I noticed today that MoneyThing had introduced premiums and discounts onto the secondary market. I had one loan that I had been trying to sell for a good few months and wanted to try it out.
My first questions were:
How does it work?
What is the maximum discount?
When I sell, does the buyer pay accrued interest?
How does it work?
Here is how it looks for potential buyers:
For buyers, it shows all of the current offers, starting with the biggest discount at the top. To sell, I go to the ‘my loans’ then just click the ‘sell’ button from the table:
This opens up a box to set the price and discount/ premium:
What is the maximum discount?
When you click the ‘Offer price: at par’ drop-down it lets you set a discount right down to 75% of the original price:
Does it work?
I set the sale price to 94.5% – a 5.5% discount. It was 0.5% cheaper than the largest discount at the time.
This ended up selling within 2 or 3 minutes. It had previously been on the market for many months, maybe even a year. This is a great benefit to people who need to access their money early for some reason, and are willing to take a cut to their capital repayment for the privilege.
When I sell, does the buyer pay accrued interest?
I sold £150 at 94.5%, so would have expected £141.75 for the capital alone. If it was with accrued interest for the last 10 days, I would expect a little over £142
In reality I received 141.76 over a couple of sales, so it was probably just a rounding error of the capital alone. No accrued interest!
After China (another story…), the USA is the largest peer to peer lending market. The most successful platforms like Lending Club or Sofi have originated tens of billions of dollars in loans. Yet for an outsider it can be very difficult to begin to understand the US P2P lending market, particularly when you don’t have an insight into how retail savings work or how people think about their personal finances. Thinking about the UK, most retail investors would not think about investing in P2P before considering popular alternatives: ISAs, SIPPs, retail bank savings, BTL property or general stocks and shares brokerage accounts. Within those, they’d consider the tax advantages, allowances and protections like FSCS protection on bank savings. This article is an introduction to the US P2P lending market for outsiders.
US Retail Saving & Investing
Traditional Savings Accounts
Most people have the ability to access a simple savings account, which currently bares little to no interest. The FDIC (Federal Deposit Insurance Corporation) insures all deposits up to $250,000. Most banks in the United States offer around .01% to .05% for a standard interest baring savings account. There are better options for people that have larger sums of money to deposit, but it is only marginally better. A savings account is the safest way to begin saving your money in an FDIC insured account.
Another option is a money market savings account. These accounts are still FDIC insured. A money market might offer slightly higher interest rates than a traditional savings account. Like a savings account the funds are still liquid, meaning you can withdraw them at any time. When interest rates are higher these interest rates are more appealing to the retail customer. The downside is a higher minimum requirement for your first deposit ($10,000 for example) and a limit by the Federal Reserve to six transfers or withdrawals a month.
These types of savings are designed for retirement. They allow people to put in pre-taxed dollars and invest them how they see fit. The benefit to this is that a large number of employers in the United States match to a certain percent: essentially free money. Similar to the shift from Defined Benefit to Defined Contributions pensions in the UK, the 401k is quickly taking the place of traditional pensions, as it eliminates the employer from having to guarantee a payout at the end of your career. If an emergency arises, you can take a loan out against your 401K.
The negative side to this is the money is stuck in the 401K once it’s in. Of course you can withdraw the money early, but there is a steep penalty for doing so. There are rare instances where you may be able to withdraw a portion of the funds, but you must fit a strict criteria the IRS has. These are great for retirement savings, but not for funds you might need a few months down the road.
IRAs (Individual Retirement Accounts)
There is another saving mechanism called an IRA or Individual Retirement Account. Do not get this confused with a 401K, as they differ in contribution limits as well as investing opportunities. Also, employers offer a 401K plan while an IRA can be opened by any location offering IRA services. Lastly, a difference is a 401K usually has a defined list of what a person may invest their funds in, while an IRA has almost limitless boundaries in terms of investment opportunities.
To start with, could you tell us a little bit about Blend Network: in particular, what is it that you offer to investors, and what is your process to find good borrowers?
Blend Network is a peer-to-peer property lending club. We connect investors who are looking to earn a good return on their money with small and medium experienced property developers who need funding for their property projects. We offer our investors the opportunity to invest on property-secured loans that will earn them double-digit returns – last year, the average return for our lenders was 12% p.a. and some of our loans had a 15% return p.a. All our loans are secured against first-charge on the property and we have zero default on our loans. In regards to the borrowers, these are very experienced small and medium property developers looking to build more affordable houses across the UK. For example, the borrowers behind a typical loan we did last year were two very experienced property developers, they had nearly 60 years of property development among them. They approached Barclays to get a loan to build eight houses, Barclays said no but referred them to us. We were able and very happy to fund this loan, the project is doing great and the borrowers have already made an early repayment. This is the profile of our typical borrower at Blend Network. We find our borrowers both directly and through our network of introducers.
