order.
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duck
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Post by duck on Oct 17, 2016 5:10:24 GMT
It is a bizarre anomaly that SS allow sales of loans in default but do not allow discounts or premiums whilst FS do allow variable pricing but not on loans within 30 days of term. Common sense would say that discounts are a prerequisite to allow sales of loans which are in any way not in good order. Whilst on face value I would agree with the sentiment of your post littleoldlady I feel the devil is in the detail. With SS you buy the loan and the risk and if the loan works out you get the return you hoped for. With FS you buy the loan and the accrued interest. If the loan goes bad with SS it is your capital and accrued interest at risk. With FS it is your capital and the total accrued interest that is at risk ..... the risk is higher. By buying at a discount some of this risk is offset bringing the two platforms closer together. As for the 30 days on FS I can instantly see two reasons why I think it should stay 1. It 'protects' less well informed investors than those who inhabit this board ..... it would be easy (almost inevitable for a lot of tax payers) to run up losses when tax is taken into account if you bought extensively on the aftermarket and there was no 30 day period. 2. With 30 days in place, serious abuse of the tax system is to a great extent ruled out. Take the 30 day limit away from FS and I feel that the platform would take a lot of grief, they can't assume that all investors are 'sophisticated' and understand just what risk they are taking on.
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littleoldlady
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Post by littleoldlady on Oct 17, 2016 6:38:52 GMT
It is a bizarre anomaly that SS allow sales of loans in default but do not allow discounts or premiums whilst FS do allow variable pricing but not on loans within 30 days of term. Common sense would say that discounts are a prerequisite to allow sales of loans which are in any way not in good order. Whilst on face value I would agree with the sentiment of your post littleoldlady I feel the devil is in the detail. With SS you buy the loan and the risk and if the loan works out you get the return you hoped for. With FS you buy the loan and the accrued interest. If the loan goes bad with SS it is your capital and accrued interest at risk. With FS it is your capital and the total accrued interest that is at risk ..... the risk is higher. By buying at a discount some of this risk is offset bringing the two platforms closer together. As for the 30 days on FS I can instantly see two reasons why I think it should stay 1. It 'protects' less well informed investors than those who inhabit this board ..... it would be easy (almost inevitable for a lot of tax payers) to run up losses when tax is taken into account if you bought extensively on the aftermarket and there was no 30 day period. 2. With 30 days in place, serious abuse of the tax system is to a great extent ruled out. Take the 30 day limit away from FS and I feel that the platform would take a lot of grief, they can't assume that all investors are 'sophisticated' and understand just what risk they are taking on. I largely agree. I was not suggesting that FS did away with the rule - it would be better if SS introduced something similar. I was just pointing out the anomaly. But although it also alleviates the tax problem it is IMO an exaggeration to say "serious abuse of the tax system is to a great extent ruled out".
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