My UK Peer to Peer Lending Journey so far..

It’s Christmas Eve so I thought I’d do a quick update on which platforms my Peer to Peer Lending money currently resides.

Platform Pie Chart Based on Investment

About a year ago, over 50% of my money was in the Ratesetter 5 year market.  I’m now pulling my money out as quickly as I can simply because the interest is relatively low (around 6%).  Unfortunately, Ratesetter have penalties for early withdrawal and no secondary market.

The Funding Circle (FC) proportion has also reduced because they have switched to fixed interest rates so you can no longer bid for a variable rate.  Generally the return on Funding Circle is now around 7% to 8%.  Another disadvantage of FC is that loans are unsecured and any defaults lower the actual return.

So which platforms have I increased my proportional share?  Well, there are three platforms that I now favour and they are all asset-based.  These are Money Thing, Funding Secure and Saving Stream.  Asset-based means the loan is secured against the asset.  The usual asset is property or land but can also be works of art, jewellery, super cars, boats, industrial machinery and shipping containers.

Saving Stream

Saving Stream is currently my number 1 choice with great track record (no losses so far) and typically one year loans at an interest of 12% with zero fees.

Saving Stream are continually refine their offering and are the only platform to offer Pre-Funding.  This allows the lender to specify how much they wish to lend on future ‘pipeline’ loans.  In other words you can bid or buy on the secondary market without the need to pay money into the platform up front.  However, once transactions are completed you are asked to settle up within 24 hours.

Anyway, here is wishing you all a very happy and peaceful Christmas and a prosperous New Year.  

Finally, if you haven't tried it, then why not consider including Peer to Peer Lending in your 2016 portfolio?   Trust me, Peer to Peer Lending is a great way to improve your financial prospects!  

  

Saving Stream: Steadily Increasing the Flow of Peer to Peer UK Property Loans!

Full Flood?

In my opinion, Saving Stream, incidentally my favourite PtP platform in the UK, is now more than a stream and is rapidly becoming a river in full flood of substantial, i.e. multi-million pound, UK property loans.

Although a relatively ‘new kid on the block’ in terms of Peer to Peer Lenders, Saving Stream is growing rapidly  and have recently moved into new premises in Southsea.

Saving stream loans are all asset-based, return 12% per annum (plus no fees) and are secured against property associated with the loan.  These bridging loans normally last for about 12 months.  Secured loans mean that, in the event of a default, there is a reasonable probability of getting the capital back once the associated property has been sold off. 

Secondary Market

Saving Stream also have a simple secondary market allowing loans to be sold at any time to other members on the platform.  This is great for those wishing to exit a loan early and also for those who wish to diversify, reducing their exposure from a single, larger loan to a number of smaller ones.

Note that the secondary market only operates at par.  This means there is no opportunity to sell at a premium or discount.  I like this approach and the simplicity of the SS secondary market.

Pre-Funding

The other fantastic thing about the Saving Stream platform is Pre-Funding.  Every other UK PtP platform informs you when a loan is expected to come on-line and then requires you to add sufficient funds to your account before you bid.  Often bidders fail to get anything because the ‘big players’ grab the lot in the first few seconds.  The unsuccessful bidder then has to decide whether to leave their cash on the platform (earning no interest) until the next loan or whether to withdraw the cash again. 

Pre-funding allows the bidder to define how much of each pipeline loan (ie those not yet ‘live’) that they wish to purchase.  At this point the lender doesn't pay anything.  Once the loan is ready to go live, saving stream email you to let you know what proportion of your bid has actually been allocated to you.  So, for example, if I bid for £1000 of a £1M loan and the total pre-funding bids are £2M then I only get half what I bid, i.e. £500.

Settling Up

At this point you can sell part of the new loan, if you have been allocated too much, and/or buy or sell parts of other loans on the secondary market.  Once this activity is complete the platform indicates exactly what you owe and SS ask you to settle up, ideally within 24 hours.

Generally, when a large, multimillion £ pound loan comes on stream, the secondary market opens up temporarily as lenders release older loans in order to fund the newer ones.  This is the time to diversify.  Normally the demand for a share in new or old loans outstrips supply so, on the Saving Stream platform, selling a loan is almost instantaneous where as it takes patience to successfully buy an existing loan. 

What Next?

What next for Saving Stream?  Well, I for one, hope they can continue to delight their rapidly expanding  Peer to Peer Lending audience in 2016.  This means they continue their excellent record of negotiating and managing new and existing loans so any future defaults result in no permanent losses for their lenders.

Traditional Savings Options with next to no interest or UK Peer to Peer Lending with Realistic Returns?

Are you a just a ‘Sun Lounger Saver’ ? – or is Peer to Peer Lending and 'mixing in with the locals' your holiday habit?

Sun Lounger for Traditional Savers?

You probably wonder what on Earth I'm on about but please hear me out.  We recently took a holiday in Barbados and I noticed that most people in the hotel made a bee-line for the sun loungers and only ever left them to grab food or a drink (leaving the obligatory, illegal towel behind to reserve their space in the sun).  You’d find few guests ever venturing into the lovely pools and even less risking the delightfully warm ocean or exploring the idyllic, tropical beach.

Traditional Savers

Traditional savers have the same fixed ideas, such as investing in cash ISAs, but never think to explore the ‘loans’ beach yet alone the whole ‘lending’ island.  The peer to peer market in the UK is teeming with a rich variety of platforms offering lots of different angles on the Peer to Peer model.

Peer to Peer Lending  

You can play pretty safe and get interest rates of around 6% but you can also lend against a whole smorgasbord of assets and get interest rates of between 7% to 14% secured against land, property, words of art, cars planes, industrial plants or shipping containers.  Assessing the risks involved is all part of the fun.

Monkeying Around!

I’m a massive fan of UK Peer to Peer Lending and currently invest with around 10 platforms.  This is reflected in the fact that in Barbados my wife and I spend much of our time wandering along the beaches and boardwalks or catching local ‘reggae’ buses ($3 (60p) to anywhere on the Island).

Green Monkeys in Welchman Hall Gulley, Barbados

We saw lots of wildlife including loads of green monkeys and a recently hatched baby turtle heading for the ocean and successfully swimming out to sea against the crashing waves.  For me that beats lying on a lounger, getting drunk in the hotel bar or investing in a cash ISA!  

