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!