As the leading peer-to-peer lending platform in Europe, Estateguru has always sought to provide innovative solutions for their investors. One such solution is the platform’s secondary market, which allows users to buy and sell loan claims to other users on the platform. This provides investors with an exit strategy, should they need access to their funds before the loan matures, but it’s also a great way to diversify your portfolio, and build your wealth. In this blog we’ll explain how it works, and review some of the data to see what sort of value really exists in the secondary market.
The Secondary Market
There’s more than one way of generating a passive income with Estateguru’s crowdlending platform. Of course, you can manually invest into the carefully selected loan projects or set up our auto-invest feature to do it for you (when loans meet the criteria you’ve selected). But there’s also the secondary market, where investors can sell their claims before they have reached maturity, regardless of their status.
You may wonder, why would anyone buy a late or defaulted loan? Remember, that all of Estateguru’s loans are secured with a mortgage on property. With over 95% of the mortgages being first-rank (which means Estateguru’s investors are prioritized when the collateral is sold and funds reimbursed), and a maximum Loan to Value (LTV) ratio of 75%, even when loans are defaulted, we still have solid options for recouping investments. In fact, Estateguru has recovered over €28 Million in these cases, with our investors still earning over 8.74% interest on their investments.
How It Works
When it comes to claims sold on the secondary market, all returns are divided between the seller and the buyer based on their actual investment duration. This means that the seller will earn interest for the number of days the investment was in their portfolio and the buyer will start earning returns from the day they purchase the claim. If the buyer purchases a claim that is in debt or arrears, meaning that certain penalties, indemnities or interest payments have not been paid and a claim against these is in place, all claims will belong to the buyer. Once the seller has sold a claim, they have no future rights to any of these payments.
If an investor was unable to invest in a loan during the initial funding window, they can still invest in the loan by purchasing it through the secondary market. By investing in a variety of loans with different maturities and risk profiles, investors can diversify their portfolios, and minimize their exposure to any particular loan or borrower. With the secondary market, investors can buy and sell loans quickly, allowing them to rebalance their portfolio according to their investment goals and risk tolerance.
Let’s take a look at some of the data provided by Estateguru’s data team (current at the time of publication), which should give us a better idea of the Secondary Market’s potential.
Over 118,000 claims have been sold on the market, with an average claim size of €155, and at an average discount of 1.94%. The average amount of time per sale was just under one and a half days, which shows you how sought after these claims are. Sellers on the secondary market have earned a total of over €306,500, with over 65% making a profit.
For buyers, the average return on secondary market deals is equal to 30.99%*. Of the claims bought, 54.58% loans are repaid, 25.32% defaulted, 15.53% performing and 4.57% late. As mentioned above, our historical average rate of return for defaulted loans is 8.74%. When you consider that the average return on investments in the primary market (that have not subsequently been sold in the secondary market), is around 10.7 percent, you can see how potentially lucrative the secondary market really is.
In conclusion, Estateguru’s secondary market is an essential feature that provides investors with a flexible and liquid investment option. It allows investors to enter and exit the market quickly, invest in loans they missed out on during the initial funding window, and diversify their investment portfolio. With Estateguru’s secondary market, investors have an excellent opportunity to maximize their investment returns while minimizing potential losses.
For our guide on how to use the secondary market, click here. And if you’d like to read about our Instant Exit program, which allows for even greater liquidity (instant sales), click here.
* This figure is calculated by summing up the interest, indemnity, penalties and bonuses that apply to individual Secondary Market deals, then annualising the figures by dividing by the number of days between the sales and when the loans were repaid, multiplying by 365 and then dividing by the price for which they were sold. Then finally we averaged the results.