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Post by RateSetter on Feb 4, 2019 21:19:47 GMT
Good evening everyone, This afternoon we posted a RateSetter Notice about the Market Rate. You can find it via the January investor statements which are being delivered this evening, also copied below: A more predictable Market RateAt RateSetter, the rates in our markets are continuously updating based on investor supply and borrower demand. A particularly attractive feature of investing with RateSetter is the track record of stable and steady average returns over time. This contrasts with the volatility of other investment asset classes such as equities. During 2018, RateSetter investors enjoyed average annualised returns of 4.83%, whereas the FTSE 100 fell by 12.5% (read more about this in our recent blog). Against this backdrop we want to increase the consistency of investor returns further with an adjustment to the way the Market Rate is calculated. Currently, the daily Market Rate is calculated by taking the weighted average of all the rates transacted during the previous day. This has the benefit of making the Market Rate dynamic, but it has the downside of fluctuations which can be frustrating for investors. As an example, the Market Rate of the Rolling market ranged between 1.9% and 4.1% in January 2019, with a similar range experienced in previous months too (the full timeline can be seen in the rate trends graph on the Data Hub page). We are therefore planning to update the way the Market Rate is calculated to include the weighted average of all the rates transacted during the previous 28 days. With this change in place the average Market Rates in January 2018 would have been as follows: January 2019 | Actual Market Rate range (using 1-day average) | Market Rate range using 28-day average | Rolling | Min: 1.9% Max: 4.1%
| Min: 2.8% Max: 3.4%
| 1 Year | Min: 3.1% Max: 5.1% | Min: 4.0% Max: 4.7%
| 5 Year | Min: 5.7% Max: 6.3%
| Min: 5.7% Max: 6.0% |
This update will mean greater consistency in returns for investors while preserving the flexibility that makes investing with RateSetter so attractive. It will also allow RateSetter to plan ahead and lend with greater certainty and confidence to generate more investment opportunities for investors. You do not need to take any action and this will not affect your reinvestment settings. We wanted to notify you in advance of this new approach to calculating the Market Rate, which will be reflected in an update to the Investor Terms and will come into effect in March.
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Post by honda2ner on Feb 4, 2019 21:43:40 GMT
These changes seem to be coming thick and fast, the latest will mean:
Dumb money gets a little more interest. Nothing else happens because dumb is... Dumb.
Clever money (which aims for the top of the achievable interest band) will get less interest.
Clever money will leave and go to Lending Works.
End result sounds negative to RS so why do it?
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macq
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Post by macq on Feb 4, 2019 22:02:33 GMT
guessing the bean counters at head office know there is more so called dumb money investing then people setting a better rate.The MSE forum most weeks is a good guide to how many new people only invest for the bonus but complain that the rate of 2% is not very good before being told they could do better
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Post by GSV3MIaC on Feb 4, 2019 22:04:16 GMT
/personal opinion ..
Because they'd really rather have (more) dumb money, which is a whole lot less hassle for them.
See also Feeble Carrot, Ly poverty, Assetz packaged accounts, Zone of Probable Aggravation, etc. etc. 'Dumb' is the 'new black' in P2P and much much less noisy..
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johni
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Post by johni on Feb 4, 2019 22:29:25 GMT
They are hoping everyone will jump into rolling to push up there profit margin. So much for ratesetter it's definately becoming rate manipulation in there favour. They haven't had the minimum 125% in the protection fund for months.
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aju
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Post by aju on Feb 5, 2019 0:14:29 GMT
just read this and thought why did we take so long getting into RS, oh well i guess we'll see how it actually works out as long as we can hit the top end of 6% on the 5yr I guess we'll still be better off than on Z a the moment. Just when I was getting used to gaming the rates too.
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warn
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Post by warn on Feb 5, 2019 8:44:05 GMT
Assuming nobody asks to lend at below market rate, then once this has been in force for a month or so, MR can never go down, can it?
(Haven't had my coffee yet this a.m., so not be in full grok mode)
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Post by biscuit on Feb 5, 2019 9:01:22 GMT
guessing the bean counters at head office know there is more so called dumb money investing then people setting a better rate.The MSE forum most weeks is a good guide to how many new people only invest for the bonus but complain that the rate of 2% is not very good before being told they could do better To be honest I can't work it all out, changes coming thisck and fast none of which benefit me as an investor, I keep the bulk of my RS money in the Rolling Market where I was happy taking the risk on loosing capital (No FSCS Protection) on the assumption that I got a few points over RPI. By the looks of this I'll be lucky to match CPI just not worth the risk.
