Crowdfunding a Self Build

[SteamyTea]

JSHarris
 Posted 20 May 2013 - 01:55 PM
After reading an article on peer-to-peer lending over the weekend, I got thinking about whether or not it could work for short term finance for a self-build project. We've found ourselves in a bit of a financing black hole. We own our current house outright (no mortgage), own our building plot outright (no mortgage on that either), have enough savings to do around 50% of the build, but need short term finance (perhaps for a year) to cover the finish of the build, to be repaid when we sell our current house.

The banks and building societies all have a problem with short term finance, essentially they don't offer it, full stop. Bridging loans are available from the "loan shark" type operations, but the fees are high and the interest rates are sky high (best I could find was 0.8% per month, well over 10% APR). Mortgages seem out, because as soon as we declare the reason for the mortgage we get told that what we're after is commercial development funding, so it's no deal. A self-build mortgage is a problem, because it would have to be on a repayment basis and as I took early retirement this means they won't lend for a period of more than 10 years, with hefty penalties for early repayment.

So, reading about peer-to-peer lending got me wondering if it might be an option for us. Interest rates seem around the same as the mortgage rate (typically around 5%). Repayment periods are fairly flexible, with no penalty for early repayment. The only snag seems to be that they are mainly used for commercial lending, AFAICS, plus I've not seen peer-to-peer lending on the sort of scale we're looking for (around £100k or so).

On the face of it is seems worth exploring, although it's a whole new way of looking at borrowing, and a wee bit intimidating. I've had a poke around one or two of the peer-to-peer lenders sites (like Zopa: http://uk.zopa.com/), but I'm not really that much wiser about the way it works.

Has anyone looked at this as a way to get cost-effective short term finance?

temp
 Posted 21 May 2013 - 06:44 AM
I looked at peer to peer as a potential investor a few months ago. Didn't find much about mortgages in the UK. Unfortunately most seem to be limited to buy to let like this one..

http://www.easier.co...-investors.html

I wondered if there was a problem with FSA rules or something that needed to change ???

This talks about it becoming regulated for the first time..
http://www.mortgagef...o-peer-lending/

This looks like one about to start lending?
http://www.crowdmortgage.co.uk/

West One Loans looks liks a peer to peer (aka private funding) bridging loan specialist..
http://www.westoneloans.co.uk/

I suspect there would be high demand for something like this.

I wondered what would happen if the peer to peer lender went bust meaning you had to deal with perhaps 2,000 investors yourself :-(

JSHarris
 Posted 21 May 2013 - 07:06 AM
Thanks for those links, Colin, your search karma must be better than mine!

I'm sure you're right about the demand, especially for short term borrowing. From all I've found out in the last few weeks there is a growing problem in the self-build area because of lender restrictions on short term finance. It does seem daft, as everyone I've spoken to has said that we present a very low lending risk (no bad credit history, relatively high guaranteed income, no health issues, more than enough unencumbered capital assets as surety for the loan amount) yet we're still in a bit of a black hole. We may well have to buy a caravan, move it on site and live in it and let out our current home on a short term assured tenancy (or just leave it empty) just to be able to raise a mortgage on it, which seems daft.

As I understand it, peer-to-peer lending isn't regulated at all, as the peer-to-peer companies are nothing more than introduction agencies, in effect. It's the individual lenders that are taking the risk, and the FSA has yet to come up with a way to provide any form of workable regulation for this sector.

As a future investor (once the house is built and we've sold our current house) I'm quite intrigued by the idea of peer-to-peer lending. The returns are pretty good, even taking account of the risk, and there is a social benefit element that makes this seem more attractive in some way than investing via the banks.

temp
 Posted 21 May 2013 - 07:41 AM
From what I can tell the reguation will be mainly concerned with how p2p companies explain the risks to investors and borrowers.

