rogerbu
Member of DD Central
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Post by rogerbu on Jun 20, 2014 12:40:52 GMT
Hi all.
I am a relatively new FC subscriber and new to this forum.
I must be thick, as I don't understand!
Yesterday the £650k secured Property development loan (6504) was fully subscribed and closed. I was one of the purchasers.
Today I can see that some of the loan parts are on sale at a loss. Others are on sale at a profit.
This is an example of a confusing behavior and it is not limited to this loan.
Assuming that nothing fundamental has changed in the loan, why would people buy yesterday and try and sell today at a loss?
I understand that people might sell if they became uncomfortable with a loan/company, but one day!
Cheers - Roger
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Post by davee39 on Jun 20, 2014 12:49:29 GMT
The loan comes with 2% cashback, so each £20 loan part earns 40p immediately. If the loan then sells at -1.5% the seller takes a 30p loss, pays a 5p fee and ends up 5p ahead. Anyone wanting to do this, and not keep the loan, wants to sell immediately because others will be doing the same, making the discount ever larger. Eventually people will stop playing the game because the huge numbers of second hand parts will make them unsellable, investors will then have to appraise the real value of the loan. Currently there is a 12 month loan paying 7%, with 2% cashback - so a little over 9% since the 2% is paid upfront. I do not think this compares well with similar property loans on other platforms, but some here disagree.
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ton27
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Post by ton27 on Jun 20, 2014 19:18:19 GMT
I would not necessarily disagree but the draw down tends to be much quicker and taken over a short time period this can be significant.
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Post by GSV3MIaC on Jun 20, 2014 20:39:00 GMT
And this relies on buyers who couldn't bid at the original auction, or failed to see the cash back! For a small auction there may be some, but for the 650k auction surely everyone who wants some got some, so only newbies or holiday makers are potential buyers.
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Post by chielamangus on Jun 24, 2014 13:32:53 GMT
Currently there is a 12 month loan paying 7%, with 2% cashback - so a little over 9% since the 2% is paid upfront. I do not think this compares well with similar property loans on other platforms, but some here disagree. I have never interpreted the cashback this way. Take off 1 percentage point for the fee and the return is £6 for £98 invested. That's 6.12% return. I suppose there are tax benefits for the 0.12%. For a standard rate taxpayer the return is 4.8% without cashback and about 4.9% with the cashback. Not enough to make any difference to me. But I suppose there are lots out there who ARE influenced by it and that is why it is offered. Please correct me if I am wrong.
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markr
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Post by markr on Jun 24, 2014 14:13:11 GMT
I have never interpreted the cashback this way. Take off 1 percentage point for the fee and the return is £6 for £98 invested. That's 6.12% return. I suppose there are tax benefits for the 0.12%. For a standard rate taxpayer the return is 4.8% without cashback and about 4.9% with the cashback. Not enough to make any difference to me. But I suppose there are lots out there who ARE influenced by it and that is why it is offered. Please correct me if I am wrong. Err, no, because at the end of the term, when the capital is repaid, you will get £100 not £98 because that's what you invested. It doesn't matter when the cashback is paid, at the end of the term you will have £108, which is indistinguishable from a loan paying 8% after fees. Where having cashback rather than interest is beneficial is for tax and because, as davee39 says, you can invest the £2 in another loan and make a few pence more.
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is
Posts: 108
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Post by is on Jun 24, 2014 14:26:08 GMT
Currently there is a 12 month loan paying 7%, with 2% cashback - so a little over 9% since the 2% is paid upfront. I do not think this compares well with similar property loans on other platforms, but some here disagree. I have never interpreted the cashback this way. Take off 1 percentage point for the fee and the return is £6 for £98 invested. That's 6.12% return. I suppose there are tax benefits for the 0.12%. For a standard rate taxpayer the return is 4.8% without cashback and about 4.9% with the cashback. Not enough to make any difference to me. But I suppose there are lots out there who ARE influenced by it and that is why it is offered. Please correct me if I am wrong. Assuming flat 6% continuous rate discounting, the equivalent rate for the 2% cashback/7% 12M monthly paying interest only loan is 9.756% for the 45% tax payer after fees, or 10.756% FC "headline" rate. Not stellar but comparable to similar security/term on other platforms. I would have preferred a 1% coupon and 7.5% cashback ;-) - same for FC & borrower (interest retained anyway usually) but worse for HMRC.
