Funding Circle to withdraw manual lending

August 22nd, 2017
Funding Circle

Funding Circle has announced a number of significant changes which will become effective on 18th September, including withdrawing all manual lending and manual selling and a change to lending rates.

The reaction on the P2P Independent Forum has been mixed with a number of lenders highly critical, but with a similar number supportive.

Yup, this has been coming for a long time. Finally getting rid of those pesky manual lenders who actually read loan proposals and make such a fuss when loans go belly up and their money isn't returned. Much better to stick with the grateful masses who think 6% sounds fabulous and don't care (or even understand) what's going on behind the curtain.

ps. I love the way their first justification for the change is to blame bot lenders for hoovering up all the Ds and Es, thereby lowering other lenders' average returns. As if FC couldn't very easily have fixed that specific problem years ago!

Like everyone I assumed something like this was coming.  I can totally see why they would do it from their perspective, so long as the available cash doesn't dry up with people going to other platforms.

They said that 73% of new investors use autobid, but are these relatively low capitol investors?  I would have thought the people with larger totals are more likely to not be just using autobid. I assume they have thought of this though!  They might have also left auto bid on with small values, whilst they manually do large investments, skewing the "80% use autobid" thing.  Its up to them though how they run their platform.

Just as I finished optimising my selling bot too! Doh!  I might keep a weather eye on the secondary market to see if I get stuck with loan parts as there is a bloat of stuff being sold.

Contrary to everyone else on this forum, I think this is a great move.

I was previously an FC investor and bailed because it was too time consuming to manage. I moved my cash into FCIF. If people on this forum calculated their earnings / hour, I question how strong all of the returns really are.

I will now likely return as an FC investor because:

  • It's a level playing field for all investors - no more concerns that autobidders are picking up the >:D. I can fire and forget.
  • Maximum loan parts are now £100 on autobid - there was an issue before for larger investors where loan parts would get purchase in enormous chunks and therefore couldn't be sold.
  • There is no charge for liquidity - the 0.25% selling fee has been abolished.
  • FC's average return has been strong over the years and their model is somewhat proven - therefore investors can expect to achieve this return, all other things remaining equal.

I will be investing in the higher risk / return loan bucket if I do return.

Unlike others, this actually makes me more likely to use FC. i think time spent managing money on other platforms (eg Lendy, MT, AC, FS) is better rewarded than time spent on FC. So a target 7.5% with no need for much management time, no selling fees + diversification away from property, held within an IFISA, will fill a niche in my portfolio.

After all, 7.5% in an ISA is equivalent of 13.6% outside an ISA for a 45% taxpayer. And 13.6% takes some getting.

Here is a copy of the email sent to lenders:

Since we launched Funding Circle in 2010, our aim has been to enable investors to earn attractive, stable returns by lending directly to small businesses. Over the last seven years, 64,000 investors have earned more than £135 million in interest, and an average return of 6.6% per year, after fees and bad debt.

Recently, we have been reviewing how lending through Funding Circle works, with the aim of making lending simpler, better and fairer for all investors. After careful consideration, we have taken the decision to make some changes to your lending experience.

On 18th September, we will launch a significantly improved and upgraded version of our existing Autobid and Autosell lending tools, and the option to manually choose which businesses to lend to and sell will be withdrawn. This is an important change, which is why we wanted to let you know what is changing and what happens next.

How will the new lending experience work?

Investors will be able to choose one of two new lending options based on their personal preference. Both options will be available as a Funding Circle ISA, which we look forward to launching later this tax year.

Balanced

Projected return of 7.5%* per year after fees and bad debt

You will automatically lend across a balanced mix of risk bands (A+ to E), aiming to achieve an attractive, stable return.

Conservative

Projected return of 4.8%* per year after fees and bad debt

You will automatically lend across a balanced mix of risk bands (A+ to E), aiming to achieve an attractive, stable return.

Your actual return may be higher or lower, and by lending to businesses your capital is at risk.

As part of the improvements we are making we are also updating the interest rates at which you lend to businesses. The projected return of both lending options have taken these changes into account. You can read more about the new interest rates, which we'll be introducing on 30th August, here.

