51 replies to this topic

[Moonraker]

Hi

This is my first post, though I've been a Zopa lender for some months now, with some thousands of pounds out on loan. In the past three weeks I've had several hundred pounds "stuck" on offer, with "expected returns" of around 5.2%. I'm reluctant to lower my stipulated interest rates any more, as I'm conscious that conventionally investing my money with a bank or building society over 36 months can give me a 4.3% return.

Leaving aside the minor "fun" element of lending through Zopa, I'm not sure that an extra return of, say, .7%, is anything to get excited about.

Am I being naive, and/or am I expecting too much?


Moonraker

[Gorgeous George]

No, you are not being naiive.

In the early days, it was possible to lend at 20% in Zopa. As Social Lending matures, we see greedy lenders joining greedy bankers in the business of not lending. Social lending returns will be more modest - unless we can promote Social Borrowing.

GG

[MikeS1531]

Gorgeous George, on 24 June 2011 - 19:17, said:

As Social Lending matures, we see greedy lenders joining greedy bankers in the business of not lending.

I do hope there's a fair amount of tongue-in-cheek above.  Firstly, P2P is not necessarily Social.  And secondly, considering that investing with a bank or building society is less risky than P2P lending because of the FSCS protection, I think it's prudent -- rather than greedy --  to expect P2P lending to produce a return a bit higher than that available from a bank or building society.  

As a result, I've stopped adding to my Zopa account, and I'm withdrawing payments as they come in.  I'm hopeful that this situation is temporary, but I'll continue with this policy until the differential in returns between Zopa and banks and building societies improves enough to justify the additional risk I perceive.

[The_alchemist]

Moonraker, on 24 June 2011 - 17:49, said:

Leaving aside the minor "fun" element of lending through Zopa, I'm not sure that an extra return of, say, .7%, is anything to get excited about.

Am I being naive, and/or am I expecting too much?


Moonraker

I agree with GG your not being naive, I've got a nice round figure invested in Zopa of £5k, I've just checked to see what this tax year is currently giving me, now I've started to pay attention to my account,

I'm receiving about £33 in interest per month.

Zopa fees are around £3.75 per month

Meaning I'm receiving pre tax of £ 29.25 interest

I'm 40% tax payer so deduct £11.70 to Mr Osborne

Leaving me earning £17.55 for £5k investment per month which is around 3.5% interest rate for me.

As Zopa is an investment vehicle you shouldn't really compare it to a savings account with a bank or building society I've accumulated loans written off this tax year so far of £36.81 which means for the first quarter of this tax year I'm standing at
17.55 x 3 months net interest of £52.65
Minus written off loans of            £36.81

Total net interest                         £15.84 for the first quarter.  

So my current Zopa interest rate is <1.0%

I'm aware interest rates in Zopa can go up as well as down so my <1.0% interest rate can go up hopefully or my £225 in loans currently showing as late could possibly be written off taking my interest rate to new heights that will make me look for a cheap holiday to Greece ;-)

If I could wrap my Zopa account in an ISA wrapper I would feel more warm and fuzzy, but sadly I can't so my stocks and shares ISA is vastly outperforming my Zopa investment account and for me that's what I benchmark my Zopa account against, as long as I'm making a few quid I'll be content, when I start to dip into negative interest ( so to speak ) I might start to rapid return into my rapidly outperforming ISA account.

[ashtondav]

There are considerably more uninformed lenders than I thought possible, lending at rates that make no sense at all. But don't fret: the supply of fools is surely limited.

Unfortunately i think there is another reason: there are large numbers of zopoids not declaring interest to the taxman. I would imagine that's the case, and would urge HMRC to wage war.

[Wangja]

'Tis a bit slow and low right now. Like the OP I have about 600 GBP floating in the holding a/c, being dripped into offers, but the take up is very slow.

That said, I am still very pleased with how ZOPA has done for me.

[Peter29]

ashtondav, on 25 June 2011 - 08:05, said:

Unfortunately i think there is another reason: there are large numbers of zopoids not declaring interest to the taxman. I would imagine that's the case, and would urge HMRC to wage war.

I'm sure I've read before that ZOPA provide data to HMRC; not sure if it's on an 'as requested' basis of automatic notification of everyone's income.  However, the due date for a declaration can be as far away as next January for the Tax year just ended.

Peter

[Gorgeous George]

Rates are low at the moment.

My average 'on time' loan rate is 8.52% whereas my average 'pending' is just 7.3%. The average original term of the pending loans is 51.4 months compared to my 'on time' average of 44.6.

I find Zopa more motivating than a cash ISA. Although I don't add new funds very often, I am still aiming for a Zopa total of £10K (£1.5K to go). Then I'll be aiming to have invested £10K. Then I'll find a new milestone to aim for. I don't have the same desire with cash (pain in the a!!!) ISAs although first direct's 8% regular saver was too good to ignore.

If it is not for you, walk away - simples. There'll be 10 more lenders along to take your place.

GG

[fuzzyiceberg]

ashtondav, on 25 June 2011 - 08:05, said:

the supply of fools is surely limited.

