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Thread: Harmoney

  1. #4066
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    No crystal ball but the property market has always had cycles of boom, consolidation and correction. NZ home ownership rates are falling with first home owners having to wait longer as they need to save longer for deposits and requiring bigger debt (house prices have increased more than both inflation and incomes) to buy into housing. The goal of becoming mortgage free by age 60 is becoming more unattainable consequently older people are more indebted compared with previous generations.

    I think that a big difference between NZ and Australia is that Australian households have more of their wealth (both absolutely and in percent terms) in financial and pension fund assets. NZers rely more on real estate (both owner-occupied and investment real estate.)

    Wealth (which is mostly real estate wealth in NZ) is also becoming less evenly distributed. 8% of NZ households have 40% of NZs mortgage debt. Add to this the fact that the IMF has said NZ household debt is too high, then there is bit of an UXB (unexploded bomb) waiting for a vibration to be felt.

    It is these heavily indebted households that would be particularly susceptible to any economic downturn or whenever interest rates rise from historic lows. However the ripples would be felt throughout the residential property market and have an effect on the retirement assets for many NZ households.

    https://www.stuff.co.nz/business/mon...-mortgage-debt

    https://www.newsroom.co.nz/2018/04/1...-high-says-imf

  2. #4067
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    Quote Originally Posted by Bjauck View Post
    I think that a big difference between NZ and Australia is that Australian households have more of their wealth (both absolutely and in percent terms) in financial and pension fund assets. NZers rely more on real estate (both owner-occupied and investment real estate.)
    Having come over from Aus, I can attest that the compulsory Australian pension (superannuation) is one of the better choices made. Being able to access KiwiSaver early, I think, will always be problematic - time will tell.

    A great read if anyone is interested:

    Household Debt And Financial Stability - IMF

    Some great data for comparison:

    IMF DataMapper - US, UK, AU, NZ Debt/GDP

    Another source of good comparative info:

    Trading Economics

    Perhaps this is to 'heavy' of a conversation for this thread.

  3. #4068
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    Quote Originally Posted by myles View Post
    Having come over from Aus, I can attest that the compulsory Australian pension (superannuation) is one of the better choices made. Being able to access KiwiSaver early, I think, will always be problematic - time will tell.

    A great read if anyone is interested:

    Household Debt And Financial Stability - IMF

    Some great data for comparison:

    IMF DataMapper - US, UK, AU, NZ Debt/GDP

    Another source of good comparative info:

    Trading Economics

    Perhaps this is to 'heavy' of a conversation for this thread.
    Will share my thoughts, as had previously done some research on this for a presentation I did late last year.

    P2P falls under consumer debt. The RBNZ statistics provides a breakdown between M1 (Consumer loans) and M2 (Housing loans) in its Household Balance sheet (see attached). It reflects that M2 has nearly quintupled over the past 20 years, while M1 has only doubled. From the peak of the GFC (approx Sep18), M1 has only increased by 20% whereas housing loans are 60% up. Infact housing loan lending INCREASED during the GFC!!!

    In the Key household financial stats (interest on consumer loans (D2) and housing loans (D1)), the observable trend contradicts the above. And both consumer and housing loans follow the same trajectory since the GFC peak. The impact of successive interest rate reductions.

    Interest rate increases will cause cataclysmic chaos for those holding housing loans, the focus of IMF risk. Consumer debt defaults will be impacted, particularly lender holding distressed housing assets... However history demonstrates that mortgage defaults during the GFC was higher that of credit card debt. Which could indicate that lenders valued their unsecured debt/availability over their distressed assets?

    As investors believe that the most we can do is position ourselves given the current economic environment. I consider P2P investment as a defensive option, and believe returns will outstrip real estate investment and sharemarket loans over the medium term irrespective of when and if a recession occurs.

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    Last edited by leesal; 17-01-2019 at 10:10 AM. Reason: grammar

  4. #4069
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    Quote Originally Posted by leesal View Post
    Will share my thoughts, as had previously done some research on this for a presentation I did late last year.

    P2P falls under consumer debt. The RBNZ statistics provides a breakdown between M1 (Consumer loans) and M2 (Housing loans) in its Household Balance sheet (see attached). It reflects that M2 has nearly quintupled over the past 20 years, while M1 has only doubled. From the peak of the GFC (approx Sep18), M1 has only increased by 20% whereas housing loans are 60% up. Infact housing loan lending INCREASED during the GFC!!!

    In the Key household financial stats (interest on consumer loans (D2) and housing loans (D1)), the observable trend contradicts the above. And both consumer and housing loans follow the same trajectory since the GFC peak. The impact of successive interest rate reductions.

    Interest rate increases will cause cataclysmic chaos for those holding housing loans, the focus of IMF risk. Consumer debt defaults will be impacted, particularly lender holding distressed housing assets... However history demonstrates that mortgage defaults during the GFC was higher that of credit card debt. Which could indicate that lenders valued their unsecured debt/availability over their distressed assets?