I haven't really had time to follow up investing but this is what made me put it on the back burner..... the sites I looked at allowed you to choose which business you lend to. They basically had a list of people wanting loans, their risk and what they wanted it for. The p2p company quotes two interest rates. The headline rate and what you can expect to get after taking bad debt into account. Clearly you need to spread your money over several companies but it turns out to be a lot of companies. If you only lend to say 20 companies and one turns bad then 5% of your money is gone. That has a big effect on the actual rate achieved. Discussions on some forums suggest to achieve the claimed "after bad debt rate" you might need to pick >100 companies. That seemed like a lot of work. More investigating needed.

Joiner
 Posted 21 May 2013 - 10:51 AM
J, Colin is actually physically wired into the web. How else do you think he always knows precisely where to go?

jamiehamy
 Posted 21 May 2013 - 12:42 PM
I asked myself the very same question the other day. P2P is only going to grow, and has the potential to cause the banks some headaches in future years.

Funny thing about applying for a mortgage, it's all focussed on £'s and a credit score. There was no need to put a business case togther, something I half expected, and would actually have enjoyed - getting in front of the lender, being grilled and being able to demonstrate how serious you were and how committed, what your contigingencies were and so on.

P2P would have to be more like that I reckon, to ensure people really understood the individual borrowers circumstances, expertise, commitment and so on.

I would have liked to go down the P2P route to borrow, but I know that I would definately lend to P2P Self Build projects in the future if I could afford it. It's a whole new market just waiting to explode. And generally, that must be a good thing for self builders, who are constricted by backwards thinking lenders and who are being fleeced left, right and centre by lenders, brokers and all the conditions they impose.

 

[Jeremy Harris]

1 hour ago, recoveringacademic said:

Try an incognito browser window.....

 

 

Tried that, didn't work, either.  What did work was viewing from a different machine and location, using a different ISP.  Interestingly, this solution also works through a VPN too, so it's not IP address related. 

 

Somehow, Ebuild has identified the machine I was using (which is the one I used to use before it was taken read-only), despite me having spoofed my IP address with a VPN and despite there being no Ebuild related cookies stored that I can see (and anyway, browsing via a private window in Firefox should isolate that browser session from any cookies stored in the normal browser window). 

 

I suspect it's either just one of those oddball things, or it may be something related to browser fingerprinting.  The latter is definitely used by data correlation companies like Facebook (they have owned up to it, I believe) and almost certainly also used by Google (who haven't owned up to it as far as I know, but I'm damned certain they do it, too).

 

Browser fingerprinting effectively strips away privacy settings on most browsers, and can bypass some user tracking settings (unless they are savvy enough to know about it and the ways to thwart it - not always that easy, as it usually runs via script within the web site page).  The nuisance with browser fingerprinting is that you can install anti tracking, anti location finding stuff, and clear your cookies regularly, yet the damned website will still know who and where you are because of the browser fingerprint.

[AliG]

The problem we would have here is spreading the risk over enough loans and calculating the expected default/loss rate.

 

The housing crash in America in 2008 was in some part driven by lending to people with poor credit at low rates.

 

The media and pundits would say that if you charge people with poor credit higher rates you are pricing them out of the market and being unfair. The reality is that as loss rates rise, interest rates have to rise considerably to offset the cost of this. Banks don't care about fairness just getting their money back and making a profit.

 

Without a large pool of loans the predictability of loss rates would be very difficult. You make one alone and they don't pay you back and you lose 100%. It might be that they wanted to pay you back but got ill or lost their job etc. Over 100 loans you can average the risk of this out.

 

Part of he attraction of crowdfunding is that the community aspect of it may reduce loss rates and I am sure if forum regulars were offered loans then they would do their utmost to pay them back, but unforeseen circumstances are a reality of life.

 

@SteamyTea says that 0.8% per month is a "loan shark" type operation, but if they only get paid back 95% of what they lend out then it quickly becomes a fair rate of interest for the risk.

 

Often when I read people's circumstances on here the chances are that they are a good credit and it is simply that the banks systems do not allow enough flexibility in calculating the risk and pricing the loan. Thus in these circumstances people here cold try and price that risk themselves and take on board the loan.

