Zopa have announced that they will be reducing lending rates by 0.2% from 8th September following the reduction in the Band of England base rate.
Here is the email sent to Zopa lenders:
We're writing to let you know about upcoming changes to headline rates for Access, Classic and Plus. As of September 8th, 2016 all lender rates will decrease by 0.2%:
- Access will reduce to 3.3% from 3.5%
- Classic will reduce to 4.1% from 4.3%
- Plus will reduce to 6.5% from 6.7%
Any money in the queue from September 8th will be lent out at these new rates, so you have time to manage your lending settings if you wish. We will be updating our website later this week to reflect the new rates.
As you will be aware, the Bank of England recently cut interest rates to a record low of 0.25%. While we aren't as closely tied to the interest rate as high street banks, it has affected us in a couple of ways:
Headline rates for borrowers across the board are at a record low. We have seen 0.1-0.3% reduction in headline rates from other loan providers across key loan categories since the interest rate cut. It's important that we stay competitive while maintaining our high standard of borrower.
Banks have already reduced their rates dramatically: in many cases by more than 0.25%. This lack of competitiveness for investors from the banks has led to a surge in new lenders at Zopa; meaning slower lending speeds and queues of, on average, 10 days in Classic. This is something we closely monitor and manage. As we are a marketplace it's essential that we maintain the balance between borrowing and lending.
As with all marketplace lenders, when you lend your money your capital is at risk and is not protected by FSCS. Our risk statement has all the details.
As ever, if you have any questions our Customer Services team are on hand to answer them.
The original concept of peer-to-peer lending allowed lenders to set their own interest rate, but a growing number of larger peer-to-peer companies now set lending rates (with the noteable exception of RateSetter who still allow lenders the ability to set their own rates).
There are numerous metrics to gauge the growing success or falling favour of a peer-to-peer platform, including loans arranged, current loan book value, reviews or industry awards. How often a company is mentioned in the press or discussed can also be an early indicator. The P2P Independent Forum has discussion boards for all of the major peer-to-peer companies in the UK and Europe and it has been good at predicting the rise of new companies, as well as highlighting often overlooked issues.
The P2P Independent Forum had taken the decision today to promote new company Collateral to the main discussion board. Collateral launched in May 2016 and as such is one of the newest peer-to-peer companies operating in the UK today. It facilitates short to medium term loans secured against assets, and provides a 12% return.
Below is an explanation of how Collateral works, taken from their website:
We secure loans against professionally valued property and other items of value.
Collateral is a Peer-to-Peer investment platform which provides investment opportunities for investors to invest in pre-funded short to medium term loans, secured against assets.
Peer to Peer lending, also known as P2P lending allows investors to finance loans against items of value, development projects and property purchases. Collateral ensures this process is fast, efficient, transparent and secure, and delivers a fixed interest rate of 12% per year. All proposals are fully assessed and fully funded by Collateral before being made available for investment on the platform; this ensures that your invested capital starts to earn interest immediately.
Loans are secured either by taking possession of the items loaned against, or with property loans, with a legal charge. Loan amounts do not exceed 70% of the Open Market Value. This means that in the event of a default there is sufficient equity to allow loan funds to be recouped with the sale of the security.
Collateral takes the place of Wellesley & Co which has been relegated to a sub-board, primarily because lenders were no longer discussing them. Forum members stated that Wellesley & Co's latest interest rate reduction for 1 and 2 year loans of 2.25% or 2.35% respectively was now uncompetitive.
Since launching in November 2013, Wellesley & Co has been extremely successful, having arranged over £345million in loans. Wellesley & Co has a current loan book of over £140million which makes the peer-to-peer company the fifth biggest in the UK, using statistics compiled by P2P money. Due to this success the company may have needed to reduce interest rates to cope with an over-supply of money.
There has been some discussion on the P2P Independent Forum about peer-to-peer platforms having "skin in the game". This refers to peer-to-peer companies investing some of their own funds in each loan. Wellesley & Co became the first peer-to-peer company to lend their own funds to borrowers, but behind regular lenders in terms of priority in case of a default.
A number of lenders have stated that they are in favour of peer-to-peer platforms lending their own funds as it tried to ensure that the organisation's goals are aligned more closely with those of lenders. While peer-to-peer company typically receives a portion of its fee when the loan is made, it is lenders who are risking their capital if the loan goes bad. Other lenders are concerned that having "skin in the game" would put an additional capital requirement on the peer-to-peer companies which could limit growth and consequently longer term profitability.
