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  • Peer to Peer Lending

    Property Tribes launches new Peer to Peer Lending Tribe

    The returns will not be that high, as more people will start biding to lend so the interest rate will go down.

    Not a problem as it will lead to cheaper bridging….
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    Hi,

    In regards to the formula what interest rate is this based on? sorry I'm a bit puzzled with my maths here.

    Thanks

    Forget my post, I have just released what I was doing wrong. The interest is based on 12.7% return per annum. Nothing better than learning from yourself haha!
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    Coming back to the earlier comment from Stuart. And this has little to do with Stuart or his firm other than he is choosing to represent the sector in this specific discussion.

    If you are going to compare banks to Assetz, it might be best to get the facts a bit more correct.

    What UK investment banks went out of business other than the UK operation of Lehman?

    If we look at the nationalized operations of UKAR, all the assets contributed came from ordinary high street banks or their mortgage units. Even RBS and HBOS were taken down by the commercial lending operations that were heavily focused on the property sector.

    CDOs and other ways to slice and dice home mortgages brought down a number of firms globally. Residential loans that were sold off in pieces to investors. Similar in many ways to securitization.

    What is crowd funding for loans secured by real estate? More or less CDOs or securitization without any professionals putting up the money. While I do not think the crowd with no professional experience has to suffer more than the professionals, the idea that they can earn 12% or more from a similar business model when the banks found out the music does stop is a stretch too far.

    The LTV levels are much better than many of the loans that were the toxic waste. That implies that when the deals go bad the lender can force a sale and still end up with 100% of the debt back. Most of the time at least.

    Banks used other people's money and they believed they knew what they were doing. A P2P lender who originates and then securitizes through a P2P process is playing the same role as the bankers. In a flat or rising market it could work for a while. When the market wobbles, what causes the P2P lender to be any more successful than a bank? Why would the P2P lender somehow be smarter or better equipped than a bank at evaluating and managing debt?

    The tech bubble was somewhat caused by people believing that this time was different. That the old rules did not apply. I think the old rules about borrowers and lending do apply even if we are replacing a bank with a P2P platform. Even if the naive savers are now the lenders rather than protected savers.

    As someone else mentioned, the rates on offer will drop when the competition ramps up. In the mean time the best rates are with banks and P2P will have a negative selection bias (only the people who were turned down elsewhere) will use a P2P platform. Or the loans are higher risk than most understand given the rates the borrower has to pay.

    Lehman UK settled all debts and had £5 billion in surplus after the liquidators finished. And that was after the liquidators collected all their fees. In other words, there was no UK investment bak that went out of business with a loss.

    In the UK it was the ex-building societies and some commercial banks that lost money and closed their doors. The UK has a bad bank that was not originated by investment banks. The casinos reference is naive at best and misleading at worst.
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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.


    As I understood it the UK banks went down because they lent “long” but borrowed “short”, their savers could also take their money out at any point. P2P lending removes that risk from the P2P providers.

    The rates charged are high partly because the loans are for a shorter term then what most banks will provide to BTL.

    However I expect a lot of people are not prepared to lose their money var P2P lending and have not thought about the real risk.
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    Ian,

    There is a long short mismatch. If people peel back the details, that is the core of banking. Most of the money that funds the loans is short term and yet the loans are long term with no provision to call them in early. Hence the issue with a bank run. Too many depositors wanting their money out before the loans are paid down.

    With P2P, the 'lenders' are closer to investors. They have little to no ability to get their money back before the borrower decides to pay it back. Some platforms might match up people who want an early exit with people who are happy to step in for a premium. That said, the platforms make their money from originating new loans so anything that reduced the pool of capital might be counter productive. It depends on the perceived need for liquidity vs. the real need and if enough fees could be charged when someone exits early.
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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.


    John

    Some strong points you make but I must say i strongly disagree with many.

    Peer to peer is not going to be a fluffy little £1bn sector for long, within 5 years it will have risen to be a major competitor to the banks, will be delivering diversified investment product to ISAs, SIPPs, institutions, pension funds and so on. It will be a strong alternative finance sector and is being 110% supported in this growth by the UK Government, and by almost all governments globally. This is to take away the stranglehold banks had on lending and take away their power.

