Strong and stable

It's where about 10% of my p2p investments are invested.  It's providing a modest return but higher than the options I have in current/savings accounts.  It's also somewhat hands-off as opposed to the p2p sites that I use where current returns are between 7 and 12%.

There usually isn't anything going on that seems to require discussion.

I'm thinking of some diversification and as LW has been on or near the top of my list of possible platforms for some time, have done some (very basic!) reading up...

Does the fact that the shield was used over 100% for 2015 combined with the fact that actual defaults are higher than expected defaults for both 2015 and 2016 worry people?

www.lendingworks.co.uk/peer-to-peer-lending/statistics/risk-and-return

Effectively the point of LW is similar to RS, as long as the shield / PF holds then all is as expected. If it ever fails, then it is not inconceivable that the platform will also fail and the rates of any loan recovery plummet to a very small numbers of p in a £. So if the shield is starting to creak, starting in LW now would seem a challengable decision. Or am I misreading the position?

Hoping to be enlightened!

Hi guys

The third-party back-up service provider (currently Link Financial) fees are expected to be covered by the net interest margin on the existing book (the differential between the average rate of interest paid by borrowers and the average rate received by lenders). The lender T&Cs do provide for a situation where that would not be sufficient - in which case up to 2% p.a. may be charged on the loan book before payments are distributed to investors.

In the event of platform failure, it's not unreasonable to expect that arrears and defaults may rise initially due to the transition (and potentially some borrowers thinking they no longer need to repay), though we have detailed back-up servicing policies and procedures aimed at mitigating these types of risk. We also work closely with our back-up service provider on the detailed transition approach and method of data exchange etc, in addition to holding quarterly sessions to ensure these procedures are maintained and up to date. After the initial transition, there should be no reason why normal collections rates would not be maintained.

Must also point out that, despite the above, as with all investments, your capital is at risk.

Hope this helps.

Hi r00lish67

We haven't got the additional historical data you mentioned readily available, though this would only provide so much use given the coverage should be commensurate with expected losses, and the extent to which those losses have already occurred, which change over time. What I can say though is that it has been deliberately grown over time, in line with the composition of the underlying loan book.

The expected loss curves are somewhat simplistic in that while they follow a broadly standard default profile for this type of lending, they are too flat. In reality, the defaults should start being seen later and follow a steeper trajectory between say months 6-25 before tapering off significantly (due to both lower likelihood of default and lower value of loss at default due to reducing capital balances). We will be updating this at some point later this year, though the end projected loss rates would be unaffected.

Another thing worth mentioning is that the graphs show 'actual' data (blue line) only when all loans from that cohort have matured to the relevant number of months, so the 'forecast' (orange line) is actually a combination of known outcomes (on loans which have already defaulted or repaid, for example) and unknown outcomes (on the remaining loans). This explains why the actual lifetime default rate to date on that 2016 cohort (2.7%, as shown in the tables above the graphs) is higher than the 'actual' on the graph at this point in time. The 1-3-year loans from the first half of 2016, for example, have either repaid substantial amounts of capital, settled (scheduled and early) or defaulted, so the forecasts become more and more accurate with less potential for downside risk with every passing month.

Hopefully that makes sense - I guess what I'm trying to say is that the 'forecasts' also include actual performance data, which provides us with more confidence about the remaining performance of each cohort.

Hope that helps.

Please remember: As with all investments, returns are not guaranteed and your capital is at risk.

Hi r00lish67

That's strange - I will check internally why last month's stats didn't update on the website as I have seen them. In any case, the next update should be live this week.

Hope this helps.

Hi albermarle

I think it's fair to say we're lending to a better spread of customers than we were in 2014, which is essential in order to provide a healthy mix of customers to generate attractive yields for investors.

It's also fair to say that our strategy isn't to write £ms of business at 3% APR - the commercials just do not work for a standard P2P contract given market expectations for investors. I'm fairly sure the commercials barely work for a deposit taking institution - notwithstanding a cheap cost of funds, being retail (cash) deposits, on a WACC basis the margins are very slim indeed. It's effectively a loss leading strategy, requiring significant overcharging of anyone not eligible for the headline rate (c49% of customers), in addition to effective maximisation of lifetime value through repeat custom. In my view, one of the downsides of the Rep. APR regulations is that it can create this scenario of "robbing Peter to pay Paul".

In any case, it's worth bearing in mind that while price is typically seen as a proxy for risk, it's not always that simple. Estimating and adequately pricing for risk is key, and that's why well run P2P platforms are able to consistently offer 4/5%+ returns. You can't do this with a loan book comprised predominantly of 3-5% APR loans.

Hope this helps.

Hi r00lish67 - hope you're well. The stats to the end of May should be published this week. 

Many thanks