That's what I thought as the dot com bubble inflated in the late '90s and again as house prices were driven to unaffordable levels (except for bankers   ) in the mid '00s.  Turns out that even if there is not an infinite fool supply there is sufficient supply, to mangle a quote, making markets stay irrational longer than I can stay out earning next to nothing bemoaning the stupidity of others...

The fact is I think they see a headline 'return' of 6.5% or something and compare that to the 2% or whatever on offer from banks and don't adjust for fees, bad debt, tax etc.

Edited by fuzzyiceberg, 25 June 2011 - 15:40.

[The_alchemist]

Wangja, on 25 June 2011 - 09:20, said:

'Tis a bit slow and low right now. Like the OP I have about 600 GBP floating in the holding a/c, being dripped into offers, but the take up is very slow.

That said, I am still very pleased with how ZOPA has done for me.

The last 3 years have been very good for me, not as good as some snaffling 19% from listings but fortune smiles on the brave. I remember when I could get an A60 loan for 12% and on the odd occasion a bit more now I need to be sub 8% to keep the money flowing out of my account.

Tax year 2011-2012 if the first quarter is anything to go by will be horrible year for me, historic low interest rates on the markets and loans written off which have gone up 4 fold for me and apart from your listing I'm a markets man so I can't blame my bad debt on listings it's all markets A's and B's causing me the problems at the moment.

When I look at my account the headline rate looks good I have just under 10% interest rate to borrowers lent out and on time, but then once you deduct tax, bad debt, zopa fee what I'm actually receiving as an interest rate is not so good.

[fuzzyiceberg]

Gorgeous George, on 25 June 2011 - 12:50, said:

Rates are low at the moment.

My average 'on time' loan rate is 8.52% whereas my average 'pending' is just 7.3%. The average original term of the pending loans is 51.4 months compared to my 'on time' average of 44.6.

I find Zopa more motivating than a cash ISA. Although I don't add new funds very often, I am still aiming for a Zopa total of £10K (£1.5K to go). Then I'll be aiming to have invested £10K. Then I'll find a new milestone to aim for. I don't have the same desire with cash (pain in the a!!!) ISAs although first direct's 8% regular saver was too good to ignore.

If it is not for you, walk away - simples. There'll be 10 more lenders along to take your place.

GG

I think I have the 'reverse perfecta' in terms of interest rates by category

Written off>Late>Closed>On time>Processing

[MrGrey]

The_alchemist, on 24 June 2011 - 23:03, said:

So my current Zopa interest rate is <1.0%

I'm aware interest rates in Zopa can go up as well as down so my <1.0% interest rate can go up hopefully or my £225 in loans currently showing as late could possibly be written off taking my interest rate to new heights that will make me look for a cheap holiday to Greece ;-)

If I could wrap my Zopa account in an ISA wrapper I would feel more warm and fuzzy, but sadly I can't so my stocks and shares ISA is vastly outperforming my Zopa investment account and for me that's what I benchmark my Zopa account against, as long as I'm making a few quid I'll be content, when I start to dip into negative interest ( so to speak ) I might start to rapid return into my rapidly outperforming ISA account.

Considering inflation, you are in negative interest.

[The_alchemist]

MrGrey, on 26 June 2011 - 09:16, said:

Considering inflation, you are in negative interest.

Ssssshhhhhh, I was glancing over that part just to make me feel good about Zopa, I was trying to illustrate to the OP that Zopa shouldn't really be compared to a bank or building society savings account and the rate they provide as they are not investments like Zopa in my opinion is.  Zopa has the upside of potentially being able to earn someone 20% assuming no Zopa fee and no bad debt but has the potential to loose some of the capital you invest and therefore should be compared more with investment trust, stocks and shares, bonds etc.

Since joining Zopa I've kept my investment ISA and this has been under performing at approx 6-7% but was still happy all things considering what has been going on across the globe. In comparison Apr 2008 - Apr 2011 my Zopa account has been great for me 10% gross on active accounts and 12% on accounts settled so Zopa could do no wrong for me.

The last 3 months have been poor for my Zopa account as I've never had debt written off and now have 5 loans written off ( still a small number compared to some Zopaholics ) and 22 showing late and a few them look bad with 2 months + no payments per account, whilst my ISA account has been outperforming for the last 3 months. If I had the inclination to analyse this in more depth I could probably shift the funds from one to the other to capitalise but if I know lady luck she'll $%&* all over me so I'll quit while I'm ahead kind of  

Edited by The_alchemist, 26 June 2011 - 16:52.

[MikeS1531]

The_alchemist, on 26 June 2011 - 16:48, said:

In comparison Apr 2008 - Apr 2011 my Zopa account has been great for me 10% gross on active accounts and 12% on accounts settled so Zopa could do no wrong for me.

Are these simply the numbers showing in MLB?  Or have they been adjusted to account for the time funds spend 'idle' -- either waiting to be matched or matched to requests that don't actually become loans?  When I did a detailed analysis of my actual return based on the amounts I had contributed to my Zopa account and the account's value at a given point in time, I was surprised at the gap between the average return reported by Zopa/MLB and my actual return.  Others have reported a similar gap.