Asset Backed Peer to Peer Lending - the Better Solution?

In simple terms there are two approaches to PtPL platforms.  The first is to offer minimum risk and simplicity of operation and scale it up to satisfy both institutional investors as well as a mass market.  Typical examples of these platforms, in the UK, are Zopa and Ratesetter.

These platforms typically lend to domestic borrowers with no asset security.  This means if a default occurs then a full recovery is unlikely and, at best it may take a long time to get the money invested back.  For this reason, Zopa and Ratesetter have contingency funds to protect the lender from losses, resulting in typical interest rates to the lender of between 4.5% and 6.5% over 3 to 5 years.

Saving Stream

Asset backed loans represent a much better option for the more adventurous Peer to Peer Lender.  Money is lent against a tangible asset with a verifiable value.  There are a number of specialist platforms for Asset-based loans.  Saving Stream is one of the simplest and offers 12% on every loan, with 1% being paid every month.

Saving Stream bridging loans were originally against boats but they have more recently shifted to land and property with many loans being for well over a £1M.  These typically have a term of about a year.      

LTV

One of the key parameters with an asset-based loan is the Loan to Value (LTV).  For example, if a picture valued at £1M is used to secure a loan of £500,000 then the LTV is 50%.  Assuming the valuation is accurate then this leaves plenty of cash available, should the loan default, to arrange for the sale of the item and return all the cash owing to the lenders.

Ablrate

It’s surprising what a range of assets you can lend against.  Ablrate began with loans against aircraft but have shifted towards industrial machinery such as bottling plants and shipping containers.  Their shipping container loans are currently paying 14%.  The loan funds the purchase of a number of containers and the loan is paid off once the containers are sold.  These typically run for 6 months at a time with an option to renew.

Money Thing

Two other players, Money Thing and Funding Secure originated from the pawn-broking industry.  Money Thing also offers a fixed rate of 12% across all loans.  My loans with Money Thing currently include several cars, managed portfolios of jewellery and electronics, several artworks (paintings) and finally a piece of land.  Money Thing are currently expanding into both land and property and also into the supercar market.

Funding Secure

Funding Secure also offer a mix of land, property and other assets.  Their loans are usually 12% or 13% with a renewable term of 6 months.  Other assets I’ve lent against with them include historical book collections, railway memorabilia, micro-sculptures and a replica of an 18^th century schooner!

I have to say asset-based lending is far more interesting and rewarding  and wins hands down against the more mundane Zopa model of lending money to a householders to buy second-hand car or for a bit of home improvement.           

Is Funding Circle still a Viable Platform for Peer to Peer Lending?

This question is prompted by the recent change by Funding Circle from variable rate bidding to fixed rate loans for lenders.  For me, and majority of the UK PtPL Lending Community (reflected by the Independent Peer to peer Lending Forum) the answer is probably NOT.

Unsecured Loans and Defaults

The biggest problem with Funding Circle is that most of their loans are unsecured.  This means that the lender is unlikely to get much money back should the borrower default.  In my case I currently have losses with Funding Circle, due to default, of £628 with only £48 recovered so far.  This reduces my projected interest rate of 8.5% (based on Funding Circle’s loss statistics) to an actual rate (after fees and losses) of 7.6%.  This rate is falling as the defaults increase.

Lower Lender Interest Rates

Funding Circle’s new fixed rates are surprisingly low and result in a projected actual interest rate of around 7% for the higher risk bands (A, A+) again based on Funding Circle’s (optimistic) statistics.  My own experience would suggest actual interest of around 6%.  In practice, since fixed rate loans were introduced, a bigger proportion of loans currently offered are A or A+.

The other large PtP Lenders such as Ratesetter and Zopa have contingency funds to cover defaults but with Funding Circle all the risk is passed on to the lender.  For me, short term asset-secured lending at an interest rate of around 12% is much more attractive.  Should the borrower default then I know the asset will sold I should eventually get all or most of my money back.

However, Excellent Liquidity

However, one advantage of Funding Circle is excellent liquidity.  They have an efficient secondary market allowing people like me to gradually sell my existing loans at a premium rather than waiting for them to run for the full term.  In contrast, Ratesetter has unspecified, high penalty charges should you wish to pull your cash early.

Funding Circle Going for Growth

I think Funding Circle have made a reasoned business decision to focus on growth, with expansion into various European countries and greater reliance on institutional investors and a simplified approach.  In doing this they have deliberately turned their back on the early adopters and small, entrepreneurial investors that PtPL was originally all about.

Thankfully there are several smaller platforms such as Saving Stream, Funding Secure and Money Thing who are working closely with the PtPL community in order to meet their lending needs and provide the necessary deal flow to absorb the money released from the bigger platforms, such as Funding Circle, now offering lower interest rates to lenders.     

Funding Circle to Quit Variable Rate Loans

Peer to Peer Lending remains a very volatile marketplace with constant revisions to platform function and design.  For example, Saving Stream have recently added the very useful pre-funding of loans facility so you don’t pay until AFTER the loan is allocated.

Meanwhile, Funding Circle (FC) have announced that in the next few weeks they will no longer offer Variable Rate Loans, where individual lenders can bid for their own interest rate.  FC argues that this change makes the platform easier to use for both borrowers and lenders.

No more Flipping?

However, fixed rates take away much of the enterprise of buying and selling loans on the secondary market.  The practice of ‘flipping’, where you could buy a loan at a high rate of interest and then sell it at a premium, is largely eliminated with fixed rate bidding system.

This was one of the attractions of FC, particularly to financially-savvy, entrepreneurial geeks who enjoyed gaming the platform while providing a useful service by improving liquidity via a good supply of instant loans.  

So how will the new platform look? 

Well, the new interest rates being offered appear to be lower than many existing lenders would like, although FC may either add 1% or 2% ‘Cashback’ or shift their rates upwards to fund some larger loans.

The major issue I have with FC is the number of ‘downgraded’ loans and the relatively low level of recoveries.  My effective interest rate is somewhat poorer than the FC prediction.  I’m predicted to be making 8.5% but am currently down to 7.8%.  This can obviously shift up or down depending on future failure of rates or recoveries.  Currently I’ve ‘lost’ over £500 with less than £50 being recovered.

