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Post by charles on Feb 26, 2017 13:00:26 GMT
Interest rate of 0.25% Seems we have not finished with the last one The 'recovery' has been driven by consumer spending and debt so it is ultimately unsustainable I would expect RS and Zopa to be reasonably unscathed. All bets are off for FC and the high rate property platforms. Somewhat unconvinced that consumer lending is going to be unscathed. The bad debt rates being experienced on Zopa's 2014-15 loan cohorts (we don't have enough seasoning on the 2016 cohort) are way above that observed for 2011-13. The 2015 loan cohort has a bad debt rate already twice that of the 2011-13 terminal default rates. RS's deteriorating default numbers (and thus coverage on their PF) may be exhibiting a similar phenomena. ONS data is showing that historically low personal bankruptcy rates started to turn up in mid 2015. US consumer lending is showing some worrying issues. US car loan delinquency rate have reached their highest level since 2009 and on credit cards are back at 2011 levels. This rise in bad loans comes despite persistently low borrowing costs (the Fed only tightened 25bp in Dec 15 and 25bp in Dec 16) and low unemployment levels. I'd also note that lending to consumers with weaker credit scores has been one of the fastest growing parts of the industry (i.e not sub-prime but lower quality prime borrowers). This is often where US P2P platforms like LC and Prosper focus and which may be why P2P ITs such as P2P Global and VSL are suffering higher than expected default rates. It all suggests that the windfall cashflow gain that consumers felt post 2009 due to lower mortgage/loan rates has been eaten away by higher service price inflation and stagnant wage growth. They are now taking on bigger debt burdens to maintain their standard's of living. Thanks samford71, Adding to the discussion, I would recommend looking at some of the AltFi Data charts. Here's a recent piece I contributed which touched on some of the points you raised. www.altfi.com/article/2645_alternative_finance_a_closer_look_at_p2pInteresting that you should mention the P2P Investment Trusts - there's a thread here p2pindependentforum.com/thread/7972/p2p-investment-trusts - if you follow their monthly factsheets / quarterly statements, you'll see that they've gradually put more and more money into real estate-backed lending, Ranger Direct Lending (ticker: RDL) in particular has 30% exposure to this niche but growing sub-sector, which they've described as an attractive alternative to the much larger unsecured consumer loans sector.
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pikestaff
Member of DD Central
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Post by pikestaff on Feb 26, 2017 16:55:50 GMT
I think davee39 is dead right. There are two things to worry about. A recession and a crash in property prices. They are not quite the same thing. A recession is unlikely to be terminal. Default rates will tick up and there might be modest losses for a couple of years. But when a property crash comes, losses will all come at once and they will be highly correlated. Liquidity will disappear, especially for the riskier developments, and you could be locked in for a long time. Not many banks have gone bust because of a recession. But lots have gone bust because of bad property lending. I wouldn't disagree with the view that a property correction of some kind is probably to be expected, and is perhaps even healthy. But to tar, feather and write off the entire property-backed lending industry, which I would consider Property Crowd a part of, strikes me as being unfair... I don't think I have. All I'm saying is that when there is a crash (which history tells us is inevitable at some point), the bad news will all come at once. The returns are high for a reason. I have property exposure in my portfolio but am consciously looking toward the lower risk end. Also a loss of liquidity would not be a disaster for me. For some lenders it might be.
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Post by richardb67 on Feb 27, 2017 9:37:32 GMT
I am currently reviewing my investments and one of my concerns currently is the possibility of a recession or finanical crisis over the next two years and the effect this will have on P2P. When I first got into P2P I thought that given there had recently been a financial crisis it would be a time before another shock took place and did not mind locking up money for 3-4 years. My current thinking is to keep my assets as liquid/safe as possible (bank deposists). Would like to hear anyone elses opinion on this. if you look at the list of UK recessions en.wikipedia.org/wiki/List_of_recessions_in_the_United_Kingdom there has been at least one for every decade since WW2 with the longest gap being 17 years. Throw in uncertainty which will arise due to Brexit and it seems if not inevitable then highly likely. Whether it will be next year or in several no-one knows. I'm not overly worried about the impact on my P2P investments due to recession as they are asset backed and though I'd expect more defaults and higher losses they are sufficiently diversified that this should hopefully only erode a percent or two of returns. However, liquidity is likely to be an issue so I'll try and focus on more liquid assets such as jewelry and cars. The issue is that in order to have a reasonable amount invested and diversified across platforms you almost have to invest a significant amount in property. Property prices are a different issue, a friend is a lawyer who primarily works on conveyancing in the home counties. His work has suddenly dried up and he's quieter than during the last "great" recession so I wonder if we are about to see a slow down in the housing market which would be of more concern to me. We've already seen that a 70% LTV property can have losses if the valuation was generous, the receiver fees are high or it's a quick sale.
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nick
Member of DD Central
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Post by nick on Feb 27, 2017 10:20:09 GMT
I am currently reviewing my investments and one of my concerns currently is the possibility of a recession or finanical crisis over the next two years and the effect this will have on P2P. When I first got into P2P I thought that given there had recently been a financial crisis it would be a time before another shock took place and did not mind locking up money for 3-4 years. My current thinking is to keep my assets as liquid/safe as possible (bank deposists). Would like to hear anyone elses opinion on this. My own view is that inflationary pressures (from further weakening of sterling and increased trade costs with our biggest trade partners - the EU) will have a significant impact on consumer spending and result in a marked slowdown in UK growth. Whilst we may go into recession, I don't think it will be severe, but do expect that we will suffer an extended period of stagnation (2-3 years). I'm less sure on the impact this will have on P2P, but obviously it’s not going to be positive. P2P has to date developed and grown in very a benign economic and credit environment. If growth slows and credit conditions deteriorate, I think a number of investors will head for the exit spooked by increasing default rates. This will be bad for liquidity, but could help lift interest rates on new loans and partially offset default rates such that net returns are not impacted too much even if overall risk has increased (as a result of less certain returns from higher gross default rates). I plan to continue to invest in P2P, but focus on shorter maturity debt (<12 months) and avoid borrowers that are overly exposed to direct consumer spend (eg retailers etc). For property debt, I tend to avoid the higher risk loan, eg development loans, prime property in the south east, and any specialist property (eg farms/caravan sites etc). In respect of equities, I'm more upbeat over US growth and think Europe will claw its way back to moderate growth over the coming years. As a result, I have recently started rotating my investments away from some of the UK income funds I held to more value/cyclical global funds with a US bias. I haven't invested in fixed income (bar P2P) funds/products for a while as I think yields have reached an inflection point and will only go up in the medium term. The fact that there is a general lack of optimism in most markets and asset classes (bar maybe US equities), makes me think that the potential for any sort of major crash is limited, for now, and if anything, risk is to the upside (and I’m generally a pessimist!) Holding cash at bank is only going to guarantee you a real loss so I would limit this to the amount you want as a safety net for the investment horizon you are looking at.
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