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Tuesday, 28 March 2017

Funding Circle - a year in review

About 18 months a friend of mine put me onto Funding Circle (https://www.fundingcircle.com/uk/) as a way to generate some extra interest due to the forever lasting low interest rates available at banks.

Whilst Funding Circle (“or FC”) has been going for some time now, I decided to dip my toe in to see if the interest advertised was as good as they say it is. Starting with a smallish investment of around £3,000, I spread my investments mainly across asset-backed loans and or loans with director guarantees, where I was getting rates that seemed to average around 8% across the board for what was effectively A+ or A rated debt. Not bad, when compared to the paltry 1% you might get on average in your bank account (if you’re lucky!).

As things started to pick up and no debts turned bad, I gradually increased my investment over a year and half to around £20,000. According to FC, I was getting around 6.7% return (after fees and bad debt), but in reality, as I had picked relatively secure loans of A+/A, I was getting nearer 7.7% and generating around £130 a month in interest.

All was well, until I hit my first bad debt at the beginning of this month for £100 and then another shortly afterwards (unrelated to the first) for about £40. Now, whilst the debts themselves pale in comparison to the £1,800 I have made in interest, it made me re-think as to the model of FC and whether the risk was more real than the interest rates belied.


Whilst the bad debts did not deter me from continuing my investment in FC loans, it made me think twice about putting more of my capital in. That is for sure! The reason being is that almost all of the loans rated A+ and A were in some form or another connected to property. Which, whilst being asset backed has the risk associated with severe default if the UK property market were to turn further sour following Brexit and the previous Chancellor’s property tax changes or worse yet, a total crash as there was in the late 80s and early 90s. Most economists see these kind of situations as being something that won’t be repeated, but for me, I would think carefully before putting too much of your total capital into this kind of model, before fully understanding what you are really investing in – which is the UK property market….

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