Moving On?

The key thing is that most FC loans are not secured against assets so the chance of a full recovery of capital and interest is relatively low.  Fortunately many of my FC loans can be sold at a premium on the secondary market so I am gradually reducing my exposure the FC in favour of P2P platforms offering better interest rates, secured against material assets such as property, land or artworks.

Asset-Based Platforms

Saving Stream offers 12% across the board on property and Ablrate offer 14% on shipping containers while Funding Secure offer a range of interest rates, mainly on property with rates of typically 12-13%.  The trouble is, these asset-based loans are increasingly popular and the demand for new loans is not being fully met. This is NOT helped by FC putting the brakes on their own secondary market and driving their more discerning lenders to other platforms!    

Assetz Capital – yet another new account, the Quick Access Account

Assetz Capital is a site that it full of innovation but the way the site works is complex and sometimes unpredictable.  The latest account is the Quick Access Account (QAA).  This joins the Cash account, Manual Loan Investment Account, Green Energy Income Account and the Great British Business Account.  Yes, that’s FIVE accounts in total, including the cash account.

QAA

The QAA offers (almost) instant access to funds, is secured by a provision fund and has an interest rate of 3.75%.  The clever thing is that as new loans come online or existing loans, specified by the lender, become available, money is automatically transferred from the QAA to one or more of the other accounts.  In other words, Assetz are offering 3.75% interest on cash that would otherwise be parked (with no interest) in the Cash Account.

In the Lab?

For me, Assetz is a kind of laboratory experiment, a prototype or beta site but with real money and real loans.  It reminds me, in some ways, of Funding Circle with its complex secondary market and the ability to bid for your own interest rate.  Mind you, bidding for varied rates on FC will soon be a thing of the past. FC are shortly going over to fixed rates only so the ‘flippers’ and their ‘bots’ will need to find a new home!  More of FC and fixed rates in a future post.

Where am I with Assetz?

I've got bits of cash in the 4 accounts and wait with INTEREST, hopefully 3.75%, 7% or more (Manual Loan Investment Account), to see what cash ends up where and when! Anyway, I look forward to putting more money into Assetz, if and when the algorithms get sorted out and the flow of new loans increases, and I can fully understand what the platform is doing with my cash! 

Saving Stream – Is the New Pre-Funding Option the Way Forward?

In my last post I described how massive demand for loans on the Saving Stream platform had resulted in many lenders being locked out of recent loans while greedy lenders with big pockets were snatching up everything in sight.

The Solution

I’m pleased to announce that Saving Stream have come up with a simple fix – the Pre-Funding Option.  This allows each lender to set up an amount they are prepared to invest in each new loan.  This means everyone who wants ‘in’ will get a share of the loan.  While those with big pockets will obviously get only a proportion of their pre-funding amount they won’t be able to steal from smaller bidders.

Not Perfect but ..

Like all fixes, it isn’t perfect but, with the demand for loan parts on the secondary market, anyone who has second thoughts can easily sell all or part of a share in a loan.  As with existing Saving Stream loans, you can bid without having to have the money in your SS account.  Once you know the size of loan you have been allocated you can transfer the cash into your SS account retrospectively.

I for one am happy with this solution and look forward to participating in future loans on the Saving Steam platform!

UPDATE (11 Sep 2015)

The New Pre-Funding option seems to be working well.  My first loan was scaled back significantly from the amount I offered but the second was taken up in full.  All I need to do in each case was settle up via a bank transfer once I received the email.  I love the simplicity of SS.  12% across the board and the ability to pre-bid and then pay later.  What's not to like?  

Saving Stream – When UK Peer to Peer Lending Goes Bad!

Until recently Saving Stream was a great site for Lenders.  It had a good reputation, simple interface, 12% across the board interest on asset-backed property loans and a fully functioning secondary market.

Hitting the Fan!

In the last few weeks, the ‘proverbial’ has hit the fan!  The number of lenders has increased rapidly and also the size of their pockets.  SS have refused to limit bid sizes (as other sites such as Funding Secure and Money Thing do).  The result is that I have been locked out of the site when the last 4 loans have come on line and have been unable to invest anything in spite of intense and futile keyboard activity. 

Evil Robots 

After half an hour or so these large loans (some over a million £) are gone because people with large pockets (or idiots) are chucking typically £50k on a single loan.  Also the secondary market now empties immediately anything surfaces on it.  This is rumoured to be partly due to the use of ‘bots’. SS have failed to prevent bot use (for example by inserting a Captcha), failed to upgrade their servers/software and worst of all refused put any limit on bid size.

Not Cricket

This is NOT what Peer to Peer is supposed to be all about.  Ordinary people with limited funds and limited technology are effectively being denied access to SS loans.  It’s like a millionaire going to the local sweet shop and buying up the entire stock.

Saving Stream in Full Flood

Hopefully SS will fix things, but right now the Saving Stream is in full flood and the infrastructure can’t cope.  Unfortunately, in the next month or so a huge pile of SS cash is being released as loans mature and many will find it difficult to reinvest in the platform.  Its classic gold rush time with too many prospectors chasing too little gold and the greedy few grabbing every nugget.

I will be monitoring SS and hoping it improves but right now I have no choice but to invest elsewhere. 

Assetz Capital Peer to Peer Lending - New Account Offers Instant Access Savings at 7% !

Introducing the Assetz Great British Business Account (GBBA)

Too good to be true?  Read on ..

Assetz Capital have just introduced a THIRD Peer to Peer Lending Account.  Until recently, they had:

• A Manual Loan Investment Account where you build your own portfolio of loans
• A Green Energy Income Account that pays 7% 

The Manual Account typically pays around 11% on average with a package of self-selected secured (against property) loans.  There is no protection fund.  The Green Account automatically selects green loans (wind turbines, solar etc.) for you making a balanced, protected, portfolio at a fixed interest of 7%.

The good news with the Green Fund is it is highly liquid.  In other words you can (normally) get most of your money out very quickly.

Ratesetter Comparison 

This compares very favourably with, for example, Ratesetter, where you currently get 5.9% in the 5 year market.  This is decidedly NOT liquid in that it takes 5 YEARS to get all your money back and there are heavy penalties for early withdrawal.