Last week Kuflink added a secondary market to their platform, allowing investors to buy and sell existing loans. Giving more details on how it works, Kuflink said:
Lenders can list most loan parts on the market, although some restrictions apply – loans in default or less than a month from their redemption date are not eligible, for example. Loan parts must be sold for par value.
The platform will charge a nominal 0.25% administration fee to the seller, whereas the market is free to use for buyers.
From the Kuflink Press Release
Trying it Out
I had a look at how it works over the weekend. To access the secondary market, you just select from the main dropdown near ‘my investments’, which brings you to the buying screen:
I clicked ‘view more’ where I was able to buy the loan part:
It didn’t give me the ability to buy a chunk of a loan part, so as far as I can see it would only let me buy the whole £1500 loan part pictured above, not just say £100 of it. It was the same when I tried to sell a loan part, I didn’t see an option to only sell a part of it:
The ‘Sell’ Page on the Kuflink Secondary Market
Once I clicked ‘Sell Now’ and accepted the terms it listed the the loan in ‘my listing’ and sent me an email confirmation.
To delist it again it was just a couple of clicks. So it was pretty easy to list my own loan part for sale.
Many of the loans on Kuflink were relatively short, so it was never a deal breaker for me to have a secondary market. It would be better for them to add the functionality to sell a part of a loan part, but it is definitely a welcome step to be able to buy/ sell at all.
Many P2P platforms already have a secondary market. In my experience, it is sometimes tempting to ‘overbuy’ into new loans thinking that you can just sell out later if/ when you need the money. In reality if a loan goes bad or there is a whiff of bad sentiment you could be waiting a long time at the end of the queue. So I won’t be changing my investing strategy with this: I will just invest in what I would be happy to hold to term anyway.
The views expressed here are not to be taken as investment advice. Both capital and interest are at risk when investing in Peer to Peer loans. Please consult with a financial adviser if you have further questions tailored to your personal circumstances.
I have invested as a P2P lender in some loans on the Kuflink platform. I have not received any payment for writing this blog post, but I do receive a payment if you join up via any of my ‘refer a friend’ cashback links.
I requested a sell out of my funds in the Assetz Capital GBBA account around a year ago, on July 23rd 2017. The GBBA account is the ‘Great British Business Account’ which is currently on series 2 offering 6.25% returns with a discretionary provision fund. I wasn’t particularly worried about the account or the returns from my investment, but I wanted to try to invest it myself either on some of their manual loans or on other platforms with a higher risk/return.
There have been some questions around selling out of the GBBA and the utility of the discretionary provision fund on the account. It is great to have a safeguard against defaults, but in practice, if you need access to money in the the short term, what happens? This is my progress selling out around £2400 from my GBBA investment over the last year:
Click on the chart above for a larger view.
I got this data from an export of my GBBA account. There was a huge number of transactional rows, so I filtered to only “Inter account transfer to cash account”. I understand this as the investment has been sold off and the cash has been transferred into the cash account, from which I can withdraw/reinvest as I like.
The bulk of the investment, 54%, was sold off in the first day after the request
75% was transferred into my cash account with the first week
81% was sold off 1 month after the sell out request
89% sold off after 2 months
96.4% sold off after 3 months
After 3 and a half months, I was down to around £13 which has been very slowly shifting ever since.
Now 1 year later there is still £9.50 in the GBBA series 1 account.
When I looked in detail in the loans of the remaining £9.50 which was ‘stuck’, it was actually spread across 15 different loans, most performing.
I made a fresh withdrawal for the remaining funds, perhaps it was interest that was received in the time between the first withdrawal request and the sale of those loans. Will update this post when I know.
I wrote a post back at the start of March shortly after I heard that the UK P2P lender Collateral went into administration. As an investor in some Collateral loans it took me by surprise, and at that time I was hopeful of a recovery of the capital invested. This post is to look at some of the developments which have progressed since then.
Communication from the Administrators
As far as communication has gone, I received a series of emails from the current administrators, BDO, across May and June 2018. The emails have a confidentiality clause at the bottom, so I only want to give a brief summary:
21st June – Joint Administrators’ Proposals for the Companies.
