sikas
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Post by sikas on Jan 31, 2017 18:44:50 GMT
just my 2 cents.... any chance you can change the way your secondary market operates and make it like SS/COL and MT , ive funds on all 3 and wouldnt mind another another platform, your funds look good and i wanna get involved, but i dont like (and im sure im not alone) the way your SM operates (its also confusing for newbies)
Im sure you would would attract many more investors, and current investors would be happier if it was altered and operated more in line with the other big 3 platforms.
Thanks,
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archie
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Post by archie on Jan 31, 2017 18:54:05 GMT
There is a fundamental difference on FS, the interest is only paid at the end of a loan. The sm prices have to reflect that.
I prefer the sm on the other platforms too but I can see why it is this way.
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Post by mrclondon on Jan 31, 2017 22:35:11 GMT
sikas the SM is the way it is primarily because the loans are interest rollup - i.e. the borrower pays interest at the end of the loan period. Changing the way the SM operates would mean completely changing the business model to interest upfront / monthly interest, and turning away borrowers who want an interest rollup loan, a niche FS have pretty much to themselves within p2p. It would be a real shame if such borrowers were denied a p2p loan. A combination of a unique borrower offering generating a decent pipeline of new loans, and undeserved scepticism of the business model by some lenders makes FS one of the few p2p platforms that larger investors can drop 4 or 5 figure sums into most loans with relative ease. FS is now my biggest platform having overtaken AC given the ease with which I can deploy funds into a diversified stream of loans. I simply can't get big enough chunks of loans on other p2p platforms at present.
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stub8535
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personal opinions only. Not qualified to advise on investment products.
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Post by stub8535 on Jan 31, 2017 23:06:29 GMT
Sikas. Dip your toe in and play with the secondary market. It wont take long for you to spot the opportunities and pitfalls.
What exactly bothers you about the SM here? You do not need to use it at all. Just invest in "new" loans as they are listed and hold to term. Watch the sm over a couple of months and see patterns and exceptions appear.
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mikes1531
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Post by mikes1531 on Feb 1, 2017 3:18:11 GMT
There is a fundamental difference on FS, the interest is only paid at the end of a loan. The sm prices have to reflect that. I prefer the sm on the other platforms too but I can see why it is this way. sikas the SM is the way it is primarily because the loans are interest rollup - i.e. the borrower pays interest at the end of the loan period. Changing the way the SM operates would mean completely changing the business model to interest upfront / monthly interest, and turning away borrowers who want an interest rollup loan, a niche FS have pretty much to themselves within p2p. It would be a real shame if such borrowers were denied a p2p loan. I'll be the first to admit that I'm taking advantage of the FS SM in its current form, so I wouldn't propose changing it. However, having said that, I don't agree that it has to work this way simply because of the way FS structure their loans. All that would need to be changed is to keep track of who owns loan parts over time and then distribute the interest -- when received -- in line with that. If that were done, secondary market sales could be done at par. Investors selling parts would be entitled to their accrued interest when -- and if -- the borrower paid it or the security was sold for enough to repay all capital and there was money left to pay the accrued interest. It's not a trivial bookkeeping operation to keep track of all the bits of accrued interest, and investors selling parts might not like the idea that if the loan defaulted after they sold their part they might not receive any of their accrued interest, so it might not be a popular change. But all I'm saying is that there is a possible alternative that still would work with FS loans structured as they are now.
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stevio
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Post by stevio on Feb 1, 2017 20:44:52 GMT
It does however offer something that the others don't - the ability of higher rate tax payers to reduce tax liability, and the ability of zero rate/basic rate taxpayers to make enhanced returns. I didn't like it at first but diversity in SM approaches adds opportunities. Think I know what you mean, but to be sure, could you kindly elaborate on the SM tax advantages you mention?
