Period | Publication Date | Net Return (after tax, un-invested weighting, losses, fees) | Gross Return (after losses and fees) | Default Rate | Delinquency Rate |
Year end 31 January 2021 | |||||
Forecast lifetime annualised return 2020-21 | Dec 2019 | 5.6 - 6.9% | 9.5% | 4.6% | 13.6% |
First published Actual annualised return 2020-21 | May 2021 | 16.7% - 19.1% | 41.8% | 5.2% | 8.6% |
Latest Actual annualised return 2020-21 | January 2022 | 23.6% - 27.1% | 59.4% | 4.2% | 7.1% |
Year end 31 January 2022 | |||||
Forecast lifetime annualised return 2021-22 | May 2021 | 5.9 - 6.7% | 14.3% | 6.5% | 10.8% |
First published Actual annualised return 2021-22 | May 2022 | 0.2% - 0.3% | 0.6% | 7.8% | 11.7% |
Latest Actual annualised return 2021-22 | January 2023 | 6.8% - 7.7% | 16.2% | 6.9% | 10.6% |
Year end 31 January 2023 | |||||
Forecast lifetime annualised return 2022-23 | May 2022 | 5.5 – 6.3% | 13.4% | 7.0% | 10.5% |
Publication Date: 27th May 2022 Our Default Rates and Delinquency Rates are the actual overdue amounts unpaid on the loans, divided by the amount of the loans issued during the year. For the ‘Actual’ results published, all loans have passed their final payment date at the date of publication and so there are no estimation of future defaults required. Instead, our Collection activities continue to collect further repayments on loans, for example customers on payment plans, and as a result our Default and Delinquency Rates improve over time, and so does the Lender IRR Our target is for a monthly loan cohort as a whole to have broken even by 6 months after the start date (e.g. loans issued in May 2022 are targeted to reach IRR break even (0% return) by November 2022), and to reach Forecast IRR 6 months after that (i.e.12 months after the loan start date). The First published Actual annualised return above includes months that are several months passed their maturity date (eg February 2021) and months that have only recently matured (eg January 2022) 2020-2021 Updated Returns (May 2022) Returns in 2020-21 have continued to outperform expectations, with both the Default and Delinquency rate now below the forecast level. Collections are now slowing on this cohort and so further improvements in performance are likely to be muted. 2021-2022 Actual Returns (May 2022) As shown in the table above the First Published Actual annualised return for 2021-22 is currently below the Forecast Lifetime annualised published in last year’s Outcomes statement, with an IRR (Internal Rate of Return) of 0.3%-0.4% as at 23rd May 2022 for all loans written between 1st February 2020 and 31st January 2021. This is as a result of a higher-than-expected current delinquency rate (partially repaid loans) of 11.7% and a higher-than-expected default rate (loans where there is no repayment) of 7.8%. The returns were volatile within the year – with performance markedly weaker as the U.K. exited Covid-19 restrictions in the Spring and Summer of 2021, with the well-documented effects of the ‘pingdemic’ and end of furlough, amalgamating to product weak credit performance. Performance over the Autumn of 2021 strengthened. We continue to see good recoveries from the 2021-22 loan book and we expect the eventual annualised lifetime return to be markedly improved on the current performance shown in the table above (0.3% - 0.4% Net Returns @ May 2022). Loan volumes in Calendar Year 2022 were roughly double those recorded in 2021 and four times volumes in 2020. However, monthly volumes were volatile due to the impact of the Covid crisis on the economy as well as normal seasonality. It should be noted that the figures above refer to the past and that past performance is not a reliable indicator of future results 2022-2023 Forecast Returns For our financial year 2022-23 (loans issued between 1st February 2022 – 31st January 2023) we are publishing an Forecast Annualised lifetime return of c. 5.5 - 6.3%. Background The key assumptions for the 2022-2023 Forecast Returns (when compared to actual returns for 2021-22) are: A lower default rate of 7.0%. A lower delinquency rate of 10.5%. These Forecast Returns reflect an expected improvement on the actual returns realised in 2021-22 (as at May 2022). Over the course of the last year we have continued to improve our scoring and customer sourcing, tightened our affordability criteria. We do not expect to see the same extent of turbulence experienced during the exit from the Covid-19 restrictions. The macroeconomic situation faced by our borrowers will be challenging over 2022-23 as high inflation erodes consumer purchasing power and interest rates rise. As with last year, we expect low levels of unemployment and a tight labour market – the OBR’s March 2022 report forecast unemployment of 4.0% in 2022. Unlike 2021-22, we expect weakening economic growth due to the cost-of-living crisis and supply shock from the war in Ukraine. These macro-economic factors will result in fewer customers passing our affordability checks, which we have already tightened in light of the crisis. Uncertainty around the persistency of high inflation and low economic growth (or possible recession) is a cause for our caution and expectation that returns in in 2022-23 will be weaker than seen in previous years. Any deviation from our macro-economic assumptions, including for example entering a recession, swifter than expected interest rate rises, higher than expected inflation, further changes to the regulatory environment or political instability, could undermine the situation and result in higher levels of default and delinquency. Methodology for 2021-22 The Forecast Annualised lifetime return is the total return calculated on an Internal Rate of Return (IRR) basis that an investor can expect to receive on loans issued in the year from February 2022 to January 2023 (our company’s financial year) over the life of the loans. We will continue to update the actual returns (including recoveries) for our cohorts. The Forecast Return is an IRR calculated on the basis of historic performance of our loan book adjusted for forward-looking expectations. We are constantly improving our credit decisioning as we accumulate data but given the macroeconomic uncertainties, we have included a buffer on our historic loss rate. The Forecast Return assumes an investor invests in a diversified portfolio of our loans each month throughout the Forecast Return period, and in proportion to the volume of loans issued each month by the Company. For the purposes of this Outcomes Statement the Forecast Annualised lifetime return is based on expected cashflows from three different loan outcome-cohorts: Performing Loans, being those that are fully repaid within the reporting period. Defaulted loans, being those with no received payments. Delinquent loans, being those that at the end of the reporting period have only made partial payments or have entered into an alternative payment plan. Reasons why the actual return may differ from the Forecast Return: The default and/or delinquency rate being different to expected. The UK macroeconomic situation in 2021-2 being different to expected. The Company’s loan volumes each month being different from forecast. Changes to the regulatory environment in which the Company operates. An investor’s portfolio mix being different to the Company’s volume mix. The number of lenders on the platform impacting the uninvested weighting. Delays in payments being distributed to lenders due to technical or personnel issues. Our net return assumes a 25-35% cash drag and a 40% (higher band) tax rate – this may not match the experience of all lenders. For 2020-21 the tax rate was assumed at forecast to be 20%, this was updated at the time of publication of the actual results in May 2021. Changes to The Money Platform’s economic model, for example a change to the income allocations between lenders and the platform (which would be communicated in advance to loan participation). Reduction in interest payable due to changes in customer behaviour resulting in more early repayments. What is an “Internal Rate of Return”? The internal rate of return on an investment is the annualised effective compounded return rate or rate of return that sets the net present value of all cash flows (both positive and negative) from the investment equal to zero. IRR is designed to account for the time value of money. A given return on investment received at a given time is worth more than the same return received at a later time, so the latter would yield a lower IRR than the former, if all other factors are equal.