22nd June – A personalised Proof of Debt form. This had my total investment that was in the platform. I had been unable to access that as the website shut down before I was able to check. It matches approximately my estimate from my most recent excel check.
27th June – A further FAQ
From the (public) FAQs, the administrators have control of the bank accounts
From the same document it looks like the administrators will try to service the loans going forward, and had a ‘limited’ number of payments up until June. The original security against the loan should be valid for reclaiming unpaid debt. I read on the P2P Independent Forum that another P2P platform Huddle Capital may have taken over at least one of these loans.
At the time of the Administration announcement the Collateral website was closed with a generic apology holding page (see my last post for a screenshot). I noticed that at some point this was changed to just a ‘This site cannot be reached’ page. The administrators have said in one FAQ that the domain had expired and was listed for auction, which they didn’t attempt to bid on. When I check the whois (a public register of web domain ownership), it doesn’t seem to have moved hands since 2015. So, I’m not really sure what is going on there. Though I’m not sure how much we can trust whois after GDPR, where there was a lot of arguing between different bodies.
How much have the Administrators charged so far? What happened to the platform and the first administrator? You can find the answers to these questions and more in the detailed read ‘Joint Administrators’ Proposals 21 June 2018’ on the Administrator’s public facing site for Collateral.
The following article is a guest post from Yann Murciano, CEO of Blend Network.
Since November 2016, as part of the Small Business Enterprise and Employment Act 2015, the UK’s nine major banks are legally required to refer those SMEs they refuse to finance to an alternative provider. The last figures published in August 2017 for the first nine months of the scheme were quite unimpressive: less than 3% of small businesses referred to alternative lenders via the bank referral scheme  were funded, that is some £4m in completed funding deals for the first nine months of the scheme. However, despite a sluggish start, we are now seeing an increase in conversion rates. Recent months have showed a significant pick-up in referrals, partly due to promotion of the scheme by the banks themselves. Of course, full effectiveness of the scheme will take time to achieve but if recent trends are something to go by, the trend looks encouraging.
The increased conversion rate is eagerly welcomed and needed. The funding gap is nowhere more evident than in the construction sector: according to a recent survey by the National Builders Association , availability of finance is the single greatest issue many SME property developers face. The Bank of England data shows that bank lending to SME construction companies amounted to £6.6bn in 2017, only modestly up from £6bn in 2016. Yet based on the government’s targets of building 300k new house per year over the next five years and an assumption of £80k per each new house, circa £20bn per year is needed just to achieve the government targets and keep up with population growth. The reality is that current lending from mainstream banks leaves a big gap in the property finance market and traditional lenders cannot deliver the best products and services for their customers without the help from Fintech firms.
We have seen this at Blend Network across several of our loans. Borrowers are experienced SME property developers operating in niche markets where traditional lenders are no longer active due to changes to their lending criteria following the 2008 financial crisis. For example, the borrower behind our Cross Keys loan in Scotland was looking to re-finance a tenanted pub and buy-out the remaining other stakeholder to sell the property. Traditional lenders were unable finance this deal. We, however, looked at the deal, carried out our due diligence, assessed the exit plan and were able to provide a 24-months loan at 15% interest rate p.a. Since the property was tenanted, the borrower was able to service the debt monthly and repaid the loan early following the completion of the sale. This represents a perfect example of deals where P2P lenders are able to successfully fill in the gap left by traditional lenders and support SMEs. The key point to understand is that both traditional lenders and P2P platforms have their own unique strengths and are better off working together as partners helping their customers to deliver the products or services that meets that customer’s needs. As Helen Keller said, ‘alone we can do so little, together we can do so much’.
But what is also important to point out is that being turned away from the mainstream lenders does not mean that the SME is high-risk, it could simply be that the mainstream lenders are changing their lending requirements and rules. This is also the message to lenders: in peer-to-peer lending, higher return does not always mean higher risk. Fintech has already been harnessing a force for good enabling positive change in industries such as retail banking, trade, health, employment and education and now… the establishment of a strong P2P investment framework and associated technological platform is enabling a conductive environment for financial inclusion of SME property developers.
BLEND Loan Network Limited is an Appointed Representative of Resolution Compliance Ltd which is authorised and regulated by the Financial Conduct Authority (FRN.574048)
It’s getting close to April 5th: the end of the current UK personal tax year and the last chance to use your £20k ISA allowance. You can split your ISA allowance between more traditional Cash ISAs and Stocks and Shares ISAs and the newer Innovative Finance ISA (IF ISA). However, choosing an IF ISA can be more difficult:
The IF ISA providers are often much smaller with less information or reviews on the net
Most providers only let you invest in loans listed on their own platform – it’s not like a stocks and shares ISA where you largely have access to the same investments whether you open it with the likes of Interactive Investor or Hargreaves Lansdown
The FAQ’s are not always clear and definitely not standardised.
