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Post by WestonKevTMP on Feb 4, 2017 9:53:49 GMT
WestonKevTMP . You say " ... lenders have benefited for 11 years of P2P lending. A much better performance than the stock market....". Sorry but since the start of 2006, the S&P has delivered total returns of 15.7% compounded, the MSCI Global Equity Index 12.7% and the FTSE ASX 10.5%. I was lending on Zopa from 2005/07 and 2009/13, and I just don't remember making those sorts of compounded returns. Have you started dealing in "alternative facts"? Arb, I forgot about the legendary pedantry accuracy of the forumites.... No fake news here! Badly worded. What I meant was that capital plus reduced interest specifically during 2008/2009 crisis compared well with the stock market. I meant that the fact they didn't shut up shop in 2008 meant that the were able to continue offering their services and have now done so for 11 years. Despite any issues with Zopa, many lenders (and the wider spawned industry) is thankful for that. Although yes over the long term historically equities do out perform most asset classes. Although it is obviously a rocky ride (" if you want to go faster, scream") and no guarantees in the future.... Kevin.
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wapping35
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Post by wapping35 on Feb 4, 2017 10:05:35 GMT
I am not really convinced comparing Equities to P2P is viable.
I would argue Equities are higher risk than P2P (which is still pretty high risk anyway).
That said when comparison's are made on Equity investments, do take into account dividends paid, in addition to capital gains/losses.
So just as a data point (Google is saying.. so if its wrong it is not my "fake news") the current FTSE 100 average annual dividend yield is 3.72%. Reinvesting dividends commonly make up a substantial portion of investment returns in shares.
Edit:
Just to illustrate the impact, take the quoted 5% increase above over 2 years , that would have been enhanced by 3.72% x 2 = 7.44% , so actually in the example given the dividend return is higher than the capital gain.
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Post by tonybbpp on Feb 4, 2017 10:16:07 GMT
Is there any independent audit of Ratesetter's expected losses calculation?
If Ratesetter enters a Stabilisation Period but the expected losses do not subsequently materialise, there appears to be no mechanism to return lenders funds taken into the Provision Fund. Instead, new lenders as well as affected lenders get increased future protection.
Once Ratesetter is in a Stabilisation Period (and has already taken the PR hit) it will be in Ratesetter's interest to have the highest possible expected losses figure for the shortest possible time. As soon as the expected losses figure is then reduced, the Provision Fund, now boosted by existing lenders funds, will allow Ratesetter to enter into riskier lending, with new lenders protected by the higher Provision fund.
At the moment, the concern is that Ratesetter's expected losses figure may be too low rather than too high, but things change.
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clay
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Post by clay on Feb 4, 2017 10:29:41 GMT
the S&P has delivered total returns of 15.7% compounded, the MSCI Global Equity Index 12.7% and the FTSE ASX 10.5%. I was lending on Zopa from 2005/07 and 2009/13, and I just don't remember making those sorts of compounded returns. Have you started dealing in "alternative facts"? Here are the alternative facts to what many 'stock brokers' / 'hedge funds' will like you believe: FTSE 100 February 6 2015 trading at 6853 Today FTSE 100 February 4 2017 trading at 7188 Less then 5% increase in two years Your "alternative facts" only show capital growth. The FTSE 100 Total Return (i.e. including reinvested dividends) for the period you chose is more like 13%.
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bababill
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Post by bababill on Feb 4, 2017 10:38:03 GMT
Good point. Is that the annualized rate?
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jlend
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Post by jlend on Feb 4, 2017 10:57:08 GMT
Is there any independent audit of Ratesetter's expected losses calculation? If Ratesetter enters a Stabilisation Period but the expected losses do not subsequently materialise, there appears to be no mechanism to return lenders funds taken into the Provision Fund. Instead, new lenders as well as affected lenders get increased future protection. Once Ratesetter is in a Stabilisation Period (and has already taken the PR hit) it will be in Ratesetter's interest to have the highest possible expected losses figure for the shortest possible time. As soon as the expected losses figure is then reduced, the Provision Fund, now boosted by existing lenders funds, will allow Ratesetter to enter into riskier lending, with new lenders protected by the higher Provision fund. At the moment, the concern is that Ratesetter's expected losses figure may be too low rather than too high, but things change. Back in 2015 ratesetter did release a statement saying they were going to appoint an independent director to the Provision Fund to improve transparency as they accepted it was an issue. The current directors of the Provision Fund company are also directors of ratesetter. They decided not to go ahead with this in the end for various reasons. They said they would put an alternative mechanism in place to involve lenders but have yet to do that. It has been over a year now
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Greenwood2
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Post by Greenwood2 on Feb 4, 2017 11:34:23 GMT
Will the interest or capital taken off lenders to support the PF be eligible for tax relief as bad debt, or will it be too far removed from the actual bad debt to be eligible?
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Post by GSV3MIaC on Feb 4, 2017 15:38:38 GMT
Well interest taken off will directly reduce your tax liability (you will have had less interest to be taxed). Capital haircut is a bit more of an issue .. I would HOPE it can be treated as a loss, but it is not clear afaict.
