james
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Post by james on Nov 20, 2016 10:34:16 GMT
The question is why are people borrowing at these rates if finance from banks is so cheap (unsecured personal loans for 3%). Because companies can't borrow hundreds of thousands of pounds on a personal loan and personal loans aren't available for property development, bridging or often business growth at that size. The competition is often 2-3% a month bridging loan providers that are undercut by P2P rates. It's definitely not true to say nothing will come close to 12%. Even the low effort vanguard lifestrategy funds are coming in at 20% and above this year (80 and 100, although the 60 and 40 are still above 12%) You picked a remarkably lousy competitor there since "will come close" is a forward-looking measure and much of the gains in those funds have been due to the exchange rate of the Pound dropping. A high percentage is also invested in major equity markets where the cyclically adjusted price/earnings ratio is projecting negative returns for the next decade or so. Nobody should be buying the Vanguard Lifestrategy funds today with any expectation of even meeting historic averages for quite some time, let alone this years level of return. A significant part of why I'm in P2P is to avoid being in funds like Lifestrategy with their likely future returns and substantial risk of large capital value drop. Short term, though, Trump-related stimulus might produce interesting returns from the portion invested in the US, if exchange rate issues don't eliminate the gain. A far more comparable competitor would be something like an income-focused late stage VCT where perhaps 8-10% on net money invested is available tax exempt.
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littleoldlady
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Post by littleoldlady on Nov 20, 2016 12:03:04 GMT
I am reducing but not pulling out of p2p altogether, but I am completely out of C and largely out of SS and FS and more into LI at a much lower rate and (I hope) a much lower risk.
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Post by brokenbiscuits on Nov 20, 2016 12:45:46 GMT
[/quote]You picked a remarkably lousy competitor there since "will come close" is a forward-looking measure..
[/quote]
James, not looking to have a row but you have missed my point with your comment. This thread is about exiting p2p entirely and the comment I replied to was about only investing in p2p and nothing else.
I used vanguard as an example as they are fairly familiar. This is not a general investment forum and I would expect a number of people here do not invest out of a p2p. Vanguard has a simple fire and forget approach and is often a starting point for new investors.
I'm saying a balanced portfolio that includes p2p will not always see p2p come out on top, but because you have a bit of everything you will most likely see a decent return. P2p was a strong return in 2015 for me. Not so much in 2016 compared to other investments. I can't predict 2017 or any future year, so I will stick to the asset allocation I have faith in, knowing I'm likely to fair better with a good mix .
So do I think it's a good idea to exit p2p? no. Do I think it's a good idea to only be in p2p? No.
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hazellend
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Post by hazellend on Nov 20, 2016 12:56:28 GMT
You picked a remarkably lousy competitor there since "will come close" is a forward-looking measure..
[/quote] James, not looking to have a row but you have missed my point with your comment. This thread is about exiting p2p entirely and the comment I replied to was about only investing in p2p and nothing else. I used vanguard as an example as they are fairly familiar. This is not a general investment forum and I would expect a number of people here do not invest out of a p2p. Vanguard has a simple fire and forget approach and is often a starting point for new investors. I'm saying a balanced portfolio that includes p2p will not always see p2p come out on top, but because you have a bit of everything you will most likely see a decent return. P2p was a strong return in 2015 for me. Not so much in 2016 compared to other investments. I can't predict 2017 or any future year, so I will stick to the asset allocation I have faith in, knowing I'm likely to fair better with a good mix . So do I think it's a good idea to exit p2p? no. Do I think it's a good idea to only be in p2p? No. [/quote][/p]
I am a big fan of VLS and their all world ETF and all our equity holdings are in these investments.
When I said 12% can't be beaten, I was referring the 12% tax free income we are getting.
