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!
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