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stevio
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Post by stevio on Feb 1, 2017 20:54:21 GMT
sikas the SM is the way it is primarily because the loans are interest rollup - i.e. the borrower pays interest at the end of the loan period. Changing the way the SM operates would mean completely changing the business model to interest upfront / monthly interest, and turning away borrowers who want an interest rollup loan, a niche FS have pretty much to themselves within p2p. It would be a real shame if such borrowers were denied a p2p loan. A combination of a unique borrower offering generating a decent pipeline of new loans, and undeserved scepticism of the business model by some lenders makes FS one of the few p2p platforms that larger investors can drop 4 or 5 figure sums into most loans with relative ease. FS is now my biggest platform having overtaken AC given the ease with which I can deploy funds into a diversified stream of loans. I simply can't get big enough chunks of loans on other p2p platforms at present. And your happy with the level of late loans and defaults? It must be similar level to AC I imagine by remembering the number of loans that were paused on the SM for a while. With decreasing rates on AC and SS and prefunding allocation lowering on SS, I can see the attraction, but my current level of fund "tied up" on FS, makes me very cautious
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Post by mrclondon on Feb 1, 2017 21:20:25 GMT
A combination of a unique borrower offering generating a decent pipeline of new loans, and undeserved scepticism of the business model by some lenders makes FS one of the few p2p platforms that larger investors can drop 4 or 5 figure sums into most loans with relative ease. FS is now my biggest platform having overtaken AC given the ease with which I can deploy funds into a diversified stream of loans. I simply can't get big enough chunks of loans on other p2p platforms at present. And your happy with the level of late loans and defaults? It must be similar level to AC I imagine by remembering the number of loans that were paused on the SM for a while. With decreasing rates on AC and SS and prefunding allocation lowering on SS, I can see the attraction, but my current level of fund "tied up" on FS, makes me very cautious Yes I'm pretty happy with the state of the my FS loan book. I've only had one loss on default (the Lubin art), and at present I have just 3 borrowers who are late with renewals (powerboats, Nuneaton restaurant, and the wind turbine). The wind turbine is an unknown at present but I only have a small amount in it bought at a 3% discount on the SM. The other two I'm confident will repay in full sometime. In general I'm only selecting p2p loans which I'm confident the security will be more than adequate cover in normal economic conditions. The rub is that at 70% LTV the time to recovery becomes important to be able to recover all accrued interest. But this applies to any platform, and is the main reason why 10-13% yield is just an illusion. However the real reason why I have so few late borrowers is I sell anything I can at 40 days before maturity on the SM at a discount which covers the basic rate tax liabilty the purchaser inherits. And almost everything sells (but I sometimes then buy back in at the 31 day mark at 2 or 3% discount having sold a few days earlier at a 1% discount. I'm currently a basic rate tax payer) It does however offer something that the others don't - the ability of higher rate tax payers to reduce tax liability, and the ability of zero rate/basic rate taxpayers to make enhanced returns. I didn't like it at first but diversity in SM approaches adds opportunities. Think I know what you mean, but to be sure, could you kindly elaborate on the SM tax advantages you mention? The vast majority of transactions that complete on the SM are at a discount that is roughly equivalent to basic rate tax liability on the accrued interest (very roughly 0.1% for each 15 day age of the loan part). So a higher rate tax payer is typically able to offer a discount equivalent to basic rate tax where as if held to maturity he would have to pay higher (or additonal) rate tax on the interest. A zero rate tax payer is receiving a true discount compared to face value as he has no tax to pay on the interest received, and hence receives a yield higher than face value/
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stevio
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Post by stevio on Feb 1, 2017 21:30:04 GMT
And your happy with the level of late loans and defaults? It must be similar level to AC I imagine by remembering the number of loans that were paused on the SM for a while. With decreasing rates on AC and SS and prefunding allocation lowering on SS, I can see the attraction, but my current level of fund "tied up" on FS, makes me very cautious Yes I'm pretty happy with the state of the my FS loan book. I've only had one loss on default (the Lubin art), and at present I have just 3 borrowers who are late with renewals (powerboats, Nuneaton restaurant, and the wind turbine). The wind turbine is an unknown at present but I only have a small amount in it bought at a 3% discount on the SM. The other two I'm confident will repay in full sometime. In general I'm only selecting p2p loans which I'm confident the security will be more than adequate cover in normal economic conditions. The rub is that at 70% LTV the time to recovery becomes important to be able to recover all accrued interest. But this applies to any platform, and is the main reason why 10-13% yield is just an illusion. However the real reason why I have so few late borrowers is I sell anything I can at 40 days before maturity on the SM at a discount which covers the basic rate tax liabilty the purchaser inherits. And almost everything sells (but I sometimes then buy back in at the 31 day mark at 2 or 3% discount having sold a few days earlier at a 1% discount. I'm currently a basic rate tax payer) Think I know what you mean, but to be sure, could you kindly elaborate on the SM tax advantages you mention? The vast majority of transactions that complete on the SM are at a discount that is roughly equivalent to basic rate tax liability on the accrued interest (very roughly 0.1% for each 15 day age of the loan part). So a higher rate tax payer is typically able to offer a discount equivalent to basic rate tax where as if held to maturity he would have to pay higher (or additonal) rate tax on the interest. A zero rate tax payer is receiving a true discount compared to face value as he has no tax to pay on the interest received, and hence receives a yield higher than face value/ Interesting, though I doubt whether you can continually sell at a discount and buy at a bigger discount the majority of the time. Selling on the FS SM at a discount, although the returns are tax free, they must be lower than the return on holding to term?