The GBBA

So what about the third account, the GBBA?  This is similar in operation to the Green Account but this one offers 7% based on loans to Small to Medium British Enterprises (SME).  Like the Green Account it is protected by a contingency fund.

Some Assetz customers have been cautious about the future of Green Investment so this new fund offers a great alternative to park some cash temporarily and still get a really good rate of interest without too much risk.

Note that the Manual account includes all the Assetz P2P loans while the Green and Business Accounts each include a relevant subset of these according to the fund type (Green or Small Business).

'Hands On' verses 'Leave Alone'

While the Manual account is fairly 'hands on' and involves moderate risk, the Green and Business accounts are much safer and require virtually no management.  In other words, You deposit some cash in your Assetz account then transfer it into the GBBA.  When you want the money back you withdraw it from the GBBA and hopefully it will quickly appear in your cash account where you can transfer it back to your current account.  Tres simple!

Warning

Please note that I have no particular preference for Assetz Capital but, as other Assetz lenders have done, I have purchased a few shares in the company.  So please don't take this as a recommendation.  Make up your own mind as to whether this is a good deal for you and beware of investing too much in any single Peer to Peer platform.

As with all investing, DIVERSIFICATION is key.  Happy Lending!

The Peer to Peer Lending Lifecycle - Where am I today?

I’ve now informally reviewed eight UK P2PL platforms that I have personal experience of so I thought it might be useful to let you know how I am doing.  My goal here is to give you a simple overview and avoid too much jargon or technical stuff.  If you check the archive you can find my posts on the various platforms.

The Beginning

I guess most people begin their P2P journey on a simple platform like Ratesetter or Zopa where you decide how much you want to invest and for how long.  RS and Zopa spread the risk for you.  These platforms are largely hands free (more like investing in a shares or funds).  The borrowers are private individuals rather than businesses.

The Next Step

The next step I made was to try Funding Circle.  This platform is more complex and allows the lender to bid in an auction for individual unsecured business loans.  By bidding, you decide what interest rate you require.  If you get this right you will end up with a high interest rate while other lenders for the same loan get a lower rate.

For example, lets assume the borrower’s target interest rate for a loan is 10%.  In practice some lenders may have bid 7% while others may bid 14%.  The rate of 10% is an average of all the offers from the pool of lenders.  The highest rate bids are eliminated as lower rate bids pile into the auction so the trick is to be ready to lower your rate during the auction but not to go lower than your own target.  It’s a bit like an Ebay auction but more complicated because there are lots of winners (but some win more than others, if you get my drift!).

Risks

As you can see, Funding Circle requires a fair bit of micro-management and is more suitable for those with some spare time.  Another issue with Funding Circle is the word ‘unsecured loan’.  A proportion of loans will go into default and recovery of debt is, at best, relatively low (partly because there is no asset the loan is secured against).  With Funding Circle, the lender takes on the risk of defaults because there is no contingency fund.

The Numbers

Let me put some figures to all this.  About 50% of my Peer to Peer pot is currently in Ratesetter where I am earning around 5.9%.  This is reasonably protected from any bad debt.   25% of my money is in Funding Circle where I am currently earning 7.9%.  This was 8.3% until recently, when two more loans defaulted.  Funding Circle estimate, based on their statistics, I should be earning 8.7%.  I‘ve actually lost £450 with (so far) only £36 recovered.  I should add my loans are highly diversified and I now never put more than £60 into an individual loan.

Onwards and Upwards with Asset-based Loans?

Where is the other 25% of my lending?  Well, I'm gradually (and cautiously!) moving more money into five of the newer, asset-secured platforms:

• Ablrate
• Assetz Capital 
• Funding Secure 
• Money Thing  
• Saving Stream  

These pay between 10 and 14% (with no fees) with the loan being secured against property, land or other tangible assets.  The pie chart illustrates the current state of my investments. With these platforms, a reasonable amount of micro-management is required as you need to select each loan and each platform is different in the way it works.

Generally there are not enough loans available on these platforms to satisfy the demand so you need to bid for new loans as soon as they appear.  Interest rates are fixed, so the auction is much simpler than Funding Circle, you simple decide how much you want to bid for.  Note some sites have a secondary market where you can buy existing loans but, in practice, these offers are like fireflies, they disappear in the blink of an eye!

Incidentally, If you Google (or Bing) 'UK Asset based Peer to Peer Lending', you won’t find much impartial information.  Wiki is sadly lacking in information about UK Asset-based lending; which is one reason why I started this blog.  So more on Asset-based P2P lending in future posts!

ABLRATE – What’s in a Name? Yet another Asset-based P2P Loan Platform

This is how ABLRATE describe themselves:

Ablrate is a peer lending platform that provides asset finance to a diverse range of businesses. Our platform was initially launched to allow our Lending Members access to the lucrative aircraft leasing space. The sector is highly regulated, has bank finance involved and can provide lenders with excellent returns and security. 

The platform was expanded to give Lending Members access to asset finance deals in capital equipment, property and any other transactions where our members have good security and good returns.  Ablrate was named as the 'abl' stands for 'Asset Backed Lending' which is at the core of our platform and will remain so.

Interface

Ablrate has pleasing platform user interface and offers very rapid crediting of bank transfer deposits (ie a few minutes).  Interest rates currently vary from 10-14%.  There were no loans available when I joined so I bought £300 worth of a bottling plant loan on the secondary market just to try the platform out.

Aircraft Leasing

As well as aircraft leasing they also do manufacturing plants and marine containers.  I’ve recently added a £300 loan against marine containers (14%) with a term of around 6 months.
The secondary market allows you to buy and sell loans at a premium of discount, in a similar way to Funding Circle.  Other asset based platforms that do have a secondary market, currently only allow you to buy or sell at value.

Any Good?

My main problem with Ablrate (apart from the odd name), so far, has been a lack of new loans. However, I feel Ablrate has a lot going for it and offers good support via the P2P Independent Forum and has an interesting portfolio of loans.  The company appears to have significant knowledge of the aviation leasing market and that differentiates them from the other asset-based loan companies who follow the ‘pawnbroker’ or ‘bricks and land’ models.