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james
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Post by james on Feb 7, 2017 1:45:10 GMT
Will the interest or capital taken off lenders to support the PF be eligible for tax relief as bad debt, or will it be too far removed from the actual bad debt to be eligible? Of course not. You're not suffering a loss because one of your borrowers has defaulted and that's all you're allowed to deduct for. What you are agreeing to do in the new terms is pay the fund if RateSetter didn't charge the borrowers enough to cover the bad debt. This creates substantial moral hazard because RateSetter no longer has as much pressure to get it right for a full economic cycle. Instead they could - not necessarily will - under-provide and let lenders pick up the bill. Given the way defaults tend to be highest at the start of a loan then level off it's likely that those with established portfolios would actually mostly be paying for defaults of new loans they are relatively little invested in. Welcome to intergenerational unfairness, P2P version. You might also notice that interest rates vary over time and with loan term and product. I'm far from sure that a person who in a 50% interest cut takes a 3.5% cut will believe that they are paying the same price as one taking a 1.5% cut, given that their loss for the same amount invested is more than twice as high. Changes in interest rates over time and the risk profile of new lending mean that the sensible thing for those with lots of money in older loans may well be to exit so they don't pay the price of new defaults that for their own loan book with lower risk profile will have largely already happened. One tip, though: if you see a recession coming, sell out ASAP if you're lending under the new terms. Default rates rise during a recession as even good payers can lose their jobs or find their customers default, driving them out of business. The initial capital cost is likely to be offset by reduced exposure to provision funding and your ability elsewhere to get the higher interest rates that also are likely to come in a recession. You don't want to be last mover after the haircuts have started and everyone is doing it.
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spiral
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Post by spiral on Feb 7, 2017 12:33:40 GMT
Out of interest, what have Zopa said they would do should their SG fail to meet its obligations?
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james
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Post by james on Feb 7, 2017 15:09:26 GMT
Out of interest, what have Zopa said they would do should their SG fail to meet its obligations? Covered at www.zopa.com/lending/safeguard . Stop paying all interest if defaults rise to 3% and stop paying all capital above 10.5%. Because those capital losses are on your own loans they are eligible for the tax deduction. If a claim is only partially paid see www.zopa.com/principles#loan-administration 6.10.2: " a Safeguard Claim has been declined in whole or in part in respect of that Loan Contract under Principle 6.8.1, any sums recovered by Zopa (or by the Collections Agency) will be paid to the relevant Lender (either wholly or on a pro rata basis according to any proportion that has been met through any partial approval of a Safeguard Claim)" So you get what is recovered for your own loans whenever it's recovered. If it looks likely to be short of money, borrowers can be asked to pay based on their risk band per 8.4: " Safeguard Contribution: we may add to the Borrowing Fee and/or the Loan Servicing Fee an amount which is estimated by us to reflect the potential for a Default under the Loan Contract(s), based on the Credit Rating applicable to the Borrower under the Loan Contract(s) and our assessment of whether there are sufficient funds in the Zopa Safeguard Trust, where applicable ("Safeguard Contribution"). When the relevant fee is paid, the amount of each Safeguard Contribution will be deducted and paid to the Zopa Safeguard Funds Account." So the possible extra cost falls where it is more likely to be incurred.
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rick24
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Post by rick24 on Feb 7, 2017 15:26:02 GMT
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Post by WestonKevTMP on Feb 8, 2017 9:30:02 GMT
RateSetter quite rightly gets a lot of scrutiny over its bad debt performance, and comparison to Provision Fund contributions. After all this is it's primary USP. As forumites know this was my role from 2014 to mid 2016, and I'm proud of the retail book performance. However Zopa don't seem to get the same level of scrutiny. For example these statistics imply they are heavily relying on the loan bad debt curves significantly tailing off over time, as they are currently on course since 2014 of spending more than the contributions (or collections performs well on defaulted loans). And the Zopa safeguard fund is far smaller than the RateSetter Provision Fund. So lets see how things pan out. Kevin.
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spiral
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Post by spiral on Feb 8, 2017 10:05:14 GMT
So if I'm understanding correctly. In the event of the PF/SG fund having insufficient money to pay it's obligations:
RS would first skim interest off of everyone to fund the PF. Z would stop paying some interest but only to those making a claim on the fund but any future recovery would involve some reimbursement.
Next RS would skim off some capital from everyone. Z would stop paying 100% of capital from SG to those affected but any future recovery would result in some reimbursement.
Z also appear to have the ability to increase fees to borrowers throughout the lifetime of the loan if they feel that SG needs topping up. Not sure quite how they do this as surely it affects the APR of the loan.
Looking at the 2, Z appears the better model for lenders for 2 reasons, firstly they can get the borrowers to pay more in and secondly, any recoveries made go back to the person penalised initially.
RS model is we take what we think we need and keep it in the PF for the future if we didn't.
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rick24
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Post by rick24 on Feb 8, 2017 10:38:15 GMT
RateSetter quite rightly gets a lot of scrutiny over its bad debt performance, and comparison to Provision Fund contributions. After all this is it's primary USP. As forumites know this was my role from 2014 to mid 2016, and I'm proud of the retail book performance. However Zopa don't seem to get the same level of scrutiny. For example these statistics imply they are heavily relying on the loan bad debt curves significantly tailing off over time, as they are currently on course since 2014 of spending more than the contributions (or collections performs well on defaulted loans). And the Zopa safeguard fund is far smaller than the RateSetter Provision Fund. So lets see how things pan out. Kevin. Agree with you Kevin. FT Alphaville should have looked at Zopa as well for the sake of even-handedness.
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