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2 P2P Lending Accounts Improve Their 4thWay Risk Scores
We've slightly upgraded our 4thWay PLUS Ratings methodology over the past five weeks and reassessed the lending accounts that provide us with the data and access to apply our calculations.
This upgrade impacts property P2P lending accounts, making it a little bit tougher to get better 4thWay Risk Scores or 4thWay PLUS Ratings.
Nevertheless, as providers' history continues to broaden and mature even further, two of them have seen their 4thWay Risk Scores actually improve a little. One saw the 4thWay Risk Score worsen by one point.
Proplend's junior loans have received a slightly better 4thWay Risk Score
Proplend's tranche B and C loans have improved their combined 4thWay Risk Score, which has gone from 7/10 to 6/10.
For comparison, 8/10 to 10/10, roughly speaking, is around the level of risk of making large losses on the stock market – although in the case of P2P lending that's before lending interest is taken into account, which protects you further from the risk of losses.
These are junior loans, whereby lenders lending in Proplend tranche A to the same borrowers get their money back before you. And yet Proplend has an excellent record with these riskier loans. Also, these loans are mostly against residential and commercial properties being rented out. They therefore don't contain the uncertainties that you have in, say, development lending, while still paying higher lending rates.
Tranche B and C loans still have the potential to hit 5/10 sometime in the future, if Proplend continues to maintain its record as its history deepens even further.
Proplend's tranche A loans are unchanged. They have 4/10 and are on the very edge of becoming 3/10, which it could well achieve in 2023.
All three Proplend loan tranches retain their 3/3 Exceptional 4thWay PLUS Rating. This means that, if you lend in at least five other similarly rated lending accounts and keep lending until borrowers repay you at the end, we calculate it's very unlikely you'll make overall losses after lending interest from bad debts during a severe recession and property crash.
More on Proplend
During our ratings upgrade, we wanted to take a look at the risk in Proplend's office lending – what with office usage hugely down since the pandemic. Possibly 50% down!
Office prices might continue falling as leases expire and landlords (i.e. borrowers) struggle to re-fill their offices. All this will increase the risk that the borrowers will be unable to pay off your loans in full through a property sale or getting a loan elsewhere.
We have found that mixed-use office space (e.g. offices within workshops) in Proplend's loans is negligible.
As for pure office space, we found during our assessment that it's not a huge part of overall lending. The current loanbook looks very well diversified out of the office space that concerns landlords and lenders alike.
Proplend hasn't been increasing office lending. In any event, new office lending will be based on their current occupancy and current property valuations, rather than on pre-downturn usage and valuations.
Invest & Fund's lending account slightly improves its 4thWay Risk Score
Invest & Fund has improved from a 4thWay Risk Score of 5/10 to 4/10. The difference between the two is small but significant. Few lending accounts have ever received 4/10.
Invest & Fund really has a remarkable record of its loans paying within their agreed term, which is unusual for development lending.
This new 4thWay Risk Score is likely the best that it can realistically achieve, because no level of competence can lower the risks further for the specific kinds of development loans that Invest & Fund does.
CapitalRise's 4thWay Risk Score knocked by our method upgrade
Our upgrade involved improving the standardisation in how we assess the performance of bridging and development loans. This upgrade has impacted CapitalRise's Risk Score by dropping it to 6/10 from its previous 5/10.
However, as its loans continue to mature, it's well on track to hit 5/10 again at some point. I'd also note that all loans that we call pandemic-era loans have been repaid in full already, which is not yet the case with most other property lending providers.
Just as you shouldn't overstate the small improvement in 4thWay Risk Scores at Proplend or Invest & Fund, you shouldn't either for the small decline at CapitalRise. It remains a very solid lending account with a 3/3 4thWay PLUS Rating and attractive interest rates.
If you missed it, during autumn Lande became the first non-UK P2P lending account to receive a 4thWay PLUS Rating and associated 4thWay Risk Score.
Read quite a bit about this provider in Lande Is The 1st European P2P Lending Company To Earn A 4thWay PLUS Rating. You can also read about it in Help Farmers Produce Food For The World & Earn 10.9% Annually.
All other 4thWay PLUS Ratings and 4thWay Risk Scores are unchanged
Assetz Capital is effectively no longer rated, as it's no longer accepting new lending from small lenders. Four-fifths of all lending was already done by financial institutions, so it's making the switch to 100%. You can read The Best Alternatives To Assetz Capital.
Aside from that, all remaining lending accounts are unchanged. The improved methodology made it tougher for some of them to retain their existing 4thWay PLUS Ratings and 4thWay Risk Scores, but nevertheless they did so.
We didn't quite manage to complete our Kuflink reassessment over the past five weeks, so that last remaining one will be done in January 2023.
What does the future hold?
One or two other lending accounts might improve their 4thWay Risk Scores during 2023, although many rated lending accounts are now tapping on the limits of their upward potential; it reaches a point where having even more history doesn't improve their results any further, since they hit the barrier of the inherent risks embedded in the particular kinds of loans they do.
Lande was just the first P2P lending accounts from continental Europe and the EU. We'll be rating more of them in the coming months. You'll see more of those appear in our comparison tables on 4thway.co.uk. If you're not interested in those, because they involve lending in foreign currencies, you can use filters in the table to hide them.
You can already see three rated European lending accounts on our 4thway.eu site.
The 4thWay® PLUS Ratings are calculations developed by professional risk modellers (someone who models risks for the banks), experienced investors and a debt specialist from one of the major consultancy firms. They measure the interest you earn against the risk of suffering losses from borrowers being unable to repay their loans in scenarios up to a serious recession and a major property crash. The ratings assume you spread your money across hundreds or thousands of loans, and continue lending until all your loans are repaid. They assume you lend across 6-12 rated P2P lending accounts or IFISAs, and measure your overall performance across all of them, not against individual performances.
The 4thWay PLUS Ratings are calculated using objective criteria that can be measured and improved on over time, although no rating system is perfect. Read more about the 4thWay® PLUS Ratings.
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