As a higher earner I lose about 50% in taxes, national insurance on most additional earnings now so would need to make 24% return gross to equal the 12%
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Liz
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Post by Liz on Nov 20, 2016 13:06:32 GMT
I'm still increasing p2p investments by re-investing the interest. I have a max of 1% of my p2p investments in any one loan, I'm split across multiple platforms and I reject a fair proportion of loans following my own due dilligence. For now the proportion of my loans defaulting is stable, and recovery of defaulted loans running ahead of my assumptions. In 2016 I have had just one loan default which looks like it will be a significant capital loss (FCF on TC which may be a total loss) and that one is a failing of my due dilligence as it's risk as 2nd charge balance sheet security was clearly way above my risk threshold. The other dozen or so defaults this year should all recover at least 80% of capital oustanding Wow FCF went down, I must have missed that! What date did it stop paying? I am so glad I sold my £5K on the SM(at a profit) earlier in the year. I jumped ship after reviewing my investments after O***l went down, the 2nd charge made it far too risky. I am increasing my P2P by re-investing all of my interest, but have been moving into property backed loans for a long while, got burnt and seen too many loans to small businesses go bad, with little recovery(FCF another example) I have had 2 loans go bad this year, both on TC and small businesses, both I wanted to sell but weren't saleable on the SM. 1 looks bad, the other i'm still hopeful it stays solvent, if not it has good security. Worst case I will return close to 10%, so can't complain, but can I can learn.
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angrysaveruk
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Post by angrysaveruk on Nov 20, 2016 13:30:02 GMT
The question is why are people borrowing at these rates if finance from banks is so cheap (unsecured personal loans for 3%). Because companies can't borrow hundreds of thousands of pounds on a personal loan and personal loans aren't available for property development, bridging or often business growth at that size. The competition is often 2-3% a month bridging loan providers that are undercut by P2P rates. I have been primarily focusing on personal loans companies like Rate Setter and Zopa. When I got into P2P I looked at funding circle and didnt like the idea of lending to LTD companies. 12% is certainly an attractive return for bridging loans especially if it is "low risk". How much confidence do you have in the security that is provided on the loan?
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Post by mrclondon on Nov 20, 2016 14:24:54 GMT
In 2016 I have had just one loan default which looks like it will be a significant capital loss (FCF on TC which may be a total loss) and that one is a failing of my due dilligence as it's risk as 2nd charge balance sheet security was clearly way above my risk threshold. Wow FCF went down, I must have missed that! What date did it stop paying? I am so glad I sold my £5K on the SM(at a profit) earlier in the year. I jumped ship after reviewing my investments after O***l went down, the 2nd charge made it far too risky. FCF's last monthly payment was September, a few days later the 1st charge holder appointed administrators over FCF, presumably having got wind there was what appears to be a large blackhole in FCF's balance sheet, one large enough to have a potentially significant impact on their 1st charge security, let alone the TC 2nd charge security. Three of the four TC loans have unsupported PGs covering a reasonable proportion of the debt, but there must be question marks as to the likelihood of any significant recovery from them given what can be assumed from the recent state of FCF's finances and how they have been managed. TC's loan 3 to FCF will be a total loss as no PG cover.
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ben
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Post by ben on Nov 20, 2016 17:59:35 GMT
Not exiting p2p either, althogh rebalancing books a bit. I do not see the need to fully exit p2p, I just see it as a differnet asset class from bonds, shares, prperty or whatever else you invest in.
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Greenwood2
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Post by Greenwood2 on Nov 20, 2016 20:02:43 GMT
FCF's last monthly payment was September, a few days later the 1st charge holder appointed administrators over FCF, presumably having got wind there was what appears to be a large blackhole in FCF's balance sheet, one large enough to have a potentially significant impact on their 1st charge security, let alone the TC 2nd charge security. Three of the four TC loans have unsupported PGs covering a reasonable proportion of the debt, but there must be question marks as to the likelihood of any significant recovery from them given what can be assumed from the recent state of FCF's finances and how they have been managed. TC's loan 3 to FCF will be a total loss as no PG cover. A disaster for all investors linked to TC and FCF, I am genuinely sorry to read this news, many investors have traveled this agonising road but it doesn't make it any easier to adsorb the shock and sadness now being experienced by those with funds in this one. I've just been writing about the worth of PG's along with other matters over on the ReBS Forum site. I don't get 'disaster.... shock and sadness' we expect losses or if we don't we're deluded.