Summary:

• Interest rates: 10-14%
• Secondary market (with premiums and discounts)
• Length of loans 6 months - 5 years
• Quick deposits
• Asset-based

Ablerate is a P2PL platform to watch.  But, as with its rivals such as Saving Stream, Money Thing and Funding Secure, it is too early to make a clear judgement.  Only when these platforms have been tested with a few defaults will we be able to make a more considered assessment.

Funding Secure - Yet another UK asset-based Peer to Peer Lending Platform

I’ve recently introduced you to two asset based platforms; Saving Stream (SS) and Money Thing (MT).  They both have a fixed interest rate of 12% and are somewhat similar in the way they work.

Saving Stream

SS normally lends for a term of one year but also has a secondary market that allows you (currently) to sell your loans easily at any time because there are not enough loans/value to satisfy the demand. Note that this situation could easily change.  SS loans are usually secured against property (bricks and mortar).

Money Thing

In contrast, Money Thing is a 6 month term with no secondary market.  Loans are typically secured against objects (or bundles of objects).  There is the hint of the pawnbroker here; think, artworks, cars and jewellery as well as the odd plane.

Funding Secure 

“Yes, but what about FUNDING SECURE?”  I hear you cry.  Well it’s sort of a cross between SS and MT.  Interests rates are normally 12 or 13% with a 6 month term, no secondary market and a mix of security against objects or land/property.  More accurately, Funding Secure (FS) appear to have started out with the pawnbroker model but are increasingly moving into land and bricks.

I’m currently investing modest amounts in the three platforms to see how I get on.  So far all three are fine and hopefully, with the relatively short terms, there won’t be too many defaults.  

The minimum investment in an FS loan is a mere £25 so you don’t have to gamble your life savings to give it a go.  Transfers from a current account (assuming a rapid transfer) become active on the site within 30min.

Better be Quick!

However, The problem with these platforms is you need to be quick.  Once a new loan appears, unless it is a biggy (£100K +) then a frenzied mob gobbles it up before your eyes (On FS, once the loan is live, you can see the amount left diminish before your eyes).

Do be aware that these platforms are all risky and I fear that in 6 months time I may be warning you to put all your money in Ratesetter or Zopa (with a much lower interest rate).

Fine Wines?

Incidentally I see the next FS loan is ‘Fine wines’ – a massive loan of £500 (asset value £800).  I’ll drink to that one! (But what if it’s ‘corked’?  That's one thing the valuation expert can’t check!)

Peer to Peer Lending - Ratesetter and getting your Money Back!

This is a big issue for those of us ‘PRENDERS’ who started stashing lots of money in platforms like Ratesetter and Funding Circle but who now want to shift some of it into higher interest sites such as Saving Stream, Funding Secure or Money Thing.  The technical term for this issue is LIQUIDITY (how easy is it to cash in your investment?).

Ratesetter Sellout?

About a year ago I put around 50% of my PtPL money into the Ratesetter 5 year market at around 6.0%. I’ve now turned off further investment so my Holding Account receives a few hundred pounds a month that I can reinvest elsewhere.  In practice ‘Sellout’, the Ratesetter term for cashing all or part of your investment early, carries too heavy a penalty to make it worthwhile to cash in, except in an extreme emergency.

Secondary Markets    

However, Funding Circle has a Secondary Market so you can offer some of your loans for sale, at any time, at a premium (or discount) according how attractive the rates are.

It is really ‘Horses for Courses’.  Ratesetter is relatively safe but paying the rate for a five year loan means five years or a penalty.

With Funding Circle you bid for the rate and can then sell your loans at any time.  However your 5 year rate on Ratesetter is protected while on Funding circle the final interest rate you achieve depends on how many defaults you have and how much cash is subsequently recovered.

Liquidity in Asset-based high interest platforms

If you put money into some of the high interest platforms like Saving Stream, or Money Thing (both pay 12%), the terms are short, typically 6 – 12 months, and there is also secondary market making them relatively ‘liquid’.  Of course, these newer platforms also carry greater risk in spite of being secured against assets.  Currently it is very easy to sell loans but hard to buy.  Future events could easily change that.

‘What happens in a future financial crisis?’

Clearly you then have a much better chance of eventually getting your money back from Ratesetter than some of the other platforms.

Solution?

The sensible solution appears to be a portfolio of platforms/loans with the most money in platforms like Ratesetter/Funding Circle and a smaller amount invested in a basket of high interest platforms (if you want some excitement!)

Money Thing – Another 12% interest, Asset-based Loan Platform

Money Thing is, in many ways, similar to Saving Stream, which I wrote about in my last post.  All Money Thing loans offer 12% interest and are typically secured against personal property such as art, cars, planes or jewellery.  It’s a bit like a high Street Pawnbroker.

The Loan to Value Ratio (LTV) is typically 50%, ensuring that selling the asset should cover the loan.  The terms are usually 6 months.  This gives good liquidity as you can get your money plus interest back over a relatively short period.

The web site is easy to use and the customer support also appears to be good.  You can check what loans are coming on stream on the P2P Independent Forum.  As with other high interest platforms, new loans are in great demand but the platform currently, typically limits the size of your investment, in a 24hr period, ensuring that as many lenders as possible get a bite of the cherry.

Portfolios

The platform also lumps smaller loans together into a portfolio of typically £10k to £50k.  This makes lending easier to manage.

Fast Transfers

Money Thing deposit your incoming cash very quickly so if you do a ‘fast’ bank transfer they typically acknowledge the deposit in less than an hour so you can then invest.

Note: Saving Stream go one step further and allow you invest as long as you have made a transfer (ie they don’t wait to receive the transfer).

Interesting

PRENDING can be soulless but adding varied objects adds interest to lending.  My loans include security against a Porsche, a portfolio of electronics, a Piper plane plus 4 paintings.  Much easier to visualise rather than endless lists of bricks and mortar! 

Saving Stream, Peer to Peer Lending Paying TWELVE PERCENT (12%) !

• No fees
• Secured Loans
• Contingency Fund

Too Good to be True? 

You might think so but their track record to date is pretty good.  There have been no defaults so far.  It’s well worth checking out what other lenders think by visiting the ‘Peer to Peer Independent Forum’ (you can find the link in the column to the right of this post).  There is a specific area of the Forum dedicated to Saving Stream.

