Funding Circle to cease property lending by mid-2018

I must admit I was expecting, until this announcement, the most likely evolution of the Flying Circus model was to go over to 100% autobid/autosale.

Currently autobidders are potentially over-exposed to a very heavy dose of 2 month-to-run property loans. In the case of any downturn in the property market this could be very serious. 

The current model offered guaranteed prepaid interest and an almost guaranteed exit at two months for us property investors. It was unsustainable and might even have been a barrier to FCA approval.

The two classes of loan, secured and unsecured, did not fit together and cannot really be Banded together. Killing off property loans certainly solves this issue (by 2018) - but true to form seems a rather unimaginative solution and I believe will hurt FC quite a lot in the long run.

“expecting to stop all lending by mid-2018.”

Does that include existing loans with 18 months or longer still to run?

Yes I did wonder about the FCA dimension but had no evidence. There must be a problem with the full approval. They are mixing the trust with the retail, and the loan book is not homogeneous with one set of performance and risk statistics that applies to both. The withdrawal of the trust from property has compounded that - they would have to split the book performance analysis. Also within the partial they mix the consumer lender of Autobid, with the sophisticated bot flippers and property traders, and allow the Autobiddies to take the endgame risk on property, as you say. Without property and manual bidders/sellers they only have to deal with the setandforgetters, who do not trouble customers services, poke holes in the loan assessments and information, and complain about the defaults and recoveries - and definitely do not put beastly comments on forums. That all costs money and reputation. With Autobid/autosale the pitch can go, as can most of the interaction on failing loans.

This of course can be the case. But I think it is more likely that as the industry gradually matures (at least in UK, although still far from maturity), platforms want to strengthen their positions in their core business segments. Funding Circle move to focus on SME lending is understandable as property lending (similar to consumer lending) is quite different segment. And property lending has never been a significant part of FC portfolio anyway. 

Catalist

I'm suspect my subconscious is secretly happy at this decision.

I'm convinced it's been uneasy these past few years as my concentration risk has continued to ramp-up in (what's become) a quite frothy sector.

No great loss from my perspective as I decided from the outset to steer clear of property on Funding Cessation - there is little point to secured lending if the security is hardly ever enforced?

I do have a small, highy diversified allocation to unsecured SME loans - primarily as a platform diversifier.  Have to admit I take my own view on the accounts and pretty much ignore the credit ratings they concoct (which seem highly volatile and rather random).

However....getting too hung up on security can be a mistake.  Whilst they are very different markets to P2P & SME lending, it is worth recalling that through most of the credit crisis conventional investment grade corporate bonds (largely unsecured) were a much more comfortable place to be than better-rated ABS/MBS/CMBS (asset/mortgage-backed securities). 

When the proverbial hits the fan a property with no tenant is potentially worthless - and if property prices trend downwards the confidence in valuations evaporates very quickly.  As QE unwinds there is a scenario whereby property prices fall but the economy doesn't nosedive and SME cashflows prove more resilient than expected (although I would probably file that one in the wishful thinking folder).

The combination of this announcement by FC and recent property market news regarding London - which I was excessively exposed to - led me to decide to get out.  Over the last 8 days I've disposed of a high-4-figure sum in FC property loans, most of it at good markups.  I've made good money in here - my total net gains just in FC were nearly 10% of my FC balance even after defaults and I've only been in for about 2 years. 

I think I've tried my luck quite far enough. I've been using FC to save for a deposit on a house...  I'm within a year of having enough now so moving everything to lower risk, lower-return savings.  Most likely a split between savings accounts and the Rolling market on Ratesetter, although i have more research to do before committing to that.