The Lemon Fool

I'm wondering what experiences have been and what thoughts on risk are for P2P lending? Although I often say I'm risk averse, I accept that I need to take some risk in order to reach my objective of protecting my savings from inflation. Knowing that there are expected returns of 4.25% gross looks like worth a punt, but what are the risks? Are they that you could lose ALL the money you have invested or might it lose 50% value or is it that you might only get 1% instead of 4.25%?

I note on another thread that some posters see P2P as lower risk than Equities.

Any specific recommendations on P2P organisations to invest in?

Thanks
Clariman

Clariman wrote:I'm wondering what experiences have been and what thoughts on risk are for P2P lending? Although I often say I'm risk averse, I accept that I need to take some risk in order to reach my objective of protecting my savings from inflation. Knowing that there are expected returns of 4.25% gross looks like worth a punt, but what are the risks? Are they that you could lose ALL the money you have invested or might it lose 50% value or is it that you might only get 1% instead of 4.25%?

I note on another thread that some posters see P2P as lower risk than Equities.

Any specific recommendations on P2P organisations to invest in?

Thanks
Clariman

You'll find quite a bit about p2p by searching the forums. I use Ratesetter which was mentioned here:

viewtopic.php?f=78&t=2724&p=25399&hilit=p2p#p25351

Hope I got the topic link correct there.

Ratesetter and Zopa seem to be regarded as 'low risk'. However rates have declined recently and I don't think Zopa is accepting new investors at the moment. Right now Ratesetter are offering 2.6% for 'instant access' (not quite the right terminology) and 3.1% for 1 year lending.

RC

Clariman wrote: Are they that you could lose ALL the money you have invested or might it lose 50% value or is it that you might only get 1% instead of 4.25%?

It's a loan, so you could lose all the money you have lent if the borrower defaults. That said, the loans are pooled and defaults only have a minimal impact if they do the underwriting and risk assessment correctly.

Clariman wrote:I note on another thread that some posters see P2P as lower risk than Equities.

With Equities you don't know what you are likely to get as a return, but if you diversify a complete wipe out is unlikely. On P2P I would have thought you are relying on the integrity of the organisation raising the funds and managing the loans.

This is the website of one of the operators in that market
https://www.wellesley.co.uk/how-it-work ... r-lending/

If relevant, the money in P2P might not be readily realisable until the end of the loan term.

I've used Zopa and Ratesetter (as a lender), and still have active accounts with both of them. In the early days, Zopa had quite a few defaulters (at least for me) so the actual earned interest wasn't particularly good, coupled with the fact that losses couldn't be offset against interest for tax purposes made me reduce the amount invested.

Since then, they've (Zopa) introduced "Safeguard", so the risk of loss is much, much lower. Ratesetter have something similar.

Nowadays you can sell your investments (at least within these two) so for a fee you can bail out of a 1, 3 or 5 year type loan if circumstances change. As a place to hold "emergency" cash they are pretty good.

Paying in and paying out are pretty straightforward. I'd recommend either of them for cash savings that you don't expect to need access to.

I have been a Zopa member since the year after it started. I too suffered a good number of defaults that tangibly reduced the returns. I eventually sold all the loans I could but I have been left a slew of unsellable loans in various states of arrears. It's clear that the debt recovery process is ongoing but it's going to take "for ever" with small amounts dribbling back for a decade or longer. There is no way to get completely out by selling the dross as far as I know.

I've used ZOPA for some years. I think it is safe enough for a cautious punter, with the safeguard pooled default fund you don't lose anything when any lenders default now although in theory if lots of ZOPA borrowers did at the same time it could overwhelm it (although I think this unlikely as the credit checks on borrowers seem to be as good as any). I didn't join straight away (where the earliest adopters get an extra 1% bonus on their rates) but early enough to get an extra 0.5% which helps given how low rates have dropped these days. I just have it on auto-reinvest and forget about it - a few years ago it was lots more fun when you could actually choose who you lent to and they had a very active and often critical forum. It has gone far too corporate and boring now (after the big lenders started to use it to pump in their own dosh), but is still better than a building society account.

I have been with zopa since 2005. Zopa survived the 2008 crisis - the worst since the 30s, with minimal impact. I lost no capital during that crisis but my interest rate went down. I've had many defaults but most dribble in small repayments.

I would place p2p with Zopa and RS as same risk as bonds. But I want at least 5.8% and for the last two months I haven't had a nibble at those rates on RS.

Lots of independent views are here:

http://www.p2pindependentforum.com/

I've been a member of Fundingcircle for 3 years and my annualised return, net of fees and bad debts, is 6.9%. I think this is reducing as Fundingcircle now set a rate and you either take up some of the loan or don't; there no longer is a bidding process.

