Shift of Demand on UK Property Marketplaces

The market situation on UK property marketplaces for bridge loans with high interest rates has turned drastically in the past 2 months. For a long time before there has usually been much more investor demand than could be soaked up by loan demand. That the situation has changed is most visible on the loans on offer (mostly through the secondary markets). There is currently nearly 8 million GBP on offer on Lendy (that was close to nil 8 weeks ago). At Moneything there is 2 million GBP on offer and at Fundingsecure 0.6 million GBP. Collateral recently raised the interest rate for new loans from 12 to 14%.

So what is causing this change? I will look at possible causes and measures the marketplaces could take to react.

  • Have property prices peaked?
    Building activity and property prices are influenced by the economy. This Guardian article says UK house prices fell three month in a row. Should investors think, the economic climate is cooling down, they might be more cautious as loans to property developers would be affected in a downturn.
  • Defaults are rising on Lendy
    Loans that are more than 180 days overdue are categorized as default loans on Lendy. There are now 19 loans in default, with the total loan amount in these loans adding up to 23 million GBP. While this does not mean that money will be lost – the loans are secured by the property, it makes investors cautious and hesitant, asking more questions about valuations and collection procedures.
  • Lenders might fear that the assets become increasingly illiquid
    Part of the attraction of Lendy and Moneything in the past (aside from the high interest rate) came from the fact that loans could be sold very fast, usually within hours for most loans that were not overdue. That has changed on Lendy and might be currently changing on Moneything. However with the queues for sales building up on Lendy it is too easy to just look at the nearly 8 million GBP on offer and deduct that it takes very long to sell loans. Not all loans are equally liquid. I sold 400 GBP of DFL025 recently. Despite over 35,000 GBP in the queue before me, my part sold within 3 days.
    A major factor with the longer selling times is that on Lendy, investors forego interest while the loan part is on sale. On Moneything it continues to accrue interest while on sale.
  • UK investors are increasing their stake in tax sheltered IFISA products
    That is my favourite explanation. The shift in the above markets 2 months ago coincides with the launch of many IFISA offers on other UK marketplaces. Lendy, Monything and Collateral currently do not offer IFISAs. Check the database for best IFISA rates of other marketplaces. Fundingsecure has an IFISA. I am not currently investing on Fundingsecure, therefore I am not as closely monitoring the market developments on Fundingsecure as on Lendy or Moneything. But it seems that investor demand on Fundingsecure has not changed as much as on Lendy or Moneything. It is obvious that UK investors will prefer to invest in IFISA offers, at least until their yearly allowance of 20,000 GBP is reached.
  • Brexit and pound uncertainty pause international investors
    All of the above platforms are open for international investors. I currently run a survey among German speaking investors on my German p2p lending forum. 31% precent of respondents have already invested on UK marketplaces. But 5% want to reduce their level of investment because of the uncertainty of the pound development and for this reason 20% will not consider to start on UK marketplaces.

So what could marketplaces do and what measures are they already taking?

  • Attract more investors, increase marketing spend
    I believe this is already happening. Lendy revamped the referral program as of June 1st and Collateral announced it will launch one soon. Lendy will sponsor the ‘Lendy Cowes week’ sailing regatta. I have doubts this will be cost effective, but its hard to tell from the outside without access to hard figures. I know of other p2p lending platforms that sponsored golf events in the hope of targeting and attracting the right audience and discontinued that (for reasons unknown to me).
  • Launch an IFISA
    Actually I think this would most profoundly change the situation for Lendy. However for that Lendy first needs to get full FCA approval. Moneything has recently said it has put an IFISA higher on the priority list, but it is still not imminent but planned for later this year.
  • Find ‘different’ sources of capital
    This could be institutional money. Or a differently structed offer like the Lendy bond. But it is to early to tell how the Lendy bond is taken up.
  • Raise interest rates
    Collateral has taken this step. And Moneything offered 1 percent more on a very large loan. I don’t think Lendy will take this route as it recently moved from 12% interest for all loans to a broader range of 7 to 12% interest rates.
  • Change the model of the secondary market
    Lendy and Moneything currently have secondary operating at par value. The investor community seems split. While some applaud the simplicity and ease of use of this model, others argue to allow discounts (and possibly premiums). One argument for discounts and premiums is that it might better match demand and supply. Counterarguments are that p2p lending is not a high volume market and variable pricing would not be suitable and that premiums will attract traders. Also some feel that seeing discounts will furthermore undermine trust and deter new investors from signing up.
  • Show recovery results and better communication and transparency of collection efforts
    Obviously full recovery on defaults would be a most effective measure to increase confidence and trust of investors. However this will take time and I don’t think haste would do the results good. Therefore the only thing Lendy could do short-term is communicate more and in more detail.

What is your opinion, dear reader?

P.S.: On the continent at Estateguru with its 10-12.5% interest property loans there is no change of market conditions. Investor demand continues to outstrip loan supply.

International P2P Lending Services – Loan Volumes February 2014

Even though February was a short month, several p2p lending services topped their January loan volume. Even more impressive is the continued year on year growth. 3 more services were added to the table. I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services.

Table: P2P Lending Volumes in February 2014. Source: own research
Note that volumes have been converted from local currency to US$ for the sake of comparison. Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.