The_alchemist, on 26 June 2011 - 16:48, said:

If I had the inclination to analyse this in more depth I could probably shift the funds from one to the other to capitalise but if I know lady luck she'll $%&* all over me so I'll quit while I'm ahead kind of  

Much easier said than done, as if you've used your ISA allowance already you can't add anything more to your ISA.

[propman]

If you only take the bad debt into account when zopa move it to default, this is bound to lag interest earned. In addition, I think it has been said that bad debts increase later in the life of loans. So it is IMHO misleading to consider that loan books haven't really earned the returns you are assuming, as this includes some "compensation" for expected future bad debts. I think assuming otherwise is another reason for the poor returns. many borrowers haven't been around long enough to have many lates and are very unlikely to have defaults, so are happy to lend at rates which do not adjust for bad debts as, despite hearing the contrary all the time, in the absence of different information, we assume investments will continue to perform as they are now.

[MikeS1531]

propman, on 27 June 2011 - 18:32, said:

If you only take the bad debt into account when zopa move it to default, this is bound to lag interest earned. In addition, I think it has been said that bad debts increase later in the life of loans. So it is IMHO misleading to consider that loan books haven't really earned the returns you are assuming, as this includes some "compensation" for expected future bad debts. I think assuming otherwise is another reason for the poor returns. many borrowers haven't been around long enough to have many lates and are very unlikely to have defaults, so are happy to lend at rates which do not adjust for bad debts as, despite hearing the contrary all the time, in the absence of different information, we assume investments will continue to perform as they are now.

In Apr.'10, when I did my last analysis and put the results on ZopaTalk, it showed I had achieved a 7% return after fees and before bad debt.  At the time, I think MLB was telling me the average rate on my microloans was over 9%, with the big difference being partly due to the lenders' fee but mostly because I was trying to build my loan book so I had a lot of funds in offers waiting to be matched.  Including the bad debt from loans classified as Default reduced my return to 5.4%, and valuing my Lates at half their principal value further reduced my return to 4.5%.  So whether or not Lates are valued at face value or treated as being worth less than that does indeed make a significant difference to my actual return.  The impact of the unfavourable tax treatment of bad debt further reduced my return by between 0.5% and 1.5% depending on the value attributed to Late loans.

I really need to update my analysis to include the last 15 months' of data.  In that period my amount of Bad Debt has nearly doubled, but my amount of Lates has been pretty stable -- which is to say that the amount moved from Late to Default is about the same as the amount moved from On Time to Late.  At the same time, my total amount of interest earned has slightly more than doubled.  I'm hopeful that the impact of 'idle' funds and bad debt is reduced now, but I won't know for sure until I produce the numbers.  I have my fingers crossed!

[The_alchemist]

propman, on 27 June 2011 - 18:32, said:

If you only take the bad debt into account when zopa move it to default, this is bound to lag interest earned. In addition, I think it has been said that bad debts increase later in the life of loans.

i
Hey propman, I can only say from my own experience but the bad debt I have ranges from 0%-12% of the loan repaid so for me I'm finding that loan defaults are happening at the early part of the loan hence why the numbers of loans I have defaulted is still very low, but of the ones that have defaulted it is a bit more painful than if they had paid 1/4, 1/2 of the loan etc. Looking at my late payers and the ones currently in collection seems to be <10% of the loan repaid so is marginally worse than my current default payment history.

I accept it's luck of the draw for the last 3 years I had nil defaults so probably could have said Zopa expected default rate was very pessimistic based on my personal experience, now the shoe is on the other foot I'm optimistically hoping over the next 1/4 and for the rest of the year to optimistically get back on track and inline with the Zopa anticipated default rate.

[Ledney]

The_alchemist, on 27 June 2011 - 20:15, said:

i
Hey propman, I can only say from my own experience but the bad debt I have ranges from 0%-12% of the loan repaid so for me I'm finding that loan defaults are happening at the early part of the loan hence why the numbers of loans I have defaulted is still very low, but of the ones that have defaulted it is a bit more painful than if they had paid 1/4, 1/2 of the loan etc. Looking at my late payers and the ones currently in collection seems to be <10% of the loan repaid so is marginally worse than my current default payment history.

My average default is with 72% outstanding, it has come down a bit with some loans defaulting later, but still much higher than the 50% you might assume.

[pfpessex]

Ledney, on 28 June 2011 - 06:00, said:

My average default is with 72% outstanding, it has come down a bit with some loans defaulting later, but still much higher than the 50% you might assume.

Yes - all before the half-way mark, usually trouble starts with the first missed payment within about six months.

[ashtondav]

Unfortunately due to hard disk failuer a year or so back i am unable to do IRR calcs on my 5.5 years on ZOPA.

However, I have about £53K out on loan (mostly A markets) and i'm getting about £320 a month in interest payments.


That is heavily influenceed by the decent rates available until autumn last year. Now that A*36 only grosses 6.5% to 6.7% i expect a decline.



I will look into my default profiles and report back on default stage.