saving stream

My Lendy Experience – Portfolio Review After 2 Years Investing

wiseclerk 4 Comments

When I started in late 2014 the UK p2p lending marketplace Lendy was still called Saving Stream, but it rebranded this year. Lendy is a platform offering bridge loans secured by property. I last reviewed my portfolio performance here on the blog in January 2016. Since then the following major changes have taken place at Lendy:

  1. Different interest rates
    Initially all loans had carried 12% interest. Now Lendy assigns different interest rates to each loan. Interest range for investors on new loans now are in the range between 7 and 12%.
  2. Lendy sold the security of the second defaulted loan (Garden Center). While all lenders got principal and interest paid on this loan, the sale price of the security was below the loan amount. Lendy covered the shortfall from own funds (provision fund).
  3. Since March 2017 investor can not buy loans on the secondary market and deposit funds afterwards (this still is possible on the primary market). This has reduced liquidity of the secondary market somewhat, but in general it is still pretty liquid for those loans that have a middle to long remaining term.
  4. Since April 2017 there is a new default policy in effect. For loans more than 90 days overdue interest continues to accrue but will not be paid until Lendy has received payment by the borrower. All loans more than 180 days overdue are now automatically classified as default loans. The number of defaulted loans has risen to 14 at the time of this writing.

Especially the last point has triggered debates on the chances for recovery and there are concerns voiced among investors about to optimistic valuations. The secondary market swings from time to time between mosty empty (except for loans in default) and plenty.

My portfolio

I have continued to ramp up my portfolio reinvesting returns and making new deposits via Transferwise and Currencyfair. This was before the Brexit decision. As for now I am simply reinvesting. My portfolio amount is 10K GBP spread out over 14 different loans. The vast majority is in 12% interest rate loans. I have made three exceptions in the past, but usually only with low amounts and when rebalancing the portfolio, I try to sell these lower interest loans first. So far I have not had any loans in overdue or default state – but there are many of those on the platform (see above). My loans have long remaining terms with the shortest being 147 days at the moment.

My yield (self calculated with XIRR) so far is 12.1% in GBP. Unfortunately I deposited most funds during the time when the pound was at a high, therefore calculated in Euro currency the yield is only 4.4% for me.

Lendy is still one of my preferred p2p lending marketplaces, due to interest rates, real estate as a security and liquidity. I do see the risks in the valuations, but I figure that at least the security will cover part of the loan amount and will with a high probability prevent total loss in a defaulted loan. I might get more picky in selecting loans, but so far Lendy for me is actually a platform that requires less management and monitoring than several other marketplaces I use.

Lendy portfolio
Screenshot of top of my loan portfolio list at Lendy – click for larger view

 

Saving Stream Rebrands as Lendy

wiseclerk 1 Comment

What was formerly Saving Stream is now called Lendy. The operator of the marketplace has been Lendy Ltd. already, it was just trading as Saving Stream for investors. Now under the new domain Lendy.co.uk the company has brought together its services for investors and borrowers citing feedback by users. There is some speculation that rebranding could have been necessary as a prerequisite to full FCA authorisation as the FCA may have objections to the “Savings” in the old name.

Lendy logo

The announcement email sent, reads:

Simplifying Saving Stream – The Lendy rebrand

Following feedback from users, we are integrating the Saving Stream platform under the Lendy brand. This is in order to simplify the brand and make accessing the crowdfunding platform easier for all our clients.

As part of the rebrand, investors and borrowers will now use the same website:

www.lendy.co.uk
Features on the refreshed site include a new Help Centre, with an extensive FAQ section and glossary. We’ve also added all of our recent news into a new Customer News section.
The rebrand has been guided by platform users who were very positive about the Lendy brand. We hope you like it. The Saving Stream website will be redirected to the new Lendy website in due course.

While the new brandname is short and fitting, I note that it is somewhat close to other offers in the p2p lending space e.g. Lendix or Lendit. There even is a p2p lending marketplace in Lithuania named Lenndy (double ‘n’).

How the Brexit Influences My Personal P2P Investment Strategy

wiseclerk 5 Comments

Well that was a surprise. When I went to bed last midnight the news reported more indications for a remain vote than for a leave. Even with psephologists cautioning that the referendum is very hard to predict due to the lack of comparision data from earlier votes, it seemed to me that the outcome was likely pro EU.

While I had personally wished the Brits to stay in the Union they took a democratic decision and now the politicans have to act upon it to execute divorce.

Awakening to the new reality I now have to assess what this means for my personal p2p investment strategy – as a foreign investor. Only a small portion of my p2p investment portfolio is invested in UK platforms (a substantial amount at Saving Stream, small amounts with Ablrate, MoneyThing and Rebuilding Society). The markets are in turmoil, and I have already taken the hit by the pound dropping sharply compared to the Euro this night.