 

That is fine but not easy. Who would go through the paperwork to decider the risk of not being paid back, who takes the hit, what are people's financing costs etc.

 

I don;'t want to poo poo an interesting idea, but there is a reason that lending is very highly regulated and the stock price performance of banks over recent years does not suggest that it is easy money and they are fleecing people (in fairness some areas do make very large profits such as store cards, some credit cards, doorstep lending etc)

 

 

[Jeremy Harris]

My view is that I think we can manage the loss rate fairly well.  This forum provides a pretty good filter that unintentionally sifts out the dreamers from the realists.  I have more than a sneaky suspicion that the Ecology BS read this, as well as many others, as it was noticeable how quickly the Ecology reacted when there were a few posts here commenting on the fact that their newly introduced, Passivhaus approval only, policy quietly and quickly died.

 

Lending for committed self-builders is very much a different market to general house purchase lending, and that itself is not as high a risk as some believe.  The major problems are scale and sensible management.  I can see that there is a need for relatively small loans, at an affordable rate, to allow self-builders to complete their homes, and this seems very much a niche market, one that is not profitable enough for the big players, in part because of their high overheads and set up fees.

 

I think there's a way to approach this along the lines of a credit union, which allows a feel for the trustworthiness of any saver/investor to be assessed gradually.  I can't believe that it isn't possible to set up the modern equivalent of a not-for-profit mutual benefit society (what used to be called a building society), without too much hassle.  Yes, we need some people prepared to take a risk initially, but once established, and as long as we are careful to control the rate of growth, there's no good reason I can see as to why we should run into problems.

 

The US sub-prime lending problem in the US was down to the greed and stupidity of lenders who didn't know or understand their clients, nothing more.  Those are factors that are pretty easy to control if the investors and the borrowers are already known to each other and in a trusting relationship.  I'll quote an example (and I do not believe for one moment that I'm in breach of any forum rule, or giving away any confidences, by doing so).  Last week, most of the Forum Management Group, the bunch that voluntarily set up this forum and initially funded it from their own pockets, decided we should meet up for a chat and a meal, partly to discuss forum business, partly as a social function to celebrate what we happen to believe is a worthwhile achievement over the past 18 months or so.  No funds from the forum were used at all, everyone paid their own costs, but it was clear that we needed to book accommodation en-mass, book a meal en-mass and that some members had unreasonably high travel costs compared to others, no matter where we chose to meet, and it seemed fairer to try and amortise costs so we all paid out roughly the same amount each for travel, accommodation, drinks, food etc.

 

All these issues were resolved on the basis of trust, by people that, in the main, had never actually met each other (we set this forum up via lots of emails, a temporary forum plus a couple of conference phone calls).  AFAIK, everyone has been refunded their up-front accommodation booking cost or excessive travel cost expenditure, by this simple process of trust.  It seems to have worked OK, as far as I know. 

 

OK, this was just a few hundreds of pounds, but the principle is essentially the same.  Potential borrowers would be people we, as a collective group of potential investors, know, albeit only on line in the main.  Potential investors would also be the same.  I know right now that there are people here that I would trust implicitly to pay back a loan, and if I had the funds I would be more than happy to lend to them at preferential rates.  I doubt I'm alone, either.  It doesn't take much to form a far better view of character via a forum like this than any bank or building society would ever hope to obtain.

[AliG]

@JSHarris I agree with everything you said, I guess I just don't think that reaches the level really of a peer to peer lending business it is more like making a personal loan to a friend.

 

If you started opening it up to more people though who were less well known then the risks would increase considerably.

 

There are a few people who have been posting on the forum for a long enough period of time and that people know well enough to feel comfortable lending to, but I suspect that really is just a few people. That is really no different to lending to a friend. Although my general rule is to assume any money loaned to a friend will be treated as a gift until it is paid back!