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james
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Post by james on Nov 21, 2016 4:04:09 GMT
When I said 12% can't be beaten, I was referring the 12% tax free income we are getting.
As a higher earner I lose about 50% in taxes, national insurance on most additional earnings now so would need to make 24% return gross to equal the 12%
Just to be sure, you do know that unless it's inside an ISA or SIPP, P2P interest is taxable just like any other interest? You tell HMRC your gross interest for the year and they either tell you how much to pay or adjust your PAYE tax code to deduct the tax due on the P2P. It's not tax free, just tax not deducted up front, like savings accounts now where you're also required to tell HMRC. Platforms have been required by HMRC to tell HMRC who's been getting interest payments so as they reconcile that with their other information they can be expected to chase anyone not declaring it. There's no big deal in telling HMRC unprompted about a few years of previously undeclared interest, particularly if the amounts are in the hundreds of Pounds a year sort of range. If you wait until HMRC asks that'll be a prompted disclosure and penalties are likely instead of none. Where P2P can offer tax exempt gains is in capital gains from selling loans on platforms where the original loan issuance or secondary market is of simple debts. Capital gains on simple debts are exempt from CGT. Others may just do little enough gaining to stay within their CGT allowance.
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james
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Post by james on Nov 21, 2016 4:14:57 GMT
I can't predict 2017 or any future year, so I will stick to the asset allocation I have faith in, knowing I'm likely to fair better with a good mix . If you aren't already familiar with it, it's well worth reading up on the Shiller ten year Cyclically-Adjusted Price/Earnings (PE10) ratio and the positive effect expected from using it to lower equity allocations when market valuations are high. It's been shown to be reliable in all e
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james
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Post by james on Nov 21, 2016 4:27:26 GMT
I can't predict 2017 or any future year, so I will stick to the asset allocation I have faith in, knowing I'm likely to fair better with a good mix . If you're not already familiar with it, it's well worth doing some reading about the Shiller ten year cyclically adjusted price/earnings ratio (PE10). Predicting Stock Market Returns Using the Shiller CAPE: page 10 has a handy table showing the relationship for many markets and page 11 a useful graph. As a result of its apparent reliability it's been used in studies of how to reduce the effect of sequence of return risk in pension drawdown and improve the maximum safe withdrawal rate, while generally improving returns overall, with some useful reading on those subjects including: Jonathan Guyton Tames a GorillaSequence-of-Return Risk: Gorilla or Boogeyman?Dynamic Asset Allocation and Safe Withdrawal Rates
Historically I've been more than 90% invested in equities but given the level of PE10 in the major markets I've greatly reduced that in favour of P2P, in part because I can anticipate higher than average equity returns from P2P so it's not even a major cost to do it. I still have quite a bit in a Vanguard fund but quite a bit is way less than usual and I like them overall for beginners who won't pay much attention. But I don't want to see people stay beginners when some fairly simple changes to investment mixtures can improve likely results. Long term mixtures of investments are a good thing but that's not a sufficient reason to be highly weighted in areas where there is good reason to believe that now is a bad time to be buying. For those considering switching out of P2P this implies that now is not the best of times to be doing it into high equity mixtures. Of course I'm going in the opposite direction because I do believe the studies.