Another effect is that the uncertainty is causing more investors to put up loan parts for sale – the effect is measureable on Saving Stream and currently accounts for a plus of approx. 1M GBP loans on offer there. Still this amount is very small compared to fluctations of liquidity levels due to other factors. For most loans this now means that there is a considerable delay in selling loans, due to queue size. However this could be cleared up quickly by one or two large loans repaying and the interest payout on July 1st.

Saving Stream loan tracker
(Source: jonah; own edits)

With Saving Stream and Moneything loans will depend highly on the development of the property prices. Some expect a drop in property prices. I think it is to early to tell if that will happen, but I think it is very likely that there will be slow down in new development activity while everbody waits to see what the outcome will be. This will affect the demand for bridging loans and thereby Saving Stream and Moneything to a cetain degree.

And then totally unpredictable there is the question how this new direction will effect the European economy as a whole and whether it might trigger a recession. While I am optimistic that it will not, there is an extreme amount of uncertainty and I have to consider that this might impact my p2p investments on continental European platforms.

For now I have decided that I will not deposit new funds on UK platforms (which I was planning to do) but will not withdraw funds either at the moment and will just keep reinvesting the proceeds. I see little point in selling off loans (would be hard right now anyhow as liquidity seems to dry off temporarily), and exchange the amounts back to Euro. That would guard me from further drops of the pound exchange rate, but I think it is not sure that the pound will fall into a continuing decline (even so that seems more likely than any rise in the pound rate vs the Euro).

For the continental platforms my strategy remains unchanged by the event, even though I think that the risks on some platforms have risen somewhat too in the mid-term outlook.

 

Saving Stream – My Loan Portfolio after Year One

wiseclerk 7 Comments

I started investing at the UK p2p lending marketplace Saving Stream in December 2014. The last Saving Stream review I wrote was 9 months ago, therefore time is right to post an update on how my portfolio is developing.

For those p2p lending newbies that have not heard of Saving Stream so far here are the basics again:

  • Bridge loans, secured by commercial properties (first or second charges)
  • 12% interest (interest rate is the same on all loans on the platform)
  • 0% fees for investors (on primary and secondary market)
  • All loans prefunded; investors earn interest from the day they invest money into a loan
  • A provision fund shall provide a buffer against default losses
  • Open to international investors

To deposit money I used Transferwise and Currencyfair saving me bank fees and allowing me to know the currency exchange rate in advance.

I made 5 deposits over time totalling 5,441 GBP (7,403 EUR).

Saving Stream Loans
Screenshot: Top of the list of my Savingstream loan portfolio

My portfolio grew nicely and yields a very got ROI

As you can see in the image, my original 5,441 GBP grew to 5,967 GBP current portfolio value. I reinvested all repayments and interest earned. It sure is nice to earn 60 GBP interest per month (1% of live loan parts amount). My ROI is actually a bit over 12% so far as I profited from several cashback offers. I did not experience any defaults on my loans so far.

The new website

Late in 2015 Saving Stream overhauled the website. Major improvement is that this fixes the situation which frequently occured on the old website, where loan parts sold/bought on the secondary market might get stuck when a loan amount left on offer accidently ran into a negative value and needed manual operator intervention to clear. The new website also introduced the two step verification security option. I enabled this security feature for my account. Continue reading →

The New Saving Stream Pre-funding Model

wiseclerk

Saving Stream LogoToday British p2p lending service Saving Stream introduced a new pre-funding option. This is essentially an autobid, which allows investors to bid on every new loan.

Investors have long complained that (smaller) loans were filling within minutes, were not (always) announced in advance and lately the demand caused the server to fail frequently when new loans were announced.

Here is what Saving Stream says about the new pre-funding model:

Rationale

We want to give as many people the chance to invest as possible so we will provide an option to buy in before the loan goes live up to a self-determined limit. We want the smaller investors to be guaranteed a position in every loan, and the deeper pocketed investors will also participate at the same amount as everyone else. If there is spare capacity, the larger investors will pick this up subject to their pre-set investment levels.

This will also help us know how much is potentially available to lend out. This has been a continual problem that we just don’t know the exact appetite for our loan products and thus limits the number of loans that we can make.

How pre-funding will work?

Set your limit to invest in each new loan.
When a new loan becomes available, you will be guaranteed at least a portion of your investment amount if not all, depending on the loan size.
You will be notified of your participation and are expected to follow up with a bank transfer, much in the same way as normal.
You can sell your loan if you want.