    As investors believe that the most we can do is position ourselves given the current economic environment. I consider P2P investment as a defensive option, and believe returns will outstrip real estate investment and sharemarket loans over the medium term irrespective of when and if a recession occurs.

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    Capture2.JPG
    I asked this question over on the LC forum over 2 weeks ago and got no replies!

    As it is in the same notion as this thread I'll ask again here, now

    So what do you think is the largest 'Threat' to our investments in P2P within NZ?

    I've just been mulling this over, especially with another World Economic crisis breathing down everyone's necks!

    Well my take and penny worth is this > Personal Bankruptcies > Personal Borrowers that go 'Belly Up' ( Mortgage, Car Loan, P2P Loan etc )

    Where P2P Borrowers decide the pain is not worth the gain.... So allow themselves to be taken through the Bankruptcy process.

  5. #4070
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    Quote Originally Posted by leesal View Post
    I consider P2P investment as a defensive option, and believe returns will outstrip real estate investment and sharemarket loans over the medium term irrespective of when and if a recession occurs.
    Agree. The housing (real estate) situation is a major concern for NZ.

    My question was more focused on the increasing amount of debt, rather than what happens if... I don't believe it can continue to grow without a significant shift at some stage. The 'what happens if', may be the trigger. The whole economic meaning and value of money seems to be changing. Will you be considered wealthy in the future if you have less debt than someone else???

    Somehow the money of the few needs to be disbursed back to the many?

    Where is that Robin Hood character when we really need him?

  6. #4071
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    Quote Originally Posted by Saamee View Post
    So what do you think is the largest 'Threat' to our investments in P2P within NZ?
    The first document I linked to has some detail.

    I'll put my money on Interest Rates as the biggest 'Threat' to P2P investments.

  7. #4072
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    Quote Originally Posted by myles View Post
    The first document I linked to has some detail.

    I'll put my money on Interest Rates as the biggest 'Threat' to P2P investments.
    Government Loan shark legislation

    Other competitors – ie moola, gem etc. 'Threat' to P2P investments.


    Interesting read is the "Consumer-Credit-Behavioural-Economics-Case-Study-2012-Final.pdf" google it. As you read - tell me harmoney is not trying the same psychology tricks with their homepage landing page.
    Last edited by IntheRearWithTheGear; 18-01-2019 at 10:32 AM. Reason: too early in the morning.

  8. #4073
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    Quote Originally Posted by IntheRearWithTheGear View Post
    Interesting read is the "Consumer-Credit-Behavioural-Economics-Case-Study-2012-Final.pdf"
    Great read. Outlines the problems and some possible directions to take to correct (though all trials/considerations seem to fail!). Education at school level may be of value, but how do you compete with parents setting bad behavioural examples?

    It doesn't make any reference to where things are heading though

    Link to document here
    Last edited by myles; 18-01-2019 at 11:06 AM. Reason: Link

  9. #4074
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    Quote Originally Posted by myles View Post
    I'll put my money on Interest Rates as the biggest 'Threat' to P2P investments.
    Just to clarify this with two basic examples:


    • If interest rates rise, mortgagees come under stress resulting in stress on P2P repayments etc.
    • If interest rates fall, P2P loan churn will increase as rates will need to fall to match or number of borrowers will decline. [all three are bad for P2P investors]


    Interest Rates change will no doubt affect other aspects as well.

    The drivers for Interest Rate change are the real threats - what they are/will be - who knows

  10. #4075
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    I invest in B-E with 29% D rated and 18% E rated. Looking at the chart attached of loans issued/arrears and charge offs it would appear E rated loans have a better risk reward than D rated.
    Attached Images Attached Images

  11. #4076
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    Quote Originally Posted by Paddles View Post
    it would appear E rated loans have a better risk reward than D rated.
    ?

    Charge off rate for D: 11369743 / 154763275 * 100 = 7.35% (Interest rate ~ 25.55%)
    Charge off rate for E: 6586033 / 57642825 * 100 = 11.43% (Interest rate ~ 27.84%)

    This is my current return (but it will be different for everyone - minimum tax rate):

    returns.jpg

  12. #4077
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    Thanks Myles.

    I'm thinking that if I am selective with lending criteria for E rated loans I can mitigate the charge offs to some extent?
    i.e. Home owners, with min 3+ years current employer and payment to income >10%?

  13. #4078
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    Quote Originally Posted by Paddles View Post
    I'm thinking that if I am selective with lending criteria for E rated loans I can mitigate the charge offs to some extent?
    If you haven't seen it, grab the summary.pdf document from the linked post.

    A group of us put it together with shared data - it might help you make some selective loan choices.

  14. #4079
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    Quote Originally Posted by myles View Post
    If you haven't seen it, grab the summary.pdf document from the linked post.

    A group of us put it together with shared data - it might help you make some selective loan choices.
    That's awesome, thank you!

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