This improved lending experience will also deliver:

  • A better way to match your funds with businesses
    Loan parts will now be matched based on your current projected return and the amount of available funds in your account. This means the projected return for your own portfolio should more accurately mirror the overall portfolio return of your preferred lending option. In addition, loans will now fund faster, further reducing the time money sits in your account earning no interest.
  • The best chance of earning a stable return
    No more than 0.5% (subject to a min of £20 per business) of your portfolio will be lent to a single business, helping you to manage risk effectively.
  • An easier way for investors with larger accounts to sell loan parts
    New loan parts will be no larger than £100, even if you lend a higher total amount to a single business. For example, an investor lending £100,000 would lend £500 to each business (0.5% of their portfolio). Each £500 will now be split into £100 parts, making it easier to sell them to other investors.

As well as improving the process for lending, we are also making improvements to how investors access their money via our Autosell feature. This will mean:

  • A simpler selling process
    Just tell us how much you’d like to withdraw and you can sell a selection of your loan parts directly to other investors. The option to sell individual loan parts and set a premium or discount will be removed.
  • No more sale fees
    From today, we are becoming the first major lending platform to charge no fees for selling your loans.

These changes will make lending simpler and better, creating a level playing field for all investors and ensuring you have the same opportunity to lend to UK businesses.

Why are we withdrawing manual lending?

We launched Funding Circle in 2010 with the option for investors to either manually choose which businesses to lend to, or use our Autobid tool to build a portfolio based on their lending preferences. Whilst we know many investors have enjoyed manually choosing loans, there are some drawbacks to it:

  • Many investors do not currently benefit from lending to all types of businesses
    Currently some investors can find it difficult to access D and E loans, which are some of the most popular. We want to ensure investors lending through Funding Circle have an equal chance of accessing all loans, and earn the best possible return.
  • It can mean your lending is not spread evenly across lots of businesses
    Currently many investors who manually choose loans are not fully diversified and are at risk of having a negative lending experience. We want to ensure investors spread their lending across lots of different businesses as this is the best way to earn a stable return.
  • It can be confusing for investors
    Many investors tell us they prefer a simpler, easy-to-use lending experience: 73% of new investors who join Funding Circle choose Autobid, and 80% of Funding Circle investors** say simplicity of lending is important to them.

What happens next?

On 18th September we will automatically transition you over to the Balanced lending option. This means you do not have to do anything and you will automatically start lending to businesses on this date.

If you don't want to move over, you can pause your lending by logging into your Funding Circle account and turning Autobid off. This will stop you from lending to businesses on 18th September. You can change your lending option by navigating to the Autobid page and following the link.

These changes will only affect new lending and selling from the 18th September. After this date you will only be able to select one lending option at any one time.

As part of this change we will also be updating our Terms and Conditions. You can view a summary of the main changes here.

How do I provide feedback?

We appreciate this is a significant change to how lending through Funding Circle works. We want to hear your thoughts, so you can provide us with your feedback by visiting our announcement webpage.

You can find more information about your new lending experience in our FAQ.

We hope this provides you with the information you need about this important decision. This is a big change but the right one to provide all investors with a simple and stable investment experience. We look forward to answering any questions you have.

P2P money blog wins an award

July 19th, 2017

The P2P money website blog has been awarded one of the Top 100 P2P Lending Blogs on the web.

Anuj Agarwal, founder of Feedspot, wrote "I personally give you a high-five and want to thank you for your contribution to this world. This is the most comprehensive list of Top 100 P2P Lending Blogs on the internet and I’m honored to have you as part of this!"

Ian Gurney, founder of P2P money, stated "This is a great achievement to be recognised as one of the Top 100 P2P Lending Blogs given our focus on the UK market".

Fallout from RateSetter wholesale lending

July 19th, 2017
RateSetter

 RateSetter has emailed all of their lenders concerning three borrowers.  We have redacted some of this information for confidentiality.

On 2 May 2017, we announced on our blog that we had changed our relationship with two of our borrowers.  We are writing to you today with more information about this and to let you know why RateSetter has intervened over and above the usual course of business with three of its borrowers.

Why is RateSetter providing this information?