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Post by chielamangus on Jun 24, 2014 14:47:36 GMT
Ah well - I have been missing out! Thanks for the education. That's what I like about this forum, which more than compensates for the annoyances.
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is
Posts: 108
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Post by is on Jun 24, 2014 14:57:58 GMT
I have never interpreted the cashback this way. Take off 1 percentage point for the fee and the return is £6 for £98 invested. That's 6.12% return. I suppose there are tax benefits for the 0.12%. For a standard rate taxpayer the return is 4.8% without cashback and about 4.9% with the cashback. Not enough to make any difference to me. But I suppose there are lots out there who ARE influenced by it and that is why it is offered. Please correct me if I am wrong. Err, no, because at the end of the term, when the capital is repaid, you will get £100 not £98 because that's what you invested. It doesn't matter when the cashback is paid, at the end of the term you will have £108, which is indistinguishable from a loan paying 8% after fees. Where having cashback rather than interest is beneficial is for tax and because, as davee39 says, you can invest the £2 in another loan and make a few pence more. Discounting effects for 12 month loan are small but relevant, but the tax treatment is dominant - if we assume zero discount rate, then total coupon-equivalent income is indeed £8 if you are not an income tax payer, but £9.64 for someone paying 45%, on top of the £100 principal repayment.
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blender
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Post by blender on Jun 24, 2014 15:09:36 GMT
It is the short term of the loan that makes the 2% cashback worthwhile. For a five year loan it is of little value if you cannot sell quickly without giving away most of the 2% as discount. But the value becomes obvious if you consider a one month term loan at 7% with 2% cashback. For £100 lent you get approximately £102.50 back in a month, or so, which compounds (as in FC's mythological statistics) to over 30%, with little of it taxable as income. This of course is flipper heaven.
If anyone sees a sixth month FC loan with 2% cashback would they buy some for me please, even at MBR?
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Post by pepperpot on Jul 2, 2014 10:46:23 GMT
It is the short term of the loan that makes the 2% cashback worthwhile. For a five year loan it is of little value if you cannot sell quickly without giving away most of the 2% as discount. But the value becomes obvious if you consider a one month term loan at 7% with 2% cashback. For £100 lent you get approximately £102.50 back in a month, or so, which compounds (as in FC's mythological statistics) to over 30%, with little of it taxable as income. This of course is flipper heaven. If anyone sees a sixth month FC loan with 2% cashback would they buy some for me please, even at MBR? A+ @8% 2% cb for 9 months, not quite the 6 you were after, but not bad!
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is
Posts: 108
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Post by is on Jul 2, 2014 12:53:58 GMT
6762 really illustrates what dogs 6692 and 6705 really are. Happy that I got decent chunk. Sold out in 2hrs 49mins.
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blender
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Post by blender on Jul 2, 2014 12:58:34 GMT
Thanks for the tip, just got it. Worth over 11% to me. But why a two week auction?
Have ignored the other two.
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oldgrumpy
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Post by oldgrumpy on Jul 2, 2014 13:11:06 GMT
My story of all this week - turn my back - it all happens - come back again - all gone.  |
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Post by GSV3MIaC on Jul 2, 2014 13:32:28 GMT
Ditto ... Western power distribution chose this AM to turn me off for the morning, so I missed out completely. 8<. Oh well ...
As someone said, it shows what losers the two bigger ones are, even with FC pumping every available autobid £ their way (must surely have reached the point where every autobidder now has their quota?!). It also demonstrates there is still money looking for a home .. lots of it.
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