P2P Money Blog

RateSetter, one of the leading peer-to-peer companies have provided an update on ISAs.  RateSetter is involved in discussions with industry peers and the Treasury on how best to allow savers to include P2P in their ISAs, ahead of a government consultation in July.

It has already been agreed that the P2P platforms will be able to offer their own product direct and act as ISA managers. However, the particulars of how this would work in practice have yet to be confirmed.

The options currently on the table include:

• A straight swap - platforms simply offering a straight Stocks and Shares ISA option investing in P2P lending only. However this would severely limit savers’ choices as they can only open one Stocks and Shares ISA a year, and so would have to put 100% in P2P or 0%.
• A diversified portfolio - a ‘Third ISA’ category based purely on P2P. This would allow savers to diversify across Cash, P2P and Stocks and Shares. P2P would represent a middle ground, with lower associated risk than Stocks and Shares, and higher returns than Cash.
• A blended product - platforms ultimately developing Stocks and Shares ISAs that allow both P2P and other investments.

Rhydian Lewis, CEO and Founder of RateSetter, said:

 “Allowing P2P companies to become ISA managers is a key milestone in the development of the sector that will change the savings industry in the UK for the better.”

 “The practicalities of how this innovation will work have still to be ironed out. The creation of a ‘Third ISA’ category would open up a whole new alternative to polarised cash or investment options for savers - providing that missing link between low yields and high risk.”

“But we believe that providing ISA savers with our own blended product is also a valid way to breathe new life into the ISA industry. As we are a technologically advanced sector, the hurdles this presents will not be insurmountable. However, the sooner the finer points are resolved, the sooner investors will be able to benefit.”

“The absolutely critical point is to not restrict savers’ options.”

Zopa have today announced some changes to their lending process.  The most significant change is the increase in borrower exposure from 0.5% to 2%.  The effect on lenders would be small, and although individual diversification would be increased, the safeguard fund backs individual loans.  This change would, however, allow Zopa to fund up to 4 times as many loans with the same lender capital as before.

One of the other important changes is that repayments would be prioritised over new capital, and this would mean that existing lenders would achieve returns closer to predictions as their would be less "dead time" - time when funds are sitting in a lender's holding account not earning any interest.

Here is Zopa's full statement:

We wanted to make you aware of some key improvements we’re making to our loans matching engine over the coming weeks. Here is a quick summary but you can find out more information on our blog.

Phase 1 - Maximum exposure change

This week we’ll be adjusting the maximum exposure of how much you lend to each borrower from 0.5% to 2%. This enables us to allocate more of a lender’s money to each loan and allow funds to be lent more quickly, whilst still providing a good level of diversification.

Phase 2 - First in first out lending (FIFO)

Over the coming weeks we will be changing the queuing system to separate out new funds from repayment funds, with repayments being matched first. This allows existing funds to be matched more efficiently and allows us to give an accurate prediction of when new funds will be matched.

Phase 3 - End of day matching

In the following weeks we will begin matching loans in one process at the end of each day. This will mean that all our lenders will receive a more consistent blended rate, regardless of lending size in any given day.

This week there have been several important developments in the peer-to-peer arena.

Firstly Money&Co report that their £1million loan was fully filled with an average lender interest rate of 7.2%.  This would be one of the largest peer-to-peer loans arranged within the sector, but what is more remarkable is that this was only the second loan on Money&Co.  Their first loan for £500,000 wasn't fully subscribed, but still may be drawn down by the borrower.  A further loan for £140,000 was fully subscribed at an average lender interest rate of 8.3%.  Money&Co attracted individual loan bids from £10 to more than £50,000.

The peer-to-peer pawn broker FundingSecure announced they have arranged £1million of loans.  This is a great achievement and shows that peer-to-peer can succeed in areas outside of simply personal and business loans.

Finally this week we had a discussion with a representative of a new company looking to launch later this year or early next year.  They have an exciting and unique business model, and will be looking for lenders to trial their platform later this year.  The P2P money website will be running an exclusive promotion in relation to this, and we will be publishing more details when they are available!

Full story »

Here at P2P money we love statistics. RateSetter has produced some interesting facts and figures.  While it was fairly obvious that the city of London would have lent the most money, there are some much smaller places within the top 10 such as Royston in North Hertfordshire.  The village of Bruton in Somerset has the highest average first deposit in the UK at over £185,000 and another West Country town of Brixham has the 3rd highest average first deposit at over £83,000.

RateSetter is currently arranging £700,000 in loans on average every day and is one of the big three peer-to-peer companies within the UK.

Here is the full press release from RateSetter:

Some of the UK’s largest cities may be thriving centres of peer-to-peer lending, but small town Britain is the real pioneer of the lending phenomenon that is set to rival high street banking over the next few years.