A lot to Like

There is a lot to like about Saving Stream.  The platform is very simple and straight forward.  It reminds me of the Ronseal Ad, ‘It does exactly what it says on the tin’.

Minimum investment is £100 and minimum investment per loan is also £100.  Loans are typically bridging loans for property, interest only and are 6-12 months in duration.  The short term means that your money isn’t locked away for long periods.  The 12% interest rate is fixed for every loan so effectively they have averaged out the rate to keep the platform simple.

Secondary Market

There is a secondary market where you/buy sell at cost (ie no markup or mark down).  In practice, with the 12% rate, there are not many sellers.  The secondary market offers a mechanism to spread your risk across existing loans.  You’ll find new loans disappear fairly quickly.

What If?

One thing to remember about asset-based loans, if the worse happens, a default, then you won’t get your money back for some time as the asset will need to be sold.  You are also relying on the valuation being accurate.

I would recommend Saving Stream, based on my experience so far, but do weigh the risks and spread your money both between loans and across other platforms!

Advice for Peer to Peer Lending beginners wanting to ‘take the plunge’

Question: 'I’m a PRENDING novice living in the UK – So where should I start with this Peer to Peer Lending thing?'

Well, Ratesetter is a great place to start because it gives a reasonable return, has a large volume of loans and avoids the complexities of having to bid for individual loans.  It is also is relatively risk free and has a good track record.  Here are the steps to get started:

1. Join Ratesetter.  It costs nothing and it only takes a few minutes to register online.
2. Once you have an account you can transfer your initial investment to the site from your bank account.  I suggest something like £100 to test the water.  
3. You now need to select a Term (length) for the loan and the interest rate you require.

Interest rates

Here are the terms and the corresponding ‘Market Rate’ interest rates yesterday (13 June 2015):

• 1 month:        2.6%
• 1 year:           3.1%
• 3 year:           4.1%
• 5 year:           5.6%

Note that these rates are currently low; my average five year rate is around 6.0% and the 5 year rate has gone as high as around 6.7% in the recent past.  Low rates suggest more people are lending, perhaps due to the Greek Crisis and the stock market turmoil?

Market Rate

Having selected the term of the loan, if you bid the market rate then your money will be invested fairly quickly, typically within 24 hours.  If you specify a higher rate then it is likely to take much longer for your money to be invested and the exact time will depend how the market moves.

That’s really all there is to it.  You can either arrange to automatically reinvest the returned payments from the lender, so increasing your investment over time or allow returned capital and/or interest to be transferred to your Ratesetter ‘holding’ account.

This is all very well, but supposing I need the money invested in the 5 year market back in a hurry?

Rapid Cash Withdrawal (liquidity)

With Ratesetter you can access your money on loan at short notice using the ‘Sellout’ function. Sellout will allow you to sell your contracts (loans) provided there is a new lender available to match your existing loans.   I’ve never used Sellout and am content to withdraw my capital and interest as it becomes available to invest at higher rates elsewhere.

Alternative to Ratesetter

An alternative, if you feel the Ratesetter market rate is too low, is to invest in the Assetz Capital Green Energy Income Fund that returns 7% and you can normally withdraw your funds very quickly.  This is mentioned in more detail in another post:  Assetz Capital Green Energy Income Fund

Higher Rates

Of course, once you've you are familiar with Peer to Peer Lending, you can earn far higher rates on sites such as Saving Stream or Money Thing.  I'll be covering these platforms in future posts.

Until then, happy lending!

An Introduction to Lending via Assetz Capital

Assetz Capital, Green Energy Income Account

The first Asset-based lending platform I tried was Assetz Capital.  In this type of platform the sum lent is secured against a tangable asset such as land, property or even at artwork or a plane.  I built up my Assetz investment to around £3000 with an average interest rate of 11%.  This included £500 in their Green Energy Income Account. 

The target interest of this account is 7% and it is invested in a range of green products such as windfarms.  It also includes a contingency fund to protect the lender from defaults.  This fund appears to have high liquidity as you can normally withdraw your money almost immediately (I’ve tried this and it works).

This fund is an attractive option for those who like to keep lending relatively safe, have (hopefully) instant access and a good interest rate (7%).  This compares favourably with Ratesetter where the five year rate is currently falling and today stands at only 5.5%.

Assetz Capital, Manual Loan Investment Account

The rest of my money is in the Assetz Manual Loan Investment Account.  You can browse the Loan Book and buy any loans not fully invested.  Interest rates are typically 9% to 18% and the term of the loans are anything from 6 months (bridging loans) to 5 years.  You can also specify if you wish to increase or decrease the size of your existing loans.  This creates a secondary market where you can generally get your money out or buy into new or existing loans as they become available.  Arguably there is less risk of ultimate loss of capital as all loans are secured against assets such as property.  It is still prudent to diversify and spread your money across the platform rather than putting all your eggs in one basket.

With Assetz you will find some loans are labelled ‘Investments Paused’.  This means the loan can no longer be bought or sold due to irregularities in borrower repayments or a default.  This currently means that these funds are inaccessible to the lender.  However the contract with the borrower often stipulates that the interest rate then increases so you can hope that eventually, even if the asset needs to be sold, you will be adequately rewarded once the issue is resolved.

Note that there have recently been some misgivings from Assetz lenders as to the number of loans that are ‘paused’ and I personally currently have 5 of my 20 or so Assetz loans paused.  However, this issue is currently being addressed by Assetz and I personally remain confident in the platform.

I’ve more recently joined Saving Steam, Ablrate and Money Thing and I’ll describe these platforms in future posts.    

Rik’s Peer to Peer Journey and an Introduction to the Peer to Peer Independent Forum

In my last post I promised to introduce asset-based loan platforms such as Assetz Capital and Saving Stream.  Before I do that, it might be helpful for me to share my own Peer to Peer Lending (prending) Journey.  I began lending around 18 months ago when I decided to ‘retire’.

Incidentally, I hate the ‘R’ word – I like to think of so called retirement as simply a choice to quit full time employment in order to be free to do what I want.  The word Retirement has that retro feel of carpet slippers, cocoa and an engraved clock from the last employer on the mantelpiece!