    I also stand by my gambling comparisons - banks had just 5% capital typically versus their loan book and the smallest of default increases and reduction in valuations meant they were bust on a technical but very real basis, hence the bailout. P2P does not gamble. Every loan is backed by 100% capital. The platform itself can go bust but the lenders still own the security and the loan so are insulated from platform risk to a great degree wreas with a bank they hold onto the flimsy 'emperor's clothes' FSCS £85 'guarantee'. P2P is the antithesis of the fractional reserve banking system and potentially much less risky as a result. £1 in and £1 out, not £1 in and £10 out. Banks have printed 97% of all money in the UK today using their computers and that is why they are inherently risky to the country. We need a new banking system and it is not based on fractional reserve banking.

    Investors must not make the decision on what an appropriate interest rate is, the credit models for the P2P platforms must do this and the institutions we are talking to demand this too.

    If we get another credit crunch then some P2P loans will default, yes, some loans will stop paying interest, yes, however who will get stopped out ? The thin capitalisation of banks makes a stopping out possible or even probable every cycle. The lack of gearing for P2P means people cant get stopped out and asset values and possibly income will start again in due course but the P2P lenders will still own the security and in all likelihood after an interest holiday would start getting their payments again or the asset sold on.

    I sense a very long healthy debate here.
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    Stuart,

    We seem to be agreeing on most of the points I raised. Your reply simply stated that the banks use a fractional reserve model (mostly because deposits are short term) while the P2P model is closer to bonds (fully funded).

    Underwriting, securitization and other things associated with banking will be what the P2P platforms have to offer as the retail public does not know how to do any of this. The P2P platform will also act as a servicing organization so like the servicing firms that already handle mortgage backed loans today.

    Can we call the P2P platforms bankers who do not take deposits and therefore are not 'banks'?

    I agree the fractional reserve model can be volatile and that is why the capital requirements are being increased. P2P uses a capital requirement of 100% while the banks these days are closer to 10% (varies by country).

    I would not call banking corrupt or other terms that the public like to use. The same bankers will be the people running the successful P2P platforms as all the banking skills are needed to manage a origination and service a loan book. Rather than selling off the loan book as a whole, the P2P platforms are selling off slices of each individual loan (most thought maybe not the Zopa model). Maybe it is fair to think of Zopa as closer to running a CDO business model where the investors are shielded from direct ownership or there is a layer of insurance / risk pool to deal with defaults.
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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.


    One potential key differentiator between P2P lending and Bank funding is the role that P2P/Crowdfunding will play in making property investment more "liquid". i.e. over time, a vibrant P2P market will make it possible for investors to resell their stake to other investors (as you would in a stock market) without the need to sell the underlying property asset.
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    Olu Olufote
    Finance Professional & Property Investor

    (02-04-2014 09:08 PM)propertymajor Wrote:  One potential key differentiator between P2P lending and Bank funding is the role that P2P/Crowdfunding will play in making property investment more "liquid". i.e. over time, a vibrant P2P market will make it possible for investors to resell their stake to other investors (as you would in a stock market) without the need to sell the underlying property asset.

    Careful with this.

    If we are talking about crowd funded loans (P2P lending) all the 'investor' owns is a slice of the loan. To sell you slice to another investor implies that your loan is doing well enough for someone else to be interested. The underlying property asset is not the property, it is a charge on the property.
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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.


    ThisIsMoney has published a very positive article about the rise of P2P lending:

    Record growth in "lend to save" as savers move to cut out banks for better rate of return

    Exerpt:

    Assetz Capital, which launched in March 2013, facilitated loans worth more than £15m in the first quarter of 2014. This means, to date, investors lending via the platform have taken home more than £1million in interest altogether.

    An 83 per cent increase in lending volumes in February 2014 spearheaded the growth, and Assetz Capital is now on track to beat its target of lending £100million by the end of this year.

    Loans issued in 2014 so far include £540,000 to develop a wind farm in Cumbria, paying 10 per cent interest per year, £700,000 to a furniture retailer based in London, paying 12.5 per cent and £2,175,000 to a London property developer, paying 12 per cent.

    Assetz Capital charges no lender fees. It provides potential lenders with a range of loans that they can choose to fund with their money, each with a specified interest rates that is decided upon by Assetz, depending on its assessment of the risk.

    The sector grew by 107 per cent in 2013, according to NESTA figures.

    Read more: https://www.thisismoney.co.uk/money/inves...z2yyLbjk1q
    Follow us: @MailOnline on Twitter | DailyMail on Facebook

    Full/source story
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