But before I work out an exit stratergy, can somebody confirm this only impacts new money and that funds already invested in the RM will not be affected?
Biscuit
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aju
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Post by aju on Feb 5, 2019 9:17:17 GMT
I can't confirm it but i'm sure existing loans will not be affected but completed loan money that is then relent and new funding will be affected I would think.
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cb25
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Post by cb25 on Feb 5, 2019 9:31:13 GMT
Assuming nobody asks to lend at below market rate, then once this has been in force for a month or so, MR can never go down, can it? I believe it can, because not all money is lent out using the MR.
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Post by fiatlender on Feb 5, 2019 9:34:07 GMT
I can't confirm it but i'm sure existing loans will not be affected but completed loan money that is then relent and new funding will be affected I would think. That is my reading of the situation as well. Existing loans stay as they are, unless/until the money is relent again, then you may get either.
From the RS blog, it also says you cannot choose which type of loan you are matched too, so you may get your interest (and some capital) each month, or you may get it at the end of term.
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ceejay
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Post by ceejay on Feb 5, 2019 10:10:31 GMT
Trying to work out what this really means.
For those investors relying on Market Rate, I'd say this was a clear improvement. As it is, there is way too high a chance of being dumped with a silly low rate. This change will smooth out the returns for these investors, which is a good thing. As I understand it, this is a majority of RS investors.
But not a majority of readers of this board, I suspect! I for one haven't used MR since I very first tested out RS and quickly discovered what a bad idea it was!
So, my question is, what effect will a damping of the MR pendulum have on those of us who don't pay a lot of attention to it? Might it mean that a few investors who are currently active will become passive (by which I mean MR-followers), thus increasing the options for active investors to pick up a bargain when it appears?
Will it make any difference to the frequency and magnitude of the interest rate spikes which we are currently looking for?
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cb25
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Post by cb25 on Feb 5, 2019 10:23:28 GMT
So, my question is, what effect will a damping of the MR pendulum have on those of us who don't pay a lot of attention to it? I think that's the key question. The great majority of my RS money is in 5 yr (with a little in 1 yr) and I never use MR. As you suggest, will the change mean there's more MR money pumped in at a rate below what I'm trying to get, thereby elongating the time it takes me to get a match?
Time will tell and, if it adversely affects us non-MR people, some money might leave RS. I'm not going to pull money out unless/until it's clear that I'm adversely affected.
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ashtondav
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Post by ashtondav on Feb 5, 2019 10:28:56 GMT
my RS strategy is very simple. i put money on at between 6.1% & 6.5%. at the end of each month if its not gone it is withdrawn and goes on LW. i will accept lower rates on RS because of platform credibility - but not too low!
I don't see how this change affects us who choose to set their lending rates.
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robski
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Post by robski on Feb 5, 2019 13:32:35 GMT
So a few scenarios I guess. The starting rate of whatever it is the day it goes live will be fairly fixed. Why? Well as a decent chunk seems to be auto reinvestment (just watch any day when the system rolls up the autoinvest) then from day 1 that will be a large chunk.
Lets say 500k is lent daily and 400k is at the day 1 (D1) rate. The other £100k lets assume is at -0.1%, people who seem to not be able to queue at all. D2, the rate is likely unchanged, but down a smidge. Rinse repeat for a few days, rate may drop -0.1%
Sooner or later one of two events will happen.... 1) There will be a distinct lack of cash, rates on any day will go up, but the following day the average will be largely unmoved. This could possibly go on for a few days, but the headline MR will be unlikely to move much, unless demand massively outstrips supply. This is quite unlikely.
2) There will be an overflow of cash. Most people are lend at MR anyway, but there will always be some lending at just below MR. It will slowly but surely pull the average down as a few undercut and most lend at MR. Slowly it will go down. If people start to go bleh its going down, its taking time to lend out I may as well undercut, its got the potential to spiral a bit.
So overall the biggest factor is the D1 rate. If thats 5% its going to take ages to go up, if its 6% its likely to go down, slowly. But overall its really going to be supply vs demand.
This makes a lot of sense on rolling. I don't really see the need in 5 year. It does however suite RS because as demonstrated it smooths the rate, and in 5 year actual is 5.7-6.3%, yet averages are 5.7-6% so they never really expect to need to pay 6.3% again with the same book.
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