A study of customers on the fastest growing major P2P platform, RateSetter, shows the town of Royston in North Hertfordshire has lent the most money per capita in the UK¹. Its population of around 16,000 has lent approximately £1.6m via RateSetter since October 2010, or £100 each.

London and Bristol may top the table for the total amount of money lent by people through the platform, but the towns of Braintree and Brentwood in Essex give them a run for their money relative to their size. The cities of Preston in Lancashire and Norwich in Norfolk also feature within the Top 10.

However, the village of Bruton in Somerset, with a population of just over 3,000, has the highest average first deposit in the UK at over £185,000, with smart savers putting between £1,000 and £370,000 on the platform.

RateSetter, which has to date matched over £240m in peer to peer loans, conducted the study of its customer base at the end of Q1 2014, prior to FCA regulation on 1 April 2014.

Loan uses: hearing aids to weddings

The highest single rationale for taking out a P2P loan is car loans (20%), followed by home improvement at 17%, debt consolidation also at 17%, holidays (4%), weddings (3%) and business loans (2%).

However, the greatest proportion of loans at 37% are taken out for an incredibly diverse range of uses - from bassoons to hand gliders - that can only be grouped under an ‘other’ category. This covers medical spending (hearing aids), education (PhDs and MBAs) and entertainment (home cinema systems) among others.

On car loans, Manchester is the highest centre after London. In terms of home improvement P2P loans, London again leads the way, followed by Glasgow, Manchester and Birmingham.

Rhydian Lewis, founder and CEO of RateSetter, said: “Our study shows that the UK is fast becoming a nation of people lending to and borrowing from each other without the banks taking a cut. It is great to see the phenomenon that will fundamentally change the way we save and borrow is being driven by savvy savers in large cities, who know the best way to earn a higher income from their savings.”

“And it is also edifying to see the peer-to-peer revolution has won the heart of small town Britain, where a decent return on savings was never needed more. This is a sign of how far lending and borrowing in the UK has changed - and will continue to in future.”

“We look forward to repeating this study later in the year to see how these patterns continue to evolve, and the impact of FCA regulation.”

Future growth

RateSetter found recently that nearly a third of people (31%) nationwide would be more likely to put their savings into a P2P account if they could do so through a NISA², which they will soon be able to do.

It is believed including P2P lending in NISAs, which the Government announced in its recent Budget, will lead to massive growth in the P2P market in the UK over the next five to 10 years, increasing it from around £1bn to £45bn³.

RateSetter’s Provision Fund - the largest in the sector at £5m and the first to be launched - has ensured that no saver has ever lost money since the company’s launch in 2010.

¹ Study of RateSetter’s nationwide customer base, October 2010-March 2014.

² Peer-to-Peer Isa Survey, Populus, compiled January 2014.

³ P2P Lending: Opportunity and How to Invest, Liberum, March 2014

Wellesley & Co have announced that the interest rates paid to lenders will be falling from the middle of June by up to 1.27% AER.  Interest rates currently compare favourably with Zopa and RateSetter, and are comparable with Funding Circle.  The largest reduction will be for 3 year investments, with the rate dropping from 6.13% to 4.86%.  The 5 year term still attracts the highest rates, but these will be dropping from 6.58% to 6.00% AER.  The new rates will be comparable with Zopa and RateSetter.

Here is the statement emailed to lenders:

Wellesley & Co launched in November 2013 offering industry leading rates of return secured on tangible assets. As part of our ongoing commitment to focussing on high quality, low risk loans we will be reducing our standard interest rates effective 16th June 2014 on all new fixed terms selected by our savers. Existing lending held by our customers will be unaffected by this change.

We thought you would like to know about our rate changes in advance so that you can make the most of our higher introductory interest rates over the course of the next three weeks.

At the same time Wellesley & Co announced an offer to lenders who top up their accounts:

To bring an end to our introductory rates we would like to offer our existing customers a cashback bonus. During the promotional period, we will pay the following cashback values based on the cumulative amount of new funds that you send to your account for lending. This is to say thank you for remaining loyal to us during the early stages of Wellesley & Co.

Top-up with £5,000 or more and receive £25

Top-up with £10,000  or more and receive £50

Terms & Conditions

1. Offer valid immediately and ends on Monday 16th June 2014.
2. In order to be eligible for cashback, the top-up must be committed to a lending term of 6 months or longer.
3. Maximum cumulative cashback per customer is £50.
4. Cashback can be used for lending or can be withdrawn.
5. Early Access requests made during the promotional period cannot be reinvested in order to receive the promotional bonus.

There is currently a £50 cashback offer to new lenders who sign-up with Wellesley & Co.