Lending Works And HNW Lending PLUS Ratings Updates
HNW Lending PLUS Rating update
HNW Lending* now has 3/3 PLUSes – the highest and top 4thWay PLUS Rating – on both its senior loans and junior loans. Previously, its junior loans had a 2/3 PLUS Rating.
For junior loans, its 4thWay Risk Score ticked down one to 6/10, i.e. the score got one point better, since lower score/risk = better. This is largely due to an improvement in how 4thWay calculates potential losses in a severe recession and property crash on loans that are junior to other loans.
HNW Lending does asset-backed lending, which, as usual, means a lot of loans go bad, but it also means that recovery of bad debt is high if the P2P lending site knows what it is doing. HNW Lending is starting to build up a fair record so far in that department, largely because it reacts quickly to bad debts.
Recent research conducted by a 4thWay researcher also found no signs that HNW Lending is rolling troublesome loans over into new loans to hide bad debts – not a rare disease in this kind of lending.
Spreading your risks at HNW Lending
As usual for this kind of lending, some loans do end up with losses, even if the security appears to greatly outweigh the value of the loan. Therefore, the recommendation is to continue to spread your money across a few dozen loans.
This is more easily done with auto-lend, which allows you to spread your lending pot automatically multiple loans. The auto-lend pot currently has over 40 loans with the largest single holding held by any lender being 5% of one loan. The minimum amount you can put in is £10,000 in the regular peer-to-peer lending account and £5,000 in the HNW Lending IFISA.
Open questions about HNW Lending's reserve fund
At least one director at HNW Lending takes the first loss on most if its loans. In 60% of them, the first loss is 10% or more.
On top of that, lenders using HNW Lending's auto-lend feature benefit from a reserve fund, which is a pot of money set aside to repay lenders bad debts after recovery procedures are exhausted and the directors have taken the first loss.
However, HNW Lending has so far been unable to confirm to 4thWay that its reserve fund is legally ring-fenced entirely for lenders' benefit and it doesn't tell us how large the fund is. A director told us: “I think its treated as a client money balance, so it would be ring-fenced and not available to creditors of HNW Lending.”
Without legal certainty, in our usually conservative way, we therefore assume in our ratings assessment that there is no reserve fund. We recommend lenders assume just a modest benefit until more details are forthcoming. That said, HNW Lending's reserve fund is not the main defence against losses and it is not even an important one at that P2P lending site.
Read the updated expert HNW Lending Review.
Lending Works PLUS Rating update
Lending Works* retains its top +++ Ratings on both its lending accounts, the top rating available measuring both risk and reward.
4thWay has reassessed Lending Works' recovery rate, which has led to its 4thWay Risk Score ticking up one point to 5/10, i.e. we now judge it to be slightly more prone to worse results in a severe recession, in which losses are likely to eat up the reserve fund and most interest earned.
Those who commit to re-lend for longer, including during downturns, will be even better protected by the interest earned.
Lending Works has a large and very useful reserve fund compared to other providers. Even so, like most P2P lending sites with a reserve fund, it is not built to withstand all scenarios. In a serious recession, 4thWay's experts project that the reserve fund will be depleted and Lending Works will pool its loans and interest earned to protect lenders from suffering actual losses.
Read the updated Lending Works Review.
Read the updated expert HNW Lending Review.
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. They 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 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: the opinions expressed are those of the author and not held by 4thWay. 4thWay is not regulated by the ESMA or the FCA, and does not provide personalised advice. The material is for general information and education purposes only and not intended to incite you to lend.
Experts, journalists and bloggers 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.
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