This is a guest post by British investor ‘JamesFrance‘.
Since retiring and leaving the UK to live in a warmer dryer part of Europe, I fortunately found myself able to live on less than my income, so had the problem of how to best manage these savings, which I wanted to protect from inflation and if possible achieve a positive return on by some type of short term investment. Unfortunately I never found a British savings account which would accept money from non residents, so I was obliged to accept a very low interest rate from my existing UK bank. I do have other long term investments so was prepared to take some risk to achieve a better return.
I had seen articles in the British press about Peer to Peer lending, which tended to refer to the big three, Zopa, Ratesetter and Funding Circle, none of which were prepared to allow a non resident to open an account, so I soon forgot about that as a possibility. In August 2013 I read that another P2P business lending platform, Thincats, was joining the P2P finance association. I decided to look at their website and was surprised to learn that they could accept non resident investors.
Thincats is really for those with larger amounts to invest, having a minimum bid of 1000 GBP per loan, so it is difficult to achieve adequate diversification for relatively small sums without using their syndicates, which I didn’t find interesting, so I took the plunge and made 10 loans. Needing 1000 GBP per loan meant that after that it took me some time to accumulate enough for my next bid, so I had the problem of uninvested money not earning until my next loan drew down. I also found that some loans were repaid early which was reducing my returns because of the drawdown delays. I think this would be an ideal platform for those with large amounts to invest, as they have a good flow of loans, there is plenty of information about the borrowing companies and once their new website is launched the process should be much easier. A minimum 25 GBP fee for selling a loan on the secondary market makes it expensive to sell smaller amounts, which means that after several repayments a sale would not be economic.
By this time I was finding other possibilities with the help of websites such as P2P-Banking.com, where I read about isePankur in Estonia, which has an English language version and seemed ideal for any spare Euros languishing in my Euro account and only earning a secure 1% interest. isePankur now renamed Bondora, has been quite exciting to invest through as there have been many changes to the auto bidding system since I started there in September 2013, so just as I became used to the way my chioices were working out, it was all change so I had to start again to think of a good strategy. They have been expanding rapidly and now issue personal loans in 4 European markets. The defaut rates for their Spanish and Slovakian loans have been very high, so I have been avoiding those areas since that became apparent, which means time consuming manual investment because the auto bid system no longer allows choice of country. I do not sell overdue loans on the secondary market, so my returns on the platform will be completely dependent on the eventual recovery of the defaulted loans, which will only become apparent after a few years. The interest rates are high so I have accepted the level of risk involved.
My next platform was Omaraha, another Estonian site issuing personal loans. With this one you set the rates you offer for their different risk levels and their system does the rest. At the end of 2013 my default rate seemed high, but since then it has become much lower and they introduced an automatic sale of defaulted loans, at over 60% of outstanding capital, so you no longer need to wait years for possible recoveries. I only have a small amount there as there is no secondary market, making exit a problem, if you should need to withdraw your investment.
Last year I opened an account at Assetz Capital after seeing positive forum discussions between many of their helpful staff and lenders. They seemed very open to lender’s suggestions and the platform has evolved to give secured business loans which are funded by underwriters and are then sold on to investors once they have drawn down, so avoiding dead time for new loans. The minimum amounts required are low, so a wide diversification is easy and there is no charge for reselling, which is a very welcome feature of the platform. You can choose which loans to take part in before they drawdown and the system will invest your repayments or any money in your account immediately, provided you have set target amounts for any of the loans which become available.
When Assetz went through a period late last year with few new loans coming on the market, I looked for an additional British platform and noticed that SavingStream seemed to be growing quickly and would also accept non resident investors. Here the loans are mainly bridging loans for property development and offer a fixed rate of 12% from the moment you decide to make a bid, even allowing you to invest first and transfer the funds immediately after, so that you don’t have to miss new opportunities while waiting for your money to be credited to your account. The loans are large and quite few in number, meaning that diversification is not too easy there, although the security seems to be strong and they are providing a provision fund to hopefully meet any shortfall if a property has to be sold following a default.
In January when Bondora introduced their new portfolio manager which didn’t suit me, I looked around for a new platform for Euro investment, which was available in English, as I thought it would be difficult to find enough suitable Bondora loans for manual investment, to use my repayments. I found a newly opened website in Latvia called Mintos, where they had already made loans with their own funds since September and were now making them available to international investors. These are personal loans secured against properties and now also cars, which are made by Mintos and passed on to us once they are in place, with interest rates mainly in the mid teens and an annual service charge of 2% which seems very fair to me. By getting in early I was able to invest in parts of about 50 existing loans to have a good diversification from the start. If you buy direct from Mintos there is no premium, but there is also a secondary market where you can offer your loans and set an additional percentage of the price, which then shows as a lower interest rate for the buyer. I do like Mintos, as they have quickly made improvements to the site following investor suggestions, whereas some platforms seem to do their own thing regardless of investor’s likes and dislikes.
In early February someone spotted a new British P2P lending site called MoneyThing, which had just launched and was offering its first loans with 50% loan to valuation, secured by mainly jewelry held by pawnbrokers and some things they held directly. After many forum suggestions the site was very quickly developed and the positive feedback secured them many lending clients very quickly. These loans have a short 6 month life and you can also choose to invest in a basket of loans to spread any risk. I have only just joined this site as I had no money available when they started, but I plan to build up my portfolio as soon as I can, because this different type of security gives me good diversification from unsecured and mainly property backed loans. This site holds my own personal record time for crediting a bank transfer. I clicked the confirm button on my bank’s website, then received a notification email to say the cash had arrived only 8 minutes later!
This type of investing has given me an interesting new retirement hobby, whereas my other investments have only involved a very occasional check to see how they are doing. So far I am expecting an average overall return of nearly 10%, but it will take some years to establish a real figure for the unsecured high interest loans with high default rates, as collecting bad debts can be a very lengthy process. There are signs that some sites are becoming mainly interested in expansion by attracting passive investors who don’t want to choose any of their loans, so I expect to lose interest in those. I have looked at several other loan platforms, but many of them do not seem prepared to do identity checks for foreign residents, or have other features which don’t suit my personal requirements.