 

 

[Jeremy Harris]

4 hours ago, JSHarris said:

 

 

Tried that, didn't work, either.  What did work was viewing from a different machine and location, using a different ISP.  Interestingly, this solution also works through a VPN too, so it's not IP address related. 

 

Somehow, Ebuild has identified the machine I was using (which is the one I used to use before it was taken read-only), despite me having spoofed my IP address with a VPN and despite there being no Ebuild related cookies stored that I can see (and anyway, browsing via a private window in Firefox should isolate that browser session from any cookies stored in the normal browser window). 

 

I suspect it's either just one of those oddball things, or it may be something related to browser fingerprinting.  The latter is definitely used by data correlation companies like Facebook (they have owned up to it, I believe) and almost certainly also used by Google (who haven't owned up to it as far as I know, but I'm damned certain they do it, too).

 

Browser fingerprinting effectively strips away privacy settings on most browsers, and can bypass some user tracking settings (unless they are savvy enough to know about it and the ways to thwart it - not always that easy, as it usually runs via script within the web site page).  The nuisance with browser fingerprinting is that you can install anti tracking, anti location finding stuff, and clear your cookies regularly, yet the damned website will still know who and where you are because of the browser fingerprint.

 

Just tried from a machine that's unknown to Ebuild (put together after Ebuild went down) and its OK.  It's still 403'ing from the other machine (on the same LAN) so that does rather indicate a browser fingerprint block.  All seems a bit daft, but people on the internet do daft things with monotonous regularity.

[Oz07]

As an aside I've never found out what fully happened there and I'd probably been a member since 2011. 

 

 

[Jeremy Harris]

1 hour ago, Oz07 said:

As an aside I've never found out what fully happened there and I'd probably been a member since 2011. 

 

 

 

No one knows for sure, as there seemed to have been several factors.  For those of us running the forum on a day to day basis, things were a bit challenging, as the forum owner and only administrator really didn't seem that engaged in running the forum, or getting the forum software to work well.  There were constant problems with varying and inexplicable permissions between the members of the mod team, and every time a permission was changed it seemed to create other, unforeseen, problems.  The result was that none of the mod team had the same permissions, and none really knew what permissions the others did or did not have.

 

Nevertheless, I think we ran it pretty well, but there was a major problem with dealing with spammers, as there were virtually no anti-spam measures to weed out new members, and added to the varying permissions mods had, it depended very much who was online at any time as to how effectively we could deal with the many spammers that tried it on most days.

 

It all came to a head when one new member read an old post, found that the thread it was on was locked, and so had a pretty nasty rant on someone else's build thread.  I moved that post, after discussion with at least two other mods, and put it in the previously closed thread.  That had the effect of reopening that thread (no one knows who closed it in the first place, as far as I know, I just know who started it and the content - it wasn't me).  The new member couldn't be locked out, as none of the mods around had the permissions needed to stop him posting.  I played tag, hiding offensive and defamatory posts as soon as they were made, whilst trying to stop the new member from posting, both by email (I knew full well who he was) and by PM..  At around 10:30 that evening things calmed down, the inflammatory posts stopped and I went to bed.

 

Overnight, the new member sent a tirade of emails, threatening legal action etc, to me and several others, and when I didn't reply (because I was in bed!) he started copying them to the forum owner.   The next morning (a Saturday) I read all this lot and rang a friend of mine, now a judge, but who had been a barrister I had worked with in the past.  I disturbed him on the golf course, copied him all the information I had and asked if there was any real legal problem.  I should add that the closed thread that caused the problem related to a man who had been imprisoned for building related VAT fraud, had set up several failed building companies and who I knew had claimed to be an associate of the new member that had been causing all the trouble  (he came to visit our build, with a potential client, telling me that he was working for the new member, someone that, at that time, I trusted).