Stock Market vs Peer to Peer?

My wife and I have ended up with a survivable pension income together with two other pension pots transferred into a SIPP invested in various funds.  I also took the maximum tax free payments (25%) from the other pensions, some of which I have invested in the stock market and the rest in Peer to Peer Lending.  Currently 70% of my cash is in Funds linked to the stock market and 30% in PtPL.

Based on how both have performed so far, I hope to increase the PtPL share to at least 50% in the next 12 months.  With Peer to Peer, there is a steady stream of interest while the value of stock market funds flap around like a line of washing in a hurricane!

Testing the Water

I began with ZOPA, Ratesetter and Funding Circle and put small amounts in each in order to test the water.  Interest was relatively low with Zopa so I stopped investing at £3k and am continuing to withdraw returned capital and interest.  I put a significant amount in Ratesetter and Funding circle and these two platforms are still where the majority of my PtP cash is invested (80%) with the other 20% in Asset based platforms.

I’m continuing to switch returned cash from Ratesetter (current interest 6%) and Funding Circle (interest currently 8.3%) into other, higher paying platforms but I’m cautious about doing this too quickly as most of these platforms are relatively new and untried.

My first port of call, for higher interest rates was Assetz Capital.  Here, I built up my investment to around £3k with an average interest rate of 11%.  I will share more about Assetz in my next post.

Peer to Peer Independent Forum

Finally, I’d like to finish with a plug for the Peer to Peer Independent Forum.  While not a beginner’s guide, this is a great place to gather opinions from both UK Lenders and those who actually work for, or own, the individual UK based platforms.  Some of the discussions are quite technical but the forum will give you an honest feel for how fellow ‘prenders’ rate the different platforms.

More on Funding Circle

Funding Circle is my second favourite platform in terms of amount invested.  I am, in practice, currently getting around 8.3% on my investment while the projected amount based on expected FC default statistics, is 8.7%.  Note that interest rates on the site have since fallen so if I were creating a portfolio from scratch today the rate I would get would probably be lower.  Funding Circle loan terms are generally either 3 or 5 years in length although some loans are for one year or less.

Risks

Funding Circle takes up more time than the simpler sites like Ratesetter but offers more entertainment (depending on your enjoyment of online auctions) and higher returns.  While some of the loans have a guarantor, these are unsecured loans, ie not secured against a tangible asset such as property, so there is a small but real danger of losing both capital and interest.  My current personal losses are around 2.7% of the amount invested.   This will reduce if more money is recovered but also increase if there are more defaults.

Auto Bid

If you don’t like or don’t have time for real-time auctions during the working day (some employers may frown upon using you workstation for this purpose) then Autobid is for you.  This enables you to program the FC platform to select suitable loans for you and bid on your behalf.  There are obvious disadvantages to autobid, however.

• You don’t get a chance to hand pick the loans
• You don’t know how the auction will go so you have to set the bid interest rate lower in order to stand a fair chance of winning
• It will take longer to get your money invested

Secondary Market

The second alternative to live auctions is the Funding Circle Secondary Market.  This is particularly useful when you start out and want to build a portfolio of loans fairly quickly.  This allows lenders to put their loan parts for sale and other lenders to buy them.
This is a win-win for both buyers and sellers.  It introduces liquidity into the market allowing lenders to access their cash before the loan completes and for other lenders to increase their portfolio without having to bid.

Greece and China

It is times like this, with the stock markets worldwide tumbling because of Greek Exit fears and the Chinese markets in free fall, that I’m glad I invested significantly in Peer to Peer.  My only regret is that I still have so much cash in a Self Invested Personal Pension (SIPP) invested in stock market funds.  Sure, now may not be a particularly good time to sell but, if and when the stock market improves, then it might be prudent to shift more cash away from the markets and invest in Peer to Peer.  I’m so thankful that extracting cash from a SIPP is much easier than it used to be!

Good luck with Funding Circle.  In my next post I shall introduce you to some platforms that provide asset based loans.  Should the loan default then it is secured against an asset such as property or even a plane or a work of art!  

Kangaroo Steaks and Funding Circle

With the platforms mentioned in my last post, Ratesetter and Zopa, the websites sort out the borrowers to match the sum you wish to invest. Should a borrower default on a loan then either the Zopa Safeguard Fund or the Ratesetter Provision Fund should ensure you, the lender, aren't out of pocket. This is one of the reasons the lender interest rates are lower on these simpler platforms than sites offering both more decision making and more potential risk.

Here is a simplified breakdown of current UK Peer to Peer lending platforms:

• Simple:                                For example, Ratesetter/Zopa
• Intermediate:                      For example, Funding Circle
• Complex, Asset-based:     For example, Assetz, Savings Stream or Money Thing

Kangaroo

Before I introduce you to Funding Circle, 'what about the Kangaroo?', I hear you ask.  One of my many new distractions, since retreating from full-time employment, is cooking. Last night I cooked kangaroo steaks (from Lidl, always a store with surprising tucker.). Fortunately the Internet provides loads of recipes and advice for cooking just about anything. Anyway, the result was unexpectedly superb (even if I do say it myself) and delighted Mrs Ravado (who, until recently was the only cook left in our household).

Roo is an extremely low-fat meat so it’s easy to overcook and dry out. My meat, cut into strips, served over a bed of mash potato, topped with a red current sauce/red wine sauce, was rare in the middle and medium on the outside. Perfection!

Incidentally, cooking is a lot like the current Peer to Peer scene in the UK; lots of ingredients and dishes and loads of opportunities to try new things and enjoy creating unexpectedly satisfying dishes (or, in the PtPL case, a healthy cash return!).

Funding Circle

Enough culinary boasting. Let’s return to PtPL. Funding Circle lends to small businesses rather than individual borrowers. Each borrower is fully identified and there is information about their business plan, history and what the loan is for. The lenders can select loans to bid for and decide how much to bid and what interest rate to offer. This creates an online auction not unlike Ebay.

As the bidding proceeds, the highest interest rate bids are eliminated so at the end of the auction the borrower hopefully gets a rate that meets their expectation. If the overall interest rate is too high then the borrower can reject the loan.

