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4 P2P Lending Companies Stable After 4thWay PLUS Ratings Reassessment
Our specialists have updated the 4thWay PLUS Ratings and 4thWay Risk Scores methodology slightly.
On balance, the changes make it a little harder for P2P lending companies to get higher ratings and better scores. My colleagues have also removed all allowances made for COVID-19 forbearance, which means outstanding late loans caused by the pandemic are now conservatively treated as if they're all going to turn into bad debts.
Yet, with all of this, the first four P2P lending companies to face our upgraded assessment show incredible stability. That these P2P lending providers have held up extremely well in terms of both their actual results as well as ongoing ratings forecasts through this difficult period is testament to their quality.
Small change at Loanpad
Despite the mostly stricter changes to the ratings and scores methodology, Loanpad's 4thWay Risk Score has actually improved slightly in our most recent reassessment.
Both its lending accounts have improved from a risk of 4/10 to a risk level of 3/10. This means that, even if a major recession and a huge property crash were to hit now, calculated losses for lenders opening accounts today would be under 2.5%, before interest earned.
Indeed, in Loanpad's case, our specialists say the calculated assessment is that bad debts are most likely to be as good as zero.
For comparison, 7/10 is loosely comparable to the safer end of stock-market risk and 1/10 is the risk in savings accounts.
Loanpad's lending accounts now have the best 4thWay Risk Score of all P2P lending companies. I'm not surprised to see this improvement in its calculated score, as 4thWay's experts have long considered Loanpad's lending accounts as the safest in P2P lending!
Loanpad retains the top 4thWay PLUS Rating of 3/3 on its lending accounts, because lenders who hold on to their loans without selling through a major recession and property crash, until they are fully repaid by the borrowers, are likely to still have positive returns. In Loanpad's case, the chances of losses are extremely remote.
A little change at CrowdProperty
CrowdProperty's 4thWay PLUS Rating remains an extremely solid 3/3, showing that lenders can feel confident in it even when lending through severe economic difficulties.
Its 4thWay Risk Score has just slipped from 4/10 down to 5/10, but this small slide still leaves it among the safest P2P investments and, dare I say it, among the better investments in any asset class. The highly conservative, calculated forecast is for one-off losses of around 5%, before interest, in a severe recession and major property crash. This is at the better end of the 5/10 4thWay Risk Score range, which start from 5% and go up to 10% losses.
I expect that CrowdProperty will regain its 4/10 4thWay Risk Score in time. As a result of its maturing history, in the not-too-distant future, it's likely to reach another statistical hurdle that will boost its forecast results, in line with 4thWay's ratings and risk scores methodology. This will likely push it back to its previous 4thWay Risk Score.
Proplend also has a small change
4thWay's specialists have now started assessing Proplend's bridging loans. These are now assessed alongside its loans against properties paying rent. This change has occurred because Proplend's bridging loans now have enough history to be included in the assessment. Bridging loans are typically riskier than rental-property loans.
Despite this, Proplend still easily retains the top 3/3 4thWay PLUS Rating on its tranche A loans. In these loans the property security always has a valuation of at least double the loan amount. Proplend also keeps the top rating on its riskier, higher-paying tranche B and C loans, which are rated separately.
The 4thWay Risk Score on Proplend's tranche A loans has bumped to 4/10, meaning losses of under 5% in terrible economic conditions. This is a worsening of just one point from its prior 3/10 score. Proplend's tranche A loans could also make it back to 3/10 once there is even more history on bridging loans or – as appears to be the case recently – if it reduces the amount of bridging lending that it approves in the coming months.
Nevertheless, 4/10 is still extraordinarily good, reflective of all bridging-loan bad debts being recovered in full, among other defensive aspects of Proplend's strong offering.
Proplend's tranche B and C loans see no change to their 4thWay Risk Score.
HNW Lending is unchanged – barely
Lenders are more likely than not to have positive returns at HNW Lending in severe economic times, as shown by its 4thWay PLUS Rating of 3/3.
HNW Lending has also managed to retain its 4thWay Risk Score of 5/10, with calculated potential losses close to the maximum for that score, at around 10%.
While it's closer to the edge in dropping either a 4thWay PLUS Rating or 4thWay Risk Score point than any other P2P lending company, it's still an impressive feat.
I note that our specialists find HNW Lending among the hardest to analyse and they point out that, the more difficult it is, the more likely they are to make mistakes.
Don't you dare forget this…
4thWay still has a perfect record with our ratings over eight years. But the reality is that no-one can always get it right, as forecasting is never that accurate.
That's why I just want to share the reminder that you're not supposed to just see a lending account with 3/3 and then lend all your money in it.
The 4thWay PLUS Ratings assume you spread your money across a basket of six or more lending accounts to contain the risks and that you consider your overall returns, not individual performances.
Furthermore, it assumes you re-lend for at least two years and that you lend until the borrowers repay, without selling early.
This makes your lending super solid against disasters.
Another larger, batch of P2P lending companies' ratings and risk scores are up for reassessment over the next two months.
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.
Independent opinion: 4thWay will help you to identify your options and narrow down your choices. We suggest what you could do, but we won't tell you what to do or where to lend; the decision is yours. We are responsible for the accuracy and quality of the information we provide, but not for any decision you make based on it. The material is for general information and education purposes only.
We are not financial, legal or tax advisors, which means that we don't offer advice or recommendations based on your circumstances and goals.
The opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by ESMA or the FCA. All the specialists and researchers who conduct research and write articles for 4thWay are subject to 4thWay's Editorial Code of Practice. For more, please see 4thWay's terms and conditions.
*Commission, fees and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from HNW Lending, Loanpad and Proplend, and other P2P lending companies not mentioned above either when you click through from our website and open accounts with them, or to cover the costs of conducting our calculated stress tests and ratings assessments. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.