Secret Investor: regulation of the IFISA causes frustration

Another tax year ends and IFISAs are still not available via the sites which allow the most diversification… Hopes are high that FundingSecure, the platform with a great risk/return ratio across many loans, will be able to offer an IFISA in the next few months as they've finally received Full Authorisation from the FCA.

Totals lent to date (6th April 2017)

*All data correct at the time this blog was compiled.

LOANS TO BUSINESSES

Assetz Capital - £235,464,103
Funding Circle - £2,167,949,305
FundingKnight - £31,485,000
FundingSecure - £110,720,939
Money & Co - £6 million approx
Rebuildingsociety - £11,200,000
ThinCats - £226,981,000
Invest and Fund - £3 million plus
LendingCrowd - £10,745,681
ArchOver - £31,398,000

PERSONAL P2P LENDING

Zopa - £2,180,000,000
RateSetter – £1,825,235,277

Lending Works – £49,326,666

…………..

IFISA 2016-17

As indicated in the special "IFISA Dilemmas" edition of this blog, the Secret Investor used some of his 2016-17 ISA Allowance – roughly a third – to invest in a high-end property development in Central London via the CapitalRise platform. Having only previously allocated no more than £80 to any one borrower, investing £5k in a single project took a great deal of soul-searching. Initially, he was planning to invest much less than this but decided on an "in for a penny, in for a pound" approach. The website dangled an expected return of over £1k after 2 years in front of him like a big juicy carrot.

How crazy it is that, by not granting Full Authorisation to the sites that offer the widest range of loans, the FCA have forced people like The Secret Investor to abandon the diversification strategy that has served him so well to get a tax free return.

LOANS TO BUSINESS

Assetz Capital  

Lent to Date: £235,464,103 – fortnightly increase of £13,537,342 – 6.1% growth.

This was the highest fortnightly growth of the year and the second highest on record for Assetz Capital.

When this blog was compiled, there were 57 upcoming loans with 1 imminently due to be drawndown.

Highlighted Loan: A borrower was looking to refinance the interest only mortgage on their buy to let portfolio after a series of missed payments resulted in them being rejected by their current provider. Assetz Capital's credit report indicated that the problems occurred just because the individual "took their eye off the ball". Even so, given these lapses in financial management, I felt that a 6.5% pa interest rate offered a poor risk/return to investors although a reasonably high level of security was provided via first charges over 5 properties which gave a combined LTV of around 65% and the rental income after projected maintenance costs covered the interest repayments by a ratio of almost 1.5.

Managed Accounts: The following accounts automatically distribute funds on behalf of investors across the platform's loans and are covered by a Provision Fund:

Quick Access Account (3.75% pa return); 30 Day Access Account (4.25% pa return); Great British Business and Green Energy Income Accounts (both of these offer a return of 7% pa).

Funding Circle

Lent to Date: £2,167,949,305 – fortnightly increase of £48,075,685 – 2.27% growth.

Conversely, in comparison to Assetz Capital, this is the lowest fortnightly growth since the turn of the year, it still dwarfs most other platforms however.

There were 3 auctions ongoing when this blog was compiled although as loan requests tend to fill in a matter of hours on this site, that is not a fair reflection of throughput.

Secret Investor's Activity: This remains the site which I have the most exposure to because they have the largest number of manually selectable loans.

Below are highlights from my activity over the past fortnight:

Highlighted Loan Invested in:

Expansion Loan of £159k to building repair contractors (E risk rating 21.9% pa return). Although this was an E rated loan, aside from a low credit rating, the numbers on the balance sheet didn't seem that bad with three figure profits and Shareholder/Net Assets which comfortably covered the value of the loan. It would have been good to know the reason for the low credit rating but I have seen many C rated companies in worse shape than this one.

Highlighted Rejected Loan:

Expansion Loan of >£183k to a recruitment agency (C risk rating, 12.5% pa return). It's always a worry when a business borrows increasing amounts of money at higher interest rates. This is the case with this company who came back to FC for a loan that was £50k higher than their previous one for which they were paying investors 10% pa plus whatever cut FC take. The proposition was also vague about the areas into which they planned to expand.

Defaulted Loans Update: Last Thursday a loan to a simulation company was defaulted because it was 4 months in arears and the business was insolvent. Only a quarter of the capital I had invested had been repaid.

FundingKnight

Lent to Date: £31,485,000 – no change.

There were 0 auctions ongoing when this blog was compiled – only 1 loan has appeared on this site in 2017.

FundingSecure

Lent to Date: £110,720,939 at the end of March – the site updates this total on a monthly basis and so this represents a growth of £7,828,550 (7.61%) since their last bulletin.

There were 11 auctions ongoing when this blog was compiled.

Highlighted Loans: One of the site's biggest deals was listed last week. This was a bridging loan for over £1.6 million secured against a former cinema in the Midlands which has planning permission to be converted into 38 apartments. The LTV is less than 52% and a heads of terms agreement has been signed with a future purchaser. Investors were offered a base return of 13% pa with bonuses available of up to 4% depending on the amount contributed to the loan.

Defaults: Contracts on land secured against one of the loans I have exposure to that is defaulted are expected to be exchanged in early April. This would have brought the number of defaults I have down to 3 but a loan secured against another property has been defaulted. This was only covered by a second charge which ranked behind that of the borrower's ex-wife. This loan offered a return of 15% so it is not too big a surprise that it has gone bad.