In this model, the risk lies with the lender. Loans are banded from A+ (low risk) to E (High risk) and each band has an expected failure rate. So, for example, an A+ loan for which I bid 10.6% carries a statistical risk of failure of 0.6% (plus a lending fee of 1%) so my actual return, statistically is 9%.

Diversify

The key thing with FC is to diversify. In other words, spread your cash across many borrowers. People who complain of unexpectedly large losses on FC have usually failed to spread the risk. On this platform, you need to take responsibility for risk. Funding Circle recommends that ideally each loan bid should be 1% or less of your total platform lending. So if I lend £2000 then I should ideally put only £20 on each loan (1% of total invested).

Hopefully that’s enough info to wet your appetite regarding Funding Circle. Each of these platforms provide a good summary of how they work so the best thing to do is tuck in, ie create a free account and make a £20 bid and see how you get on.

In my next post I’ll give you some more information on Funding Circle and introduce the idea of the Secondary Market (one alternative to auctions).

How to get started with Peer to Peer Lending

I started my Peer to Peer Lending (Prending) journey with ZOPA and Ratesetter around 18 months ago – both platforms are relatively easy to understand.  Zopa currently pays 5% on the 5 year market (ie the loan is for 5 years).

Ratesetter allows you to bid for the rate you want.  The Ratesetter 5 year market rate is typically 5.5% to 6.5% per annum.  Rates will be lower if you choose a shorter loan period.  The current Ratesetter one month rate is 2.7% per annum (but still much better than any bank!).  Please note that the higher the rate you bid for, the longer you will have to wait for your money to be invested.

Hyperlinks

Note that the links above for ZOPA and Ratesetter are both promotional links.  If you click on one of them and join the platform and then subsequently lend £1000, you (and I) will currently each receive a gift of £25.  However, these sites are easy to locate via Google if you don't fancy the £25!

How do these platforms work?

Both sites allow you to choose how much to invest.  The minimum loan size on both sites is £20 so there is virtually nothing to lose in giving them a punt.  The borrowers on these sites are generally private individuals and your money will be shared out across a number of loans in order to spread the risk.

However, both sites have a contingency fund that should cover the costs of any defaults so the rate on offer is what you should actually get.  Both sites are pretty ‘hands off’ and you can check online at any time to see how your lending is going.

The loans on these platforms are in the form of Amortised Loans .  This means the borrower makes equal payments throughout the lifetime of the loan.  In practice this means the interest owed is returned each month together with a proportion of the capital. 

Let us assume that you made a single loan of say £1000 at 5% over a period of one year.  Half way through the loan, around half of your money would have been returned to your holding account.  This means the amount of interest being earned is continually reducing.  Only the money on loan is actually earning interest.

If you want to earn the full 5% then you need to constantly reinvest the money returned.   Fortunately these sites allow you to automatically reinvest returns although you can switch this off and ‘hold’ returned capital and/or interest.

Liquidity

This relative ease of access to your money is known as liquidity.  Assets that can be easily bought or sold are known as liquid assets.

With sites like Zopa and Ratesetter, if you need some of your money back then you can switch off the auto-invest facility and transfer the resulting cash in your holding account to your bank current account.

I will return to the subject of liquidity and accessing your lent money again as we look at other more complicated platforms and how they handle different types of loan such as interest only loans.

What next? 

My advice is if you are still interested, then why not get your feet wet and try one of these sites?  It only takes a few minutes to sign up and then transfer a small amount of money onto the platform (typically via a bank card or bank transfer).

Note: that although these sites are pretty safe and are regulated by the Government, your money is not yet covered by the Government’s Financial Services Compensation Scheme (FSCS).  This currently pays up to £85,000 should your bank fold with the result that your savings are lost. 

However the Government does lend to small business using peer to peer platforms and the Chancellor is supporting PtPL by, for example, allowing them to be included in Self Invested Personal Pensions (SIPPs).

Introduction to Peer to Peer Lending and this Blog

Welcome! This is the place to come to if you want to know more about Peer to Peer (P2P) lending in the UK. If you don’t live in the UK then please don’t leave just yet. Some of the information here will also be applicable worldwide.

Note that everyone still talks about ‘Peer to Peer lending’, a bit of a mouthful, so PRENDING is my contribution to simplifying things.

The UK arguably leads the world in prending with a wide range of platforms and rapidly expanding scope of loans both in terms of size, value and range of lending models.

Who is my Target Audience for this Blog?

Typically, someone relatively new to prending. This is a ‘Peer-to-Peer-Lending-made -easy’ site. An idiots guide, if you like; the idiot being me, not you, dear reader! I decided to start this blog because much of the information on the web relating to prending is either biased, superficial or unnecessarily complex.

Why Prending?

Peer-to-peer lending is a simple, alternative approach to investing in bank accounts, bonds or shares. Typically an on-line platform matches lenders with borrowers and offers far better returns than a traditional bank. 

 

Interest rates for savers are at a record low and, whatever those with an interest in selling shares or funds tell you, the stock markets are notoriously risky, particularly in the short term. In recent times the UK markets have suffered from a UK general election and a Scottish independence vote while the whole Greek exit thing rumbles on and the future UK EU vote casts a large shadow across the UK shareholding horizon. 

 

Of course, prending is not without risks, but it does offer a regular return of between 5% per annum (fairly safe) and 12% or above (more risk). Whilst I wouldn’t recommend cashing in all your shares and funds and putting 100% into Peer to Peer, there is an obvious advantage in diversifying your portfolio (if you have one) with, for example, 50% invested in the stock market and 50% in prending.

What to Expect

In this blog, I will share my experiences of different platforms, give an unbiased view of the current prending scene and provide links to useful resources that go far deeper than this site can.

Along the way I’ll also include regular explanations of prending jargon as well as a simple explanation of interest rates, loan types and topics such as diversification, risk management, and liquidity.

In order to successfully manage your prending, you will need to be computer literate and able to handle online banking. The ability to set up a simple spreadsheet would also be useful so you can keep track of your investments on different platforms.

Finally, you need to know I’m not a finance guru; just an ordinary guy with some cash to take care of. Anyway, I’d love you to share the prending journey with me. Peer to Peer Lending is interesting, sometimes fun and generally financially rewarding!

Please note:

I am totally unqualified to give financial advice and you must make up your own mind about where and how to invest!