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Zopa launch new products
Zopa had announced that it is launching some new products and retiring the old products in March. The main differences are that lenders will no longer able to select loan term, but they can select if they wish to benefit from a higher return with the additional risk of being outside Zopa's safeguard mechanism. Zopa has hinted at this possible move during discussions at LendIt Europe in October 2015.
So how will these changes affect lenders? Zopa attempts to answer this in one of their FAQ's:
Currently we offer a 3.8% rate for 1, 2 and 3 year loans and a 5.0% rate for 4 and 5 year loans. The Zopa Classic rate will be a blend of these two markets.
Due to the nature of our loans, where customers can pay back early for no extra fee, the time it takes for money to be returned to lenders in the short and long markets does not vary greatly. Our five-year loans tend to be repaid in two years, with our three-year loans being re-paid on average in 1.3 years.
So if you are currently lending in up to three year loans, then your predicted rate will likely be slightly higher in Zopa Classic, but some of your loans will be repaid over a longer period. If you are currently lending in up to five year loans, then your predicted rate in Zopa Classic may be slightly lower, but some of your loans will repay sooner.
Assuming funds are gradually transferred to "Zopa Classic", lenders currently in the shorter market may benefit by an increase of around 0.5% AER in their returns, although their funds would take longer to be repaid. Conversely lenders currently in the longer market may see a reduction of around 0.5% AER in their returns, but their funds would be repaid sooner.
One of the products "Zopa Plus" has a 2% AER premium on "Zopa Classic" but lenders would no longer be covered by the safeguard fund. Lenders should therefore expect bad debts which will erode their return, as with any other non-provision fund peer-to-peer lending product. With defaults in Zopa in 2014 at 1.15% in the lifetime of a loan, a 2% annual equivalent rate bonus would seem beneficial. However this market is being opened to D and E grade borrowers, so we should expect bad debt to be higher than previous years. This product will have a higher minimum lending amount to ensure lenders are sufficiently diversified.
Here is the full statement from Zopa:
Today, we are very excited to announce the next generation of Zopa lending products!
Over the past months we've been listening to our lenders about what they want from their lending products, and what matters most when it comes to lending through our platform. You've told us ease of access and the ability to take on more risk are key to offering a broader, more appealing product set. Based on your feedback, we'll soon offer more choice and providing benefits from recent regulatory changes, particularly around the tax status of peer-to-peer interest.
In mid March, we'll be replacing our existing lender products with three new ones: Zopa Classic, Zopa Access, and Zopa Plus. Together, these products will offer much more choice and flexibility to both existing and new Zopa lenders. As with all peer-to-peer lending, your investments are not covered by the Financial Services Compensation Scheme (FSCS), so your capital is at risk. If you wish to access your money by selling your loans, this is dependent on other lenders being available to purchase those loans.
We are sharing indicative rates today, and exact rates will be announced on 1st March. As with our existing rates, the new product rates will vary with the market, so if borrower interest rates go up, the rates on your new loans will go up too and vice-versa.
The New Zopa Products
Zopa Classic (4-5%) - Safeguard lending
Zopa Classic will give customers the security of Safeguard and access to their money at any time, subject to a 1% fee. This product is most similar to what our lenders have today, however what's new is that it combines 1-5 year loan terms.
Zopa Access (3-4%) - Safeguard lending with fee free easy access
For customers who value easy access to their money, we've created Zopa Access, which has Safeguard but which has no access fee and a slightly lower expected return.
Zopa Plus (6 -7%) - Non-Safeguard lending, some added risk with higher returns
For customers who are willing to accept more risk for higher returns, we've created Zopa Plus. Over the last year we have been testing the performance of D and E rated borrowers with our institutional lenders, and based on these tests, we would like to offer loans with D and E rated customers to all lenders. With the introduction of Zopa Plus, customers can lend across A*-E risk markets. Loans in Zopa Plus are not Safeguarded, and so it will suit customers who don't require this additional security as they are comfortable lending their money via Zopa's diversification model. Predicted rates of return will be higher but will come with some additional risk.
When the new products launch, what will happen to customers' loans that are in the short and long products?
If you're a current Zopa lender, then as we retire the existing short and long products, your repayments will cycle into the new Zopa Classic product. So the rates will stay the same on your existing loans, but as they get repaid, the repayments will be used to buy new loans within the Zopa Classic product.
How will customers be able to have multiple products? How can they be funded?
Customers will be able to have multiple lending products with us - you can have an Access, Classic and Plus product - however only one can be selected for new funds at any given time.
If you are an existing customer and you wish to move your existing loans from Zopa Classic into one of the other new products, you can choose to turn off re-lending and allow repayments to collect within the holding account and then allocate those funds to a new product. Alternatively, you may sell your loans and purchase new ones within a new product.
For answers to more of your questions, please visit our FAQs page.