We believe it is important for all our lenders to be comfortable with their investment and aware of the risks of investing with RateSetter on an ongoing basis. If you feel this information changes your investment, we are giving you the option to review your investment with us and sell out without incurring any fees. This offer is available to you for the next month.

RateSetter has intervened directly with three borrowers as follows.

  • V****** T****** Group Limited, a motor finance holding company: this company went into administration because it had taken on too much debt.  RateSetter bought the two operating subsidiaries in order to best protect our lenders’ interests.  They are Vehicle Credit Limited (which makes loans to consumers to buy cars) and Vehicle Stocking Limited (which makes loans to motor dealerships to buy cars).  We intend to expand our motor finance lending capabilities by integrating the two businesses into RateSetter product lines, with lenders matched directly to the end borrowers.  The businesses are repaying their existing wholesale loans of £24m (VCL) and £12m (VSL) as their end borrowers repay in line with the loan schedules.  The loans are secured on the underlying loan portfolios of these two businesses which total £31m.  These portfolios are expected to generate sufficient interest throughout their lifetime to repay these wholesale loans in full.
  • A**** Limited, an advertising company:  In 2015, V****** T****** Group used £12m of wholesale lending from RateSetter to lend to A**** Limited.  A**** was poorly managed and got into financial difficulty.  As lending this amount to a single business was outside RateSetter’s credit policy and was an exceptional case, we believed it was right for RateSetter as a company to intervene and absorb any losses from this loan, as opposed to the Provision Fund doing so.  RateSetter is doing this by standing behind A****’s monthly loan repayments until the money is fully repaid.  The amount outstanding is now £8.5m. A**** is now fully owned by RateSetter.
  • G***** B**** Limited, a consumer guarantor loan specialist:  RateSetter obtained a minority equity share of this business, with the intention of changing the wholesale lending arrangement into one where RateSetter investors would lend directly to G***** B**** borrowers.  However, after further examination, we concluded that we would not continue with this strategy.  RateSetter will remain a supportive but passive shareholder in the business.  G***** B**** is repaying its existing loans of £32m as its end borrowers repay in line with the loan schedules.

These three interventions all stem from RateSetter’s wholesale lending which we discontinued in December 2016 and we do not intend to intervene like this again.  The expected default rate on RateSetter’s outstanding lending is unaffected and stands at 2.9 per cent, and currently we estimate that the Provision Fund is large enough to cover all Expected Future Losses.

The option to review your investment with a free sell-out

We are giving everyone, not just the lenders who are matched to these specific borrowers, the opportunity to review their investment, as all investors are exposed to the performance of the loan book as a whole.  The Provision Fund effectively spreads each lender’s risk across the whole loan book, you are exposed to the performance of the book as a whole - not that loan specifically.

If you would like to sell out of your investment with RateSetter without incurring a fee, please email us.  This offer will last for one month, from 18th July to 17th August 2017.  We would like to point out that sell-outs are always subject to there being other funds in the market to replace funds withdrawing from loan contracts.

RateSetter did have to because if they didn't the Provision Fund would have been able to cover this, but this would leave it so depleated that it would be unable to cover other expected defaults.  The reaction on the P2P Independent Forum was of some concern, with some lenders expressing their wish to exit the market, but given the current oversupply, this could simply restore some of the balance between lenders and borrowers.

Crowd2Fund launch secured property lending

June 20th, 2017
Crowd2Fund

Peer-to-peer lending platform Crowd2Fund have announced that they are launching secured property lending which is available to sit inside their Innovative Finance ISA.

Here is their full press release:

Crowd2Fund have launched a new property loan product, secured against commercial or residential property, which qualifies for inclusion within the platform’s IFISA.

The new loan vehicle is targeted at businesses which own property, or directors who are willing to offer their property as security. Loans are between £100K and £1 million and loans will typically last for a duration of three to five years and carry an estimated APR between 6%-8% before fees and bad debts.

The only associated fees for investors are the Repayment Fee, set at 1% of the value of repayments, which is collected from each repayment.

Benefits To Investors

Diversification

The Crowd2Fund property loan is the latest addition to the range of debt products already offered by the platform. These include standard loans, revenue loans, bonds and venture debt.

The introduction of the property loan allows investors to further diversify and personalise their portfolios, according to their risk appetite and individual goals. Investors can invest as little as £100 into property loans.