 

I obtained a detailed legal opinion, saying there was no credible legal issues at all, and that it was, in effect, all hot air, emailed it to the owner of Ebuild late on the Saturday morning and had an odd response.  Ebuild was closed and my membership was suspended.  TBH, I couldn't work out what was going on, so I tried to contact the Ebuild owner again, and was, in effect, told to F off and not try to contact him again.

 

Ebuild came back, but after a great deal of thread editing.  Anything related to the name of the new member (who was not running a UK business and was not building houses, despite claiming that he was) was edited out.  One victim of this was an Estonian window manufacturer, who shared the same name as the new member.  They were very irate and emailed me demanding to know why all mention of their windows had been edited out.  I tried again to intervene, and was ignored.  I could no longer access ebuild, many threads were now in tatters, due to some massive editing undertaken over the weekend (pretty crude find and replace, so not at all focussed).

 

One of the mods of ebuild had a massive misunderstanding about what had happened, put two and two together and came up with five and went off on his own series of rants, which didn't help.  Lots of people were trying to contact the owner of ebuild to ask what was going on, and after a couple of days the owner just got fed up and decided to close down the pretty broken site and leave it read only (it remains pretty broken now, with none of the attachments available).

 

We can only guess as to why the owner decided to close it down.  My view is that I'm convinced he'd lost interest in it a long time before (I'd been a member since around 2007) and this latest hassle was the straw that broke the camel's back.  It gave the owner an excuse to close down something he'd lost interest in and didn't have the time to support, without seeming to be at fault.  All the founder members here know exactly who really acted to kill ebuild, and also know that on that day he'd been sacked as a sales rep for a well-respected builder that some here have used.  Having emailed him a lot that evening, I'm convinced that as well as losing his job drink may well have been the fuel for what took place.  Later I did uncover a great deal more information about what I can best describe as him being a bit of a fantasist.  He certainly fooled me, and a few others, but not out of malice, I'm sure, more out of naivety, I think.  Others that have met him like him, as I did, but would, I think, agree that he's probably the sort of individual who does over-state his own achievements and may well be seen as a person to be used by those, like the VAT fraud chap, to their advantage.  A sad story, that's still lingering on, as I have proceedings currently in court about hi continued misuse of photos stolen from me and misrepresenting our own build as his work.

 

Edited December 1, 2017 by JSHarris

[Roger440]

Whilst it may not be that useful, i have used P2P lending but as a "borrower" for my business.

 

We used funding circle, which is focused on business lending.

 

We also approached our bank (lloyds). We were looking for several 10 of thousands. Needless to say, the banks opening line was, we need to secure this against your house(s).

 

Thats an absolute no no.

 

So funding circle was where we ended up. Sure it was 1% more, but no security. Based on, i assume our credit rating, which is perfect.

 

Ive no negatives about it at all.

 

This and several other episodes (which i wont bore you with) with the bank lead me to conclude there days are numbered! As far as i can see this and other methods will eventually replace banks.

 

 

[SteamyTea]

1 hour ago, JSHarris said:

Others that have met him like him

I didn't, or his mates.

[PeterW]

3 hours ago, AliG said:

@JSHarris I agree with everything you said, I guess I just don't think that reaches the level really of a peer to peer lending business it is more like making a personal loan to a friend.

 

... and on another thought, there are enough of us spread across the UK that we could very easily and simply form a network that can do face to face or site meetings to "assure" the lending group that the person exists, has collateral, a plot and plans...

[SteamyTea]

Can we merge some of these threads about money, it is getting hard to follow them.  I think there are 4 going on at the moment.

[Nickfromwales]

Each of these threads are specific in title to a particular discipline   . The only rule here needs to be that each thread is kept from any non specific digression . 

We can compare the titled methods to others in each respective thread but members should know to toggle to the other threads to add any related information there, and there only. 

This kind of housekeeping is imperative so that each title, when searched in the future, isn't lacking any specific information which may been incorrectly inserted into a sister thread. 

These subjects have been made divisible as they each stand on their own merit, so the threads MUST remain segregated to keep subject matter and subsequent searches concise.