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Post by mrclondon on Feb 1, 2017 21:51:58 GMT
Interesting, though I doubt whether you can continually sell at a discount and buy at a bigger discount the majority of the time. Selling on the FS SM at a discount, although the returns are tax free, they must be lower than the return on holding to term? Agreed, it is quite rare being able to rebuy at a significantly larger discount, but it does happen. As a basic rate tax payer selling at a discount on the SM that matches the basic rate tax liability gives me the same return as if held to term and then paying the tax. (Assuming the gain of compounded growth by being able to re-invest the interest sooner cancels out the loss of "paying" out the tax liability immediately not at the next 31st July/31st January tax payment on account date). In the very rare cases I would need to offer a discount larger than basic rate tax liability to be able to sell, I hold to term (and hence eventual renewal/redemption). It is rare, simply because I'm not normally in the riskier loans which need a larger discount.
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stevio
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Post by stevio on Feb 4, 2017 8:00:19 GMT
Interesting, though I doubt whether you can continually sell at a discount and buy at a bigger discount the majority of the time. Selling on the FS SM at a discount, although the returns are tax free, they must be lower than the return on holding to term? Agreed, it is quite rare being able to rebuy at a significantly larger discount, but it does happen. As a basic rate tax payer selling at a discount on the SM that matches the basic rate tax liability gives me the same return as if held to term and then paying the tax. (Assuming the gain of compounded growth by being able to re-invest the interest sooner cancels out the loss of "paying" out the tax liability immediately not at the next 31st July/31st January tax payment on account date). In the very rare cases I would need to offer a discount larger than basic rate tax liability to be able to sell, I hold to term (and hence eventual renewal/redemption). It is rare, simply because I'm not normally in the riskier loans which need a larger discount. Would you mind giving a worked example of the bold text?
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mason
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Post by mason on Feb 4, 2017 10:05:26 GMT
As a basic rate tax payer selling at a discount on the SM that matches the basic rate tax liability gives me the same return as if held to term and then paying the tax. Would you mind giving a worked example of the bold text? Say that you have £1,000 invested in a loan that's approaching redemption, but is still within the 30 day window for listing on the SM. You'll be given a current value including accrued interest, which might be of the order £1,050. Your future tax liability on that accrued interest as a BR taxpayer is £10 (assuming you have no allowances left), so net interest would be £40. If you sell at a discount of 0.9% or less, you will receive a minimum of £40 capital gain free from any income tax liability.
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Post by mrclondon on Feb 4, 2017 11:48:26 GMT
As a basic rate tax payer selling at a discount on the SM that matches the basic rate tax liability gives me the same return as if held to term and then paying the tax. Would you mind giving a worked example of the bold text? On maturity (183 days) £1000 at 12% will produce £60.16 interest (=1000*.12*183/365) less £12.03 tax (=60.16*0.2) = £48.13 net Annual Yield 9.60% (=48.13/1000/183*365) Selling at 0.9% discount after 137 days (46 remaining) £1000 at 12% will produce £45.04 capital enhancement (=1000*.12*137/365) less £9 capital discount (=1000*0.009) = £36.04 net Annual yield 9.60% (=36.04/1000/137*365) QED Obviously I've picked duration / discount (137 days / 0.9% ) that produces the identical net yield to a loan that redeems on its maturity date. Depending on when the loan part sells or when the loan redeems (might be before or after the redemption date) the yield by selling on the SM may be marginally lower or marginally higher than holding to redemption. However, as I hinted in my earlier post, the major "loss" of selling on the SM is having to pay out the tax liability immediately not the next 31st July/31st January ... unless you are of course the sensible type who always puts future tax liabilities in a 0.1% bank account for safety !
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Post by mrclondon on Feb 4, 2017 13:40:14 GMT
It is perhaps worth taking the worked example from my previous post and looking at it from the point of view of the SM purchaser
buying £1000 at 12% after 137 days (46 remaining) with 0.9% discount costs £1036.04 and on maturity (183 days) will receive £1060.16 back (see previous post for calcs), so a gross gain of £24.12 over 46 days
For a non tax payer the annual yield is 18.47% (=24.12/1036.04/46*365)
For a basic rate tax payer the tax due is £12.03 (=60.16*0.2) so the net gain is £12.09 (=24.12-12.03)
and hence the net annual yield is 9.26% (=12.09/1036.04/46*365)
For a higher rate tax payer the tax due is £24.06 (=60.16*0.4) so the net gain is £0.06 (=24.12-24.06)
and hence the net annual yield is 0.05% (=0.06/1036.04/46*365)
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micdic
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Post by micdic on Feb 4, 2017 18:27:00 GMT
Thanks to everyone on this thread for posting information, and particularly to Mrclondon for taking the time to write out those examples of the SM transaction from two (indeed more) perspectives. It is very useful information for newbies like myself. In addition to the maths, I need to get a better feel for the default and delay factor - it seems all too obvious that the seller on the SM has successfully ducked all default and delay risk, whereas the buyer has taken it all on. Once one experiences a few loans that drag on for months past full term I suspect the affect of 0.1% either way (on the SM transaction) will be long forgotten.
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