The property loan enhances diversification opportunities by being a comparatively lower risk vehicle that will accompany the higher risk products available, such as Venture Debt.

Even though interest rates are lower with property secured investments, funds should be spread across different products and companies to help mitigate the risk of defaults.

All businesses go through a thorough due diligence procedure. Nevertheless, all campaigns on the platform carry their own, unique risk. There have been zero defaults on the platform to date.

Investors may choose to spread their investments across both secured property loans and high growth sector businesses, which carry a higher interest rate, but in which an investor might have a personal interest.

Furthermore, property loans are included within the IFISA, which has an allowance of £20,000 in the 2017/8 tax year, thus enjoying the added benefit of sheltering interest repayments from tax.

Secured Against A Property

All businesses which run a property loan campaign are required to let Crowd2Fund take a charge over their tangible assets. The value of the secured property must cover 100% of the total loan value.

This means that if the business defaults on their loan, the property will be taken and sold to repay investors.

Property loans are lower risk in comparison to unsecured loans. However, it should be noted that there is a risk that the property may not retain its original valuation and that it may take time to sell it.

Simple And Transparent Structure

We want the concept of property loans to be simple for businesses and investors to understand.

We understand that investors may prefer to allocate their funds to a loan which is secured against bricks and mortar. The reason for this is that it is easy to understand the value of property as there is an active market in which to sell, not to mention that property belongs to an established and trusted asset class.

As with a loan, businesses repay investors interest and capital on a monthly basis. This amortises over time; this means that investors are repaid the same amount of money each month, but the interest will decrease as the principle repayment increases. For example, should a repayment be £10, £5 will be interest, £5 will be principal. A second repayment will still be £10, but the interest will reduce to, say, £4.50, and the principal will increase to £5.50, and so on with each repayment. You can understand more about amortisation here:

https://www.crowd2fund.com/amortisation

Investors are welcome to manage and track their property investments through their personal dashboard on Crowd2Fund.

Access Your Capital By Selling To Others On The Exchange

Property loans can be bought and sold on the Exchange. Selling your property loan means investors are able to access their capital by selling it to others.

This makes investors’ investments more liquid, whilst giving investors the opportunity to sell at marginal profits.

Additionally, utilising the Exchange will give investors further opportunity to diversify their portfolios by purchasing additional loans.

Chris Hancock, Crowd2Fund CEO, explains: “The launch of our property loan gives investors access to an asset class which has performed steadily over time and is easy to understand. These asset-backed loans are likely to be popular with P2P crowdfunding investors new to the market due to the perception of them being less risky than standard loans, which do not have security taken out on them.”

The first property backed loan on the platform is set to be a £300,000 campaign for Mark Marengo, a Savile Row tailor focused on exporting sharp-cut tailoring internationally.

Wellesley & Co suspend P2P lending

May 26th, 2017
Wellesley & Co.

Wellesley & Co have announced that they are suspending peer-to-peer lending on the platform. The reason for this is likely due to pressure from the FCA to change their business model.

Below is a copy of the email sent to lenders:

As we progress towards full authorisation by the Financial Conduct Authority (FCA), we are making some changes to our product range over the coming months. We want to make sure that you are aware of the changes and whether these will affect you.

From 31st May 2017, Wellesley & Co will not be accepting any additional investment into the existing Peer-to-Peer Lending products and we will be launching a new Peer-to-Peer lending product in Q3 which will offer different features for customers. The new Peer-to-Peer lending product will no longer provide a fixed rate of interest with a fixed term period. This period will allow us to continue to work behind the scenes on developing the new product and bring it to market. The new Peer-to-Peer lending product will no longer provide a fixed rate of interest with a fixed term period.

How does this affect existing Peer-to-Peer investments?

As a Wellesley & Co customer, any existing Peer-to-Peer lending investment will remain under its current terms until its contractual maturity. This means that it does not affect your existing investments and you do not have to take any action on your account.

It is important to note the features of the new products as they will be different to your existing Peer-to-Peer lending investment.

Over the coming months, we will be developing our systems and portal in order to continue providing access to investments from Wellesley Group companies that offer you, the opportunity to invest your funds for attractive returns.