Thursday, 8 October 2015

The Lending Works Experiment (2 Months On)

It’s been 2 months since I started the Lending Works experiment.  As a recap Lending Works are a peer-to-peer lending platform and at the time I published my original post I had opened an account, deposited £300 and was in the queue to get into the lending market.  I also promised to update you in 2 months so time for an update on what’s happened since then?

Firstly, I'm now successfully in the Lending Works lending market.  At the time of my last post I had £78,430 queued ahead of my £300 and indications were that it would take 8 days to get my money into the market.  With P2P lending it’s of crucial that you minimise time out of the market as until your money is actually lent you’re earning no interest.  As it turns out I didn't have to wait 8 days with money starting to be lent after 5 days and fully lent after 6.

When I signed up £12 million had been lent into the market and the reserve fund was £211,470 meaning 1.7% of loans by value would have had to be missed or fall into arrears before I started taking a loss.  Today lending is now £14.7 million with a reserve fund of £252,031 meaning that protection is stable at 1.7%.

I've found the platform generally easy to use but I did make one mistake which I’ll share here just in case anybody is looking to lend through the platform.  Lending Works prioritise reinvestment over new money in the lending queue.  So if you’re just looking to compound up your monthly repayments/interest make sure you go into Auto Settings and select an Auto Income option.  I didn't and my first month’s repayment and interest was out of the market for 7 days.  I then selected the Reinvest option and subsequently have only been out of the market for between 0 and 4 days.

For me peer-to-peer lending is about a better return on investment than that being offered by bank savings rates (while of course acknowledging that P2P has a different risk profile to bank savings accounts).  When I selected the lend for up to 3 years option I was expecting 4.8% per annum.  To date I have received £6.65 of interest on the £300 experiment.  I make that an annualised 13.5% which is way above that expected although it’s only very early days so there is plenty of time for that to normalise.

Unfortunately Lending Works have advised me that they don’t want to continue with the experiment and instead want to focus their efforts elsewhere.  I say unfortunately as so far the product has done everything it says on the tin.

As always DYOR.


  1. Thanks for posting this update, RIT - a shame (and strange) that Lending Works have decided to end the experiment after only 2 months.

    I'm still lending with them but have an issue with my cash being out of the market. 8+ days is just too much, especially as it's only a couple of days with Ratesetter, or zero days when I use the secondary market with Funding Circle.

    1. Hi weenie

      '...but have an issue with my cash being out of the market. 8+ days is just too much...' Have you enabled the Reinvest option within Auto Settings as I mentioned above. It was a mistake I made as it wasn't an obvious thing to do initially. That certainly reduced the time out of the market for me.


    2. I did give that a go initially, but now I can't recall why I turned if off. I'll turn it back on to see how that goes.


  2. Shane they're not continuing with the experiment, but interesting to see you got much higher rates than expected.

    I'm really happy with Funding Circle and RateSetter who were very fast, ready to use, and often have excellent rates available. I've also tried Rebuilding Society (with totally free money) and Zopa. Funding Circle in particular has been great. Zopa were great back in the early days (2006) when I first started using them, but there's a lot less flexibility now.

  3. I wonder how this sort of thing will fare in a recession. Presumably it's all too recent for any record to help?

    When can we expect the Guardian to start campaigning against this sort of usury, and to compare it to payday loan firms? History says that debtors are often keen to steal from creditors and are quite skilled at getting politicians to enable that theft.

    1. Zopa started in 2005 so they certainly went through the GFC. On their website they list actual defaults as:
      2005 0.15%
      2006 0.18%
      2007 0.52%
      2008 5.54%
      2009 2.04%
      2010 2.18%
      2011 0.96%
      2012 0.78%
      2013 0.55%
      2014 0.61%
      2015 0.04%

    2. thats interesting but also useful to show the %return over that period, i know that its dropped significantly over that time

    3. the other thing is how existing loans can be cashed out if/when interest rates begin to rise. its the illiquidity that most puts me off p2p, or maybe more accurately i should say the cost of liquidity. You pay the p2p platform typically 1% but someone out there also has to buy your loan, what might they want to pay you if interest rates have risen in the interim? thats the bit i can't get my head around. Not a problem if you never envisage needing the cash but a worry otherwise?

    4. "The company’s data shows that after fees and losses arising from bad debts, the average annual return has been 5.6% over the past 10 years." -

    5. I have Funding Circle and Ratesetter accounts. Ratesetter has been brilliant so far as a hands off P2P platform; there have been no surprises so far. Re Funding Circle, I currently have annualised bad debt of 2.6% all from A+ and A (the safest) loans, way above the stated expectation. Still, overall return is about the same as Ratesetter's longest term interest. But Funding Circle has taken a lot more time to manage so with their new simpler structure, I have turned autobid back on (but not from secondary market) and will be lettting it run itself from now on, freeing up my time. I doubt I will be putting any more money in the latter anytime soon; not until my default rate has levelled off to expectations. Although the simpler system has, seemingly, reduced the power of automated bots, effort is still needed to establish the best loans to lend to and get in the queue in time (and so the best automated bots will still get there first). If you have lots of time on your hands then great but Ratesetter for me just irons out all the wrinkles with no effort. For those with a philosophy of passive investment (but want to take the risk of P2P), Ratesetter makes more sense. The biggest risk as I see it to P2P investing, as shown by RIT's post above re Zopa's list of defaults, is that you will likely get hit in a downturn (see default rate 2008). Everyone will try to offload their loans as quickly as possible in this kind of event and those slowest to change their automated reinvestment options may suffer the most.