There are additional issues of possible conflicts of interest and the blurring of the boundaries between borrower, P2P company and lender. There is also a regulatory concern as the P2P company would be then be "lending in the course of business". The rules of the P2P Finance Association allow peer-to-peer platforms to lend their own money, however we are not aware of any members currently doing this.
Members may lend their own money on their platform, provided that any conflict of interest is effectively managed
While peer-to-peer companies that do not have "skin in the game" are not directly risking their own funds, if their bad debt starts to exceed predictions then lenders would loose faith and lend elsewhere. The peer-to-peer platform YES-secure failed for this very reason. Therefore we would conclude that there is a strong indirect incentive to ensure that lending decisions are properly weighted.
After careful consideration we would be against forcing peer-to-peer companies to have "skin in the game" as we believe the negatives outweigh the positives. If companies wish to have "skin in the game" then we would not be against this either as it provides further reassurance to lenders but companies must address any conflicts of interest.
A report by the Centre for Economics and Business Research commissioned by Funding Circle has shown that the peer-to-peer platform has arranged loans to over 15,000 UK businesses over the last 6 years.
It has been six years since Funding Circle launched with a big idea - to revolutionise the way small businesses access finance. In that time, more than 15,000 UK businesses have borrowed over £1.4 billion from a wide range of investors including 50,000 people, local and national government, and a range of financial institutions such as pension funds. Globally, investors have lent $2.5 billion across the UK, US, Germany, Spain and the Netherlands.
The report also highlights that Funding Circle has helped create an estimated 40,000 jobs during this period. Furthermore a fifth of businesses borrowing through the peer-to-peer platform would not have been able to access finance otherwise.
We are particularly proud of the large number of jobs (~40,000) that have been created by lending through Funding Circle. Businesses are leaving banks to enjoy faster, and often lower cost finance - this report finds that whilst 77% of businesses initially shopped around for finance, an overwhelming 94% would come back to us first in future.
We are also expanding the small business finance market, with a fifth (21%) of borrowers telling us they would have been unable to access finance without Funding Circle. That, and the fact that we are able to direct significant funds to areas of the country like the North East where the traditional finance system has withdrawn through branch closures and restrictive lending policies, is hugely rewarding.
Peer-to-peer bridging lending company The BridgeCrowd have revamped their website and logo. The updated website has a greatly improved customer experience with the ability for lenders to view and interact with their loans. For lenders that have not yet signed-up to The BridgeCrowd yet, the P2P money website is running an exclusive cashback offer of £250 for new lenders who invest a minimum of £5000.
P2P secured bridging lender, the BridgeCrowd (www.thebridgecrowd.com), has recently updated its website and added a host of new features. This comes at a time where the company has seen remarkable growth over the past 18 months as it continues to occupy a strong space in the 2nd charge bridging arena.
The company offers a return of 1% per month to investors secured by loans over UK property. Investors choose their own loans to enter. To date over £60,000,000 in capital and interest has been returned successfully to investors.
The new features include a fully online view of the current live and historic loan book, a loan performance update system and an investor E-Wallet through which investors can invest capital into loans and manage their account and interest.
Louis Alexander, MD, commented that a key to the success of the BridgeCrowd has been the trust placed in it from the investors; “our investors have shown a great appetite and commitment to the company. We wanted to reward that loyalty by making the company more transparent and the best way to do this was to have a fully online loan book and an account that investors can manage online.”
The investors are also happy about the recent updates as well. Simon Thompson, an investor since the company was formed in 2013 commented that “the new features have made investing in the BridgeCrowd (www.thebridgecrowd.com) much simpler and easier to manage. The company has always shown great returns, and we will now look to increase our investments into the P2P loans offered throughout the platform.”
Luke Roughly, CTO, stated that one of the goals of the new features was to enable the company to scale up its lending by accepting more investors into its platform and giving them simple manageable tools to view and interact with their loans. Since the new website went live, we have seen more and more investors join the company and committing funds into the loans.
The BridgeCrowd occupies a broad space in the bridging industry offering loans up to 70% LTV on 1st charges and 68% on 2nd charges across residential owner occupied and BTL properties as well 60% LTV on land and commercial properties. Louis Alexander feels that the company have worked hard since the birth of this concept to deliver strong returns for investors based on secured bridging loans over property and that hard work has paid off with recognition and recommendations coming from various sectors of the financial community. With the new website and confidence from investors the BridgeCrowd, like Great Britain, is open for business!
The old logo is shown below.