There is of course a risk but if you diversify into 100 or more slices the averages work. I can't speak for the other p2p sites but I think FC systemically underprices risk so higher risk loans might make more sense, provided you apply basic intelligence and check the balance sheet, guarantees and the underlying proposition.

Also been a member of Funding Circle, for 3+ years, similar sort of return (7.2%). Finding suitable loans is becoming harder however with FC, so most of the cash is slowly coming out and going into RateSetter and AssetzCapital. Less work to do with these as the loans are pooled automatically, and both have provision funds (except AssetzCapital if you invest into individual loans).

Ratesetter rates have dropped in last couple of months, i'm generally just using their 1 month rolling market at about 3%+

AssetzCapital currently have a promotional 4.75% 30day access account (was 4.25%), it's been extended until 6th June. Other accounts they have are: instant access (3.75%), british business (7%) and green energy (7%), all these have a provision fund.

Regards

nicster

I am looking at some accounts which are paying FundingCircle 14%. You are all reporting receiving about 7%. Are they seriously swallowing 50% in platform costs on average or are the ones I am analysing non-average ?

regards, dspp

Funding Circle report a gross yield of 10.5% for me, but after fees and bad debts, its 7.2%. I think this is pretty average for FC, if i recall some figures they gave a while back, in terms of returns if spread over 100+ loans. Although I have been moving to lower yield property loans over the last year or so, as i'm finding its difficult to spot any decent higher rate loans (or they are snapped up before i find them).

nicster

ive been with ratesetter over a year now , getting around 3% rolling monthly , modest , but twice bank/bs rates .

no issues so far - quite simple .

I have a modest amount in RateSetter (to get the £100 bonus) and have found the site to be easy to use and straightforward.
They have a Provision Fund which appears well-covered
https://www.ratesetter.com/invest/every ... protection
The only niggling worry I have is the effect of a recession/depression on default rates - similar to the issues with mortgage loans/CDOs in the US back in 2008 or whenever it was

I was with Zopa in 2008. I got plenty of bad debt but still made money, and in those days there was no provision fund. However, I think they accept less credit worthy borrowers these days.

Hi,

I have used both Zopa and Funding Circle from shortly after they first began. To start with I only invested a few hundred but this has since increased substantially over the years.

I've never really taken any interest in the debt / fees / costs etc, the only thing i'm interested in is the bottom line Wonga that i make . Obviously this amount has decreased along with interest rates over the last few years, but over the last 12 months, after all costs, i've made about 5% with ZOPA (I do get 0.5% extra though due to being an investor early on) and 7% with funding circle.

Andy

dspp wrote:I am looking at some accounts which are paying FundingCircle 14%. You are all reporting receiving about 7%. Are they seriously swallowing 50% in platform costs on average or are the ones I am analysing non-average ?

regards, dspp

The loans are risk graded from A to E, with A paying about 7% and E up to 20% so I guess you must have been looking at a loan graded at about C risk. I think the platform fee is about 0.5% and 1% if you re-sell your loans on the secondary platform.

i have just had an email from ratesetter entitled --

"An update on how RateSetter has intervened with some borrowers and the option to review your investment with a free sell-out"

sounds a bit alarming , DAK what it means?

sorry cant provide a link at present .

thanks.

It is probably something to do with this story in the Guardian.

The peer-to-peer lender Ratesetter has been hit by £80m of struggling loans in the first major setback for the nascent online lending sector.

https://www.theguardian.com/business/2017/jul/18/peer-to-peer-lender-ratesetter-hit-by-struggling-loans

On Tuesday, the peer-to-peer lender told users lending money via its website that they could withdraw their deposits free of charge. The company said: “If you feel this information changes your investment, we are giving you the option to review your investment with us and sell out without incurring any fees.”

They are obviously rubbish communicators though as their email makes no real sense.

RS will make a bundle from those selling out. For example I stopped lending on RS when rates went below 6% for five year loans, my repayments are simply recycled into Zopa+

So I have a five figure portfolio with RS at average rates of 6.1%. If I sell out - and I may do that - RS resell those loans to the dumb lenders who are prepared to lend at 4%, and RS pockets the extra 2.1%.

I don't know the reason but RS don't yet have FCA approval. Could it be something to do with their lending practices? Both Zopa and Funding Circle now have full approval and can offer ISAs.

I haven't made up my mind what to do, yet. Possibly sell up and put the lot into Zopa, possibly.

many thanks for all the feedback .

perhaps our cash is not at risk after all .

ps. i'm lending rolling at 3% - which makes me a real dumbo.