Potentially complicated numbers stuff coming up…

For example  – you set your limit to £1k. There are 400 people who have the same limit and 40 with a limit of £10k. A loan of £1m is launched. All 440 people will get £1k (£400k total) and the 40 people with higher limits will get an additional £9k each in the surplus thus they get £10k in total. The remaining availability will go to the market and can be bought by whoever wants it.

It will become complicated when the loan is less than the amount in the Pre-Fund pot i.e £500k loan, 400 people with £1k, and 40 with £10k. Again, all 440 people will get £1k leaving £60k to divide by the 40 which is an additional £1.5k each, giving a total investment of £2.5k for those investors who set their limit higher.

Those investors with higher limits might be disappointed that they didn’t get their full allocation, but they should be happy that they have participated in an equitable distribution model which should assist with the growth and opportunities available. The next loan might be able to take all of their demand plus more.

You won’t be able to review the loan parts or valuation beforehand (yet) but the secondary market is incredibly liquid and we are confident of the ability to sell your position if required.

I expect that Saving Stream customers will widely use this new option. While it seems strange that this option excludes the possibility to review loan details before bidding, this has been essentially happening before already with loans gone in minutes. And the Saving Stream secondary market is very liquid, therefore it is usually not a problem to sell (unwanted) loan parts fast. Continue reading →

Queue Up for P2P Lending!

wiseclerk 2 Comments

When was the last time you stood in a long line outside your bank branch, patiently waiting to deposit money into your savings account? Imagining a scene like that seems ridiculous at a time with near-zero interest rates in an increasingly large number of developed countries.

But there where you would least expect it, in the Fintech world of fast-moving bits, some startups actually are imposing measures to throttle influx of investor money in order to balance it with borrower demand. Welcome to p2p lending (short for peer-to-peer lending). The sector is experiencing tremendous growth rates. With attractive yields for investors some platforms struggle to acquire new borrowers fast enough for loan demand to match the ever-rising available investor demand.

One challenging factor is deeply ingrained in the business model of p2p lending marketplaces: once a new investor is onboarded and found the product satisfactory, he is most likely to stay a customer for years to come and reinvest repayments received and maybe the interest also. On the other hand the majority of borrowers are one-time customers. They take out a loan typically just once. While it may take years for the borrower to repay that loan, in most instances there is no repeat business for the marketplaces. So the marketplaces have to constantly fire on all marketing cylinders to win new borrowers in order to keep up and grow loan origination volume.

This has sparked some outside of the box thinking, e.g. the partnership of Ratesetter with CommuterClub to win their loan volume, which is in fact mostly repeat business.

Winning investors has been relatively easy for many of the p2p lending services in the recent past. Investors are attracted typically through press articles or word of mouth. One UK CEO told me he never spent a marketing penny ever to acquire investors.

But what happens on the marketplace, when there are so many investors waiting to invest their money in loans, but loans are in short supply?

  • If the marketplace does nothing or little to steer it, then those investors that react the fastest, when new loans are available, will be able to bid and invest their money. This is the situation e.g. on Prosper, Lending Club and Saving Stream.
  • The marketplace has some kind of queuing mechanism. This is typically coupled with an auto-bid functionality. Examples of this are Zopa, Ratesetter and Bondora.
  • The investors are competing during an auction period by underbidding each other through lower interest rates. Examples of p2p lending services with this model are Funding Circle, Rebuilding Society and Investly.
  • The marketplace can lower overall interest rates to attract more borrowers while the resulting lower yields slow investor money influx.

The UK p2p lending sector is eagerly awaiting the sector to become eligible for the new ISA wrapper. Inclusion into the popular tax-efficient wrapper will attract an avalanche of new investor money to the platforms.

“That’s going to be a challenge for the industry,” said Giles Andrews, CEO of Zopa. “Once the dates are worked out, the industry will need to plan for that together, and we may have to do something we have never done before, which is to limit the supply of money. It’s not good to have people’s money lying around [awaiting new borrowers] or to lower standards of borrowers.”[1]

So there is some speculation that UK p2p lending services could impose temporary limits on new investments.

The investor viewpoint

The aim of the investor is to lend the deposited money easy and speedy into those loans that match his selected criteria/risk appetite. Idle cash earns no interest and will impact yields achieved (aka cash drag).

For the retail investor none of the above mentioned mechanisms are ideal. The “fastest bidder wins” scenario means he would either have to sit in front of the computer most of the time or be lucky to be logged in just as new loans arrive. The queuing mechanisms are disliked as they can prove to be very slow in lending out the funds and can be perceived as nontransparent (see the lengthy and numerous forum discussions on the Zopa queuing mechanism). Underbidding in auctions does provide the chance to lend fast, but at the risk of setting the interest rate too low and this requires a strategy and can also be time consuming. Continue reading →