International P2P Lending Services – Loan Volumes January 2014

In January especially Zopa, Ratesetter and Isepankur showed strong growth over the previous month. New addition to the table is the Dutch service Geldvoorelkaar, which launched in Dec. 2010 after 1.5 years of development.  The CEO Martijn van Schelven told P2P-Banking.com, that Geldvoorelkaar was checked and approved by the Dutch Central Bank (DNB). I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services.

Table: P2P Lending Volumes in January 2014. Source: own research
Note that volumes have been converted from local currency to US$ for the sake of comparison. Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.

International P2P Lending Services – Loan Volumes December 2013

December was a month with mixed developments. While the US services and selected other services continued to grow, other services – especially the UK ones – had a slow month with decreasing volume. Of course this is influenced by the Christmas holidays. I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services.

Table: P2P Lending Volumes in December 2013. Source: own research
Note that volumes have been converted from local currency to US$ for the sake of comparison. Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.

This month I added 3 more UK services to the table and removed Squirrl, Continue reading

P2P Lending Services – Loan Volumes November 2013

P2P lending volumes grew further in November. Prosper points out that the slight decline was to be expected due to less origination days in this month. Looks like Funding Circle and Ratesetter are catching up on Zopa in Britain. I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services. Next month I expect to add figures for two more services to the table.

Table: P2P Lending Volumes in November 2013. Source: own research
Note that volumes have been converted from local currency to US$ for the sake of comparison. Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.

P2P Lending Services – Loan Volumes October 2013

P2P lending volumes grew strongly in October. I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services.

Table: P2P Lending Volumes in October 2013. Source: own research
Note that volumes have been converted from local currency to US$ for the sake of comparison. Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.

P2P Lending Services – Loan Volumes September 2013

P2P lending volumes grew again in September. Lending Club originated more than 200 million US$ in loans in one month. I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services. This time I added Folk2Folk to the table.

Table: P2P Lending Volumes in September 2013. Source: own research
Note that volumes have been converted from local currency to US$ for the sake of comparision. Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.

P2P Lending Loan Volumes in August 2013

P2P Lending volumes have grown again in August. I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services. This time there are two more services listed than last month.

Table: P2P Lending Volumes in August 2013. Source: own research
Note that volumes have been converted from local currency to US$ for the sake of comparision. Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.

P2P Lending Volumes in July 2013

It has been some time since I last did an article at P2P-Banking.com on lending volumes. I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services. July was another month of rapid growth. As the table shows p2p volumes originated grew strongly for nearly all services when compared to the last month or last years month.


Table: P2P Lending Volumes in July 2013. Source: own research
Note that volumes have been converted from local currency to US$ for the sake of comparision. Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.

Updated: State of Selected P2P Lending Companies

Exactly one year has passed since P2P-Banking.com published the post ‘State of Selected P2P Lending Companies‘. Time to update the information.

This post reviews a selection of p2p lending companies and does a rating on more factors than just loan volume. While I describe below what factors led to my rating, please note that the rating represents my personal opinion.

The table lists the companies in alphabetical order and gives:

New loan volume per month

This amount is in all cases but Zopa retrieved  from the company websites and represents loans funded from Feb. 16th till March 15th 2012, and then converted into US$ at today’s currency exchange rates.

Brand/Press

Extend and tone of press coverage in the past months. Since a large share of new users is introduced to p2p lending services via media, positive media coverage is extremely important. Continued positive media coverage has helped some companies to associate positive values to their brand.

Growth/Marketing

This column especially rates if the new loan volume is growing continuously month after month. Furthermore it puts the absolute volume into perspective to the size of the market. It is obvious that absolute numbers in a country with a small population (e.g. Estonia) will be much lower than those in a country with a large population (e.g. US). Furthermore it takes into account if the (online) marketing measures of the the company succeed in winning new borrowers and lenders (though in most markets lenders do not need to be actively acquired).

Sustainability

Sustainability rates a mix of several factors:

  1. ROIs for lenders / default rates
    Most p2p lending companies that failed in the past, did so as a result of high default rates which led to negative lender ROIs and caused massive lender churn
  2. Ability of company to raise new funding
    Most p2p lending companies still have to bridge a considerable time-span at their current growth rate before they become cash flow positive. The ability to raise more funding to finance continued operation is essential for their success. Isepankur announced that it operated profitable in 2011.
  3. Business model

User satisfaction

This rates the publicly voiced user opinion. Major factor are the comments in forums. To a lesser degree I took the user experience published in blog articles into account. The problem with lender experiences published in blogs often is that the writer is casting a positive image, since he earns commissions for newly referred customers through the affiliate program of the p2p lending site. Also these review are often written at the start of the lending activity at which point the lender’s ROI is naturally unharmed by the experience of defaults.


*estimate
Empty fields: I had not enough information to rate these. E.g. with some of the new UK p2p lending companies I felt I had too few indicators to reach an opinion.

Availability of information also influenced the selection of companies. Due to language barriers including more services (e.g. the Japanese p2p lending companies) was not feasible for me.

Developments since last year

UK and US markets show impressive growth. A few smaller players stopped funding new p2p loans (Quakle, CommunityLend, BigCarrots). German services are struggling to achieve growth (Auxmoney had 2 good months lately).