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james
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Post by james on Nov 21, 2016 4:44:33 GMT
I have been primarily focusing on personal loans companies like Rate Setter and Zopa. When I got into P2P I looked at funding circle and didnt like the idea of lending to LTD companies. 12% is certainly an attractive return for bridging loans especially if it is "low risk". How much confidence do you have in the security that is provided on the loan? The confidence in the security always depends on the specifics of the loan and its related package. Two generally interesting opportunities are quite often available at MoneyThing and Ablrate: MoneyThing: the AEnnn care hire purchase loans. These are lending to a firm that does car hire purchase to low credit rating people. The cars all have built in trackers. The security is both a 50% LTV on the hire purchase payments by the car buyers and an 80% LTV on the car values. While the borrowing HP firm is still trading, any defaulting HP buyers are swapped out at no explicit cost to lenders. When a HP purchase completes a replacement car is added to the package. The loan terms are six month renewable so you have regular end of term exits if the secondary market quietens down. Since the HP payments are from consumers and the cars are owned by the consumers most of the risk of the security vanishing just isn't there because the borrower doesn't have possession of the security. Ablrate: the ACF loans where ACF takes the credit risk so that if the borrower defaults, ACF makes investors whole, subject to ACF's own ability to pay. These deals need individual evaluation even so. The AE ones would be a good start and not being based on buildings they offer useful diversification. You can typically find at least some availability on the secondary market when other deals are coming up, though often there is nothing at all available, so it does take some persistence. At MoneyThing you might also find some of the property development loans offered by Broadoak in the BPFnnn series of interest. A distinguishing feature of these is that Broadoak has a 5% first loss exposure, providing a layer of protection to lenders if the security value turns out to be insufficient. Even more interesting for those who want reduced risk is the loans like BPF537/BPF536 where the 537 part pays 13% and the 536 part 10%. Those in the 537 part take losses if the security value is insufficient before those in the 536 part take losses. Described in more detail here.
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shimself
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Post by shimself on Nov 21, 2016 9:07:02 GMT
...At MoneyThing you might also find some of the property development loans offered by Broadoak in the BPFnnn series of interest. A distinguishing feature of these is that Broadoak has a 5% first loss exposure, providing a layer of protection to lenders if the security value turns out to be insufficient. .. More than the layer of protection that another 5% adds is the fact that to Broadoak this is lifeblood, if the loan went bad it would be really serious for them, so as a consequence I believe that they will do double due diligence and extra heart searching (whereas platforms and introducers as a whole look for a defensible case, no more). Skin in game. As long as I believe they are competent and not fools (certainly true of Broadoak, with the extra layer of familiarity coming from their contributions on this site, as both lender and borrower) I wish more platforms/introducers did the same. (Not everyone here agrees, they think it's more important that a platform survives making bad loans, so as not to contaminate their good loans).
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hazellend
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Post by hazellend on Nov 21, 2016 10:22:19 GMT
When I said 12% can't be beaten, I was referring the 12% tax free income we are getting.
As a higher earner I lose about 50% in taxes, national insurance on most additional earnings now so would need to make 24% return gross to equal the 12%
Just to be sure, you do know that unless it's inside an ISA or SIPP, P2P interest is taxable just like any other interest? You tell HMRC your gross interest for the year and they either tell you how much to pay or adjust your PAYE tax code to deduct the tax due on the P2P. It's not tax free, just tax not deducted up front, like savings accounts now where you're also required to tell HMRC. Platforms have been required by HMRC to tell HMRC who's been getting interest payments so as they reconcile that with their other information they can be expected to chase anyone not declaring it. There's no big deal in telling HMRC unprompted about a few years of previously undeclared interest, particularly if the amounts are in the hundreds of Pounds a year sort of range. If you wait until HMRC asks that'll be a prompted disclosure and penalties are likely instead of none. Where P2P can offer tax exempt gains is in capital gains from selling loans on platforms where the original loan issuance or secondary market is of simple debts. Capital gains on simple debts are exempt from CGT. Others may just do little enough gaining to stay within their CGT allowance. Thanks James. P2P is in my non earning spouses name who is otherwise a non earner. We fill out a self assessment once yearly and declare all p2p but there is no tax to pay due to tax reliefs.
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