Platform News: The FCA have granted FundingSecure Full Approval to be a P2P operator. This site which, in my opinion, offers the best risk/return ratio can now apply to become a IFISA Manager – infact it has already done so. It will be interesting whether the IFISA account the platform offers will allow self-selection of loans or whether it will be a managed fund. Either way, given the low default rate on this site, so long as the returns are double digit I expect to be transferring my Cash ISA across to here.

Due to the continuing expansion of Funding Secure, an office move is planned for this weekend (8th/9th April).

Money & Co

Lent to Date: £6 million approx. (latest available figure)

When this blog was compiled there were 3 auctions taking place.

Highlighted Loan: A marquee manufacturer and hire specialists returned to the site to raise £208.4k of expansion capital. The company seems to be a success story and has been boosted by the weak pound post-Brexit as their main competitors are based in The Netherlands. A fixed return of 8% pa was offered. The loan was backed by company assets.

Platform News: Money & Co have confirmed that all future loans plus purchases from the Secondary Market will be accessible from an IFISA however for existing investors to do this a new account has to be set up via a different email address. This is why it wasn't clear to me whether the IFISA funds could be invested in the loan highlighted in my previous blog as I accessed the site via an old "standard" account.

rebuildingsociety

Lent to Date: £11,200,000 – no change.

There were 4 active auctions taking place when this blog was compiled although 3 of these had been listed for some weeks.

Highlighted Loan: Added to the site today was a loan to a couple who were about to take over a convenience store from the current owner who is retiring. They had spent 12 months working in the shop before the take-over takes place and required £34k to complete the purchase. Having invested £80k of their own funds to buy the business, they could offer little in the way of security but, due to the apparent keenness that came across in their proposal, I decided to contribute a small amount for a return of 17% pa.

ThinCats

Lent to Date: £226,981,000 – fortnightly increase of £1,910,000 – 0.85% growth.

There were 2 active auctions taking place when this blog was compiled.

Highlighted Loan: A contemporary music college was looking to raise £2 million to restructure its existing debt. It plans to increase profitability by opening a third campus therefore it expects to easily cover the loan which has been underwritten by ESF Finance, owners of the Thin Cats platform. Security was provided via a first charge over one of the existing campuses although I thought a target return of 8% pa was a little low given that the new campus may not necessarily be a success.

Invest & Fund

Lent to Date: Over £3 million

There were 0 active auctions taking place when this blog was compiled.

Highlighted Loan: Developers in the Midlands had been granted a facility of >£135k to purchase a terraced block. The building is being marketed on behalf of the current owners who are the local council with the suggestion that it could be converted into 3 separate dwellings. Given these circumstances, planning permission is expected to be given fairly swiftly once the purchase has been completed at which point refinancing will be possible. Therefore, a return of 10% pa made this appear a good deal for investors.

LendingCrowd

Lent to Date: £10,745,681 – fortnightly increase of £512,600 – 5.01% growth.

There were 0 active auctions taking place when this blog was compiled.

Highlighted Loan: Health & Safety Consultants who were looking to expand via the internet required over £53k. It was a very confident pitch, it certainly indicated that there should be no qualms about this business selling itself, and it inspired me to invest even though the financials looked a little marginal – net assets were slightly less than the amount being borrowed.

Loan in Trouble: I received notification today that building contractors I had invested in were being put into liquidation despite having only made 3 repayments. LendingCrowd will be assessing the situation before determining whether investors' capital has been lost.

ArchOver

Lent to Date: £31,398,000 – fortnightly increase of £300,000 – 0.96% growth.

There was 1 auction taking place when this blog was compiled.

Highlighted Loan: Providers of software to the financial services sphere were looking raise £500,000 for their burgeoning business. The products are highly configurable so their customers only require a "super user" rather than a computer programmer to obtain the required functionality. Investors are offered a return of 8.5% pa with security provided by a charge against the accounts receivable and future revenue.

INVESTUP PORTFOLIO

This platform, which lists loans from multiple sites, had just 3 auctions taking place today and all were from P2P Lenders covered elsewhere in this blog.

PERSONAL P2P LENDING

Zopa

Lent to Date:  £2.18 billion – fortnightly increase of £40 million – 1.87% growth.

Returns: Zopa's 3 accounts offer returns of 2.9%, 3.7% and 6.1% pa depending on the levels of access and whether or not they are covered by the Provision Fund.

Zopa distribute investor's money mostly to unsecured consumer loans.

Ratesetter

Lent to Date: £1,825,235,277 – fortnightly increase of £27,687,437 – 1.54% growth.

Returns: Interest rates are set according to supply and demand. They currently range from 3.0% pa to 4.8% pa depending on the length of the investment. Compared to a fortnight ago, the former figure has reduced by 0.1% while the latter has reduced by 0.5%.

Capital is covered by a Provision Fund. Ratesetter proudly boast that no investor has lost a penny since they launched in 2010.

Lending Works

Lent to Date: £49,326,666 – fortnightly increase of £1,452,887 – 3.03% growth.

Returns: 3.6% pa and 4.5% pa via an IFISA or standard account for 3 and 5 year investments respectively. These rates are unchanged over the past fortnight.

As well as a Provision Fund to cover investor's risks, this site also insures borrowers against redundancy, fraud, illness and accidents making this a very fair site for all concerned.

****Disclaimer: This blog contains the views of the Secret Investor. Your capital is at risk when lending via all P2P Platforms. You're recommended to speak to a qualified Independent Financial Advisor.