Here are some questions that you should be asking yourself when you are choosing an Innovative Finance ISA provider:
What are the ongoing management fees?
Many P2P platforms have no fees on the IF-ISA product, but some have. The last time I checked, Crowd2Fund, Property Crowd and Goji P2P were among those who had an annual account fee that was based on a % of the total investment or account balance. The P2P platforms themselves have to cover additional costs to run the ISA, especially if they use a 3rd party to administer it. So, it is up to the the platform whether they pass these fees to customers or absorb them within their margin.
What are the sell-out/ transfer out fees?
What do they charge if you wish to send funds to another ISA in a later year? Is there a fee to withdraw cash to your standard bank account? What if you want to close your account completely? Ablrate for instance have a £100 transfer out fee per transaction to another provider – but as far as I am aware these fees generally do not apply to cash withdrawals to your non-ISA bank account.
What about Transfers in?
How can you transfer in funds from another ISA? What if you have existing investments in a standard account within that platform, is there an easy way to transfer your holdings into the IFISA account?
To add an example, Ablrate charge £35 to transfer in cash from an existing ISA for amounts less than £2,500, but no charge for transfers greater than that.
Is it a ‘flexible’ ISA?
A flexible ISA allows you to withdraw money from your ISA and repay it back within the same tax year, without using up more of your ISA allowance. Apparently a few of the IFISA account providers allow this – Ablrate, Assetz Capital and Ratesetter to name a few.
Can I invest in the same loan-products as the traditional accounts?
Double check that you will have access to the same investments as you would on the traditional account.
How much manual effort does this platform need?
The novelty of manual investing in P2P loans can wear off after a year or two, but ISAs are often a more long-term investment. Can you just leave your investment on auto-pilot, or are you prepared to manage it for a longer period?
What is the track record of this platform? Will it be around in 5 years?
After the collapse of the British secured lender Collateral, we can no longer take for granted that lending platforms will be here for the long term. Ask yourself how long have they been running, and what is the historical loan origination? Is there data on the level of defaults and loan recovery? How healthy is the pipeline of new loans? What is their status with the FCA (you can check their listing directly on the FCA register)? Is there anything negative when you google them?
Is it Open to All Investors?
Some platforms may restricted their platform to certain investor types (e.g. high net worth or ‘sophisticated’ investors). Others may be closed to only their current investors (Zopa for instance).
Cashback offers are probably not as important a factor for an ISA, since the majority of the benefit will come through reduced taxes. Still, cashback offers exist and often heat up in the run-up to April 5th. Usually you can find good Stocks and Shares ISA cashback via Quidco and Topcashback.co.uk in the run up to April 5th. I have some offers on here for IF ISAs for Lending Works, Ratesetter, Landbay, Kuflink and Funding Secure.
Property Partner have broken the UK record for a property crowdfund with their latest student property development. The development: 65 student blocks in Newcastle is expected to yield 6.13% after all costs and fees. To put the size of this deal into context, I took data from their latest open house (September 2017).
I used the ‘date on resale market’ as to plot over time, which would lag the funding date perhaps by a month or two. Although not in the open house data, I’ve manually added the latest deal in red:
Looking at the chart above, it is clear to see an upward trend in deal size right up to the Brexit vote (June 2016), a more stable period until this September and now this £3million deal. There was another recent £1.13 million student accommodation development which also hasn’t showed up in the latest open house data.
Why was it so popular?
My thoughts are:
It was a high dividend yield property with 2 year track record
As an outsider looking in, Property Partner seem to be targeting more and more high wealth individuals who have more to invest in a single deal. An example of this is the refer a friend scheme now based on £10,000 minimum investment (as opposed to £1,000 or £2,000 in the past).
The popularity of PBSA (Purpose Built Student Investment) in the search for investment yield
A sense of scarcity created from good sales technique from (e.g. emails offering guaranteed investment in an ‘advance pre-order’ to the ‘pre-order’)
Growing trust in Property Partner platform
How does it compare?
In terms of pure equity property crowdfunding (not lending) it appears to be far ahead of other UK competitors. Property Moose raised about £600,000 for a South Yorkshire student accommodation portfolio in the second half of 2016.
The total purchase price was actually £5.36 million, but mortgaged to increase leverage.