sl75
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Post by sl75 on Jun 25, 2019 9:21:03 GMT
Does anyone who knows more about RS than I do have a view on why rates are behaving in the way they have been recently?
Specifically is anyone concerned it indicates something problematic?
It's the market effects resulting from the new "market rate" calculation.
This is a historic average of the market rate over the last 30 days, but RateSetter promote it as though it's the market rate at which new money should be lent.
This results in large sums being re-lent at "inefficient" rates: - when the market rate is falling, large sums are left unlent at levels equivalent to the recent market rate, and the true market rate is generated when investors who set their rate manually are undercutting it. - when the market rate is rising (as now), sums re-lent at the recent market rate get matched faster than they're being added, so when they're exhausted, rates rise until either it brings enough extra money on the platform to plug the gap or RateSetter anticipate the "problem" and slow down loan origination to avoid pushing rates too high.
The original model was intended to have a two-sided market, where there would always be at least some price-sensitive borrowers waiting for rates to fall before they took their loan, and at least some price-sensitive lenders would be waiting for rates to rise before they lent money. As I understand it, RateSetter now simulate the "borrower" side of the market, taking any extra margin for themselves (or filling the gap themselves in case the margin becomes negative on some specific contracts, as was probably the case with rates approaching 10%).
I'd certainly have added a chunk of extra funds if I'd noticed yesterday, but I was otherwise occupied. I'd already moved my queued funds from the 5 year market to rolling on Sunday afternoon; those all got matched, and I didn't think to check again yesterday. I'll perhaps keep a closer eye on it next week.
There are also undoubtedly some complicated market interactions between the different RateSetter markets - rising rates probably leads to an increase in lenders seeking to exit from the "rolling" market in order to re-invest in the 5 year market. This becomes further complicated by the fact that oince they've committed to doing that, RateSetter now block them from participating in the "rolling" market any further for 14 days, which allows rates to rise even higher than if those lenders had been able to change their mind and re-invest in "rolling" instead... but does at least avoid a cascade of further lenders liquidating their "rolling" loans just to re-invest back into the same market.
Anyway, as I've now got my first rolling loans since the market rules changed, I'll at least be able to directly observe what everyone else has been talking about!
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spiral
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Post by spiral on Jun 25, 2019 10:01:37 GMT
RateSetter now block them from participating in the "rolling" market any further for 14 days, which allows rates to rise even higher than if those lenders had been able to change their mind and re-invest in "rolling"
This is the law of unintended consequences. I said at the time (along with others) that in order to prevent gaming of the system, 14 days was way too excessive. In most instances an hour or 2 would suffice as rates return to normal. In fact their new problem of taking a couple of days to effect the sell out works to prevent gaming although that is another unintended consequence.
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Post by oppsididitagain on Jun 25, 2019 10:38:15 GMT
Does anyone who knows more about RS than I do have a view on why rates are behaving in the way they have been recently?
Specifically is anyone concerned it indicates something problematic?
I think its a combination of :
1. More borrowers than lenders - RS has control when the borrowers orders are released onto the market. Also I think there has been a lot of withdrawals in recent weeks, which they don't have control of, hence driving rates up.
2. They have started to 'fill' 1Yr money from the rolling markets
3. Savvy lenders/Investors aren't chasing rates down and setting their own rates when they want.
Personally I withdrew all my money about 10 months ago from rolling as it was getting the market rate of 2.8/3%. I reinvested some in 5Yrs at avg 6.4% some in 1Yr @ 5.3%. and the rest in rolling around 4-4.5% on the blip up days. They seem to happen the 3rd weekend of the month. I continue to set my own rates in rolling. It added about 1% to a portfolio of over 70K
If people have finally worked out they should re balance their portfolios and stop using the market rate in rolling. rates hopefully will rise. Hint: Tick the reinvestment capital/Interest and set a very high rate, (6-7%) once the system has placed them, you will be able to cancel the orders later on, moving all the money back to holding acc.
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sd2
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Post by sd2 on Jun 25, 2019 10:42:11 GMT
I put in £600 at 10% but didn't get a bite. I am soo greedy. I also sold the last of my 1 year 3.7% loans (£1050). All in all a very good night. As long as they are not all paid of early. I have set the reinvest to capital only. I assume that means I can continue to add more money? The 14 day rule doesn't apply?
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st182
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Post by st182 on Jun 25, 2019 10:49:29 GMT
Just carrying on from the other thread, where I announced that the rates were good and I was frustrated as I had no funds to take advantage of them............. well............... .............. i had 24% of my entire pot repaid early this morning typical. missed the boat
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sd2
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Post by sd2 on Jun 25, 2019 10:53:04 GMT
Just carrying on from the other thread, where I announced that the rates were good and I was frustrated as I had no funds to take advantage of them............. well............... .............. i had 24% of my entire pot repaid early this morning typical. missed the boat Was that 24% of your investments on the rolling markets?
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Post by propman on Jun 25, 2019 10:56:42 GMT
Does anyone have any higher than usual rate loans that didn't repay if a few days? I had a 1 year 9.9% that went full term some time ago, fingers crossed for teh rolling 9.9% last night. I remember one occurance when the rates went to 90+% and they announced that they were refinancing, but otherwise RS have previously claimed that they don't refinance unless asked by the borrower. They do preferentially allocate partial repayments to higher rates 'though.
Much of this I think is due to the change to rolling from monthly. Previously people were happy to wait for the month to finish and withdraw funds then. Now they have to sell at some time and inevitably this will often apply to many at once. The e-mail notofying re slow sales may have spooked quite a few who use this as a deposit account!
- PM
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st182
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Post by st182 on Jun 25, 2019 11:17:20 GMT
Just carrying on from the other thread, where I announced that the rates were good and I was frustrated as I had no funds to take advantage of them............. well............... .............. i had 24% of my entire pot repaid early this morning typical. missed the boat Was that 24% of your investments on the rolling markets? Today's early repaid loans were from the 1 year. There was a bit of a % spike (nothing like this one on rolling) back in april so I plonked some funds across from rolling. Nothing massive, something like 5.2% ish if i recall correctly. EDIT: just checked, the loans were at 5.4% and 5.5%.
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alanh
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Post by alanh on Jun 25, 2019 11:28:08 GMT
I don't invest on the rolling market but with these kind of rates I will certainly have a look! Am I correct in thinking that early repayments just get re-lent at the market rate? So you could theoretically get matched at 9% today and then find the whole lot invested at 3.3% a couple of weeks later? Does it show your blended rate on the dashboard so that you are aware of your average investment rate drifting down as early repayments come in? By the way mary I too still have that 8.4% loan from last August
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Post by df on Jun 25, 2019 11:51:51 GMT
I don't invest on the rolling market but with these kind of rates I will certainly have a look! Am I correct in thinking that early repayments just get re-lent at the market rate? So you could theoretically get matched at 9% today and then find the whole lot invested at 3.3% a couple of weeks later? Does it show your blended rate on the dashboard so that you are aware of your average investment rate drifting down as early repayments come in? By the way mary I too still have that 8.4% loan from last August You can set your own rate for reinvestments on Rolling. So if you get early repayment and your rate is set too high, you money will stay in the queue - you can then cancel your order and move your funds elsewhere. You get notified by e-mail when you have an early repayment, so don't necessarily have to sign in everyday to check.
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sl75
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Post by sl75 on Jun 25, 2019 12:03:20 GMT
RateSetter now block them from participating in the "rolling" market any further for 14 days, which allows rates to rise even higher than if those lenders had been able to change their mind and re-invest in "rolling"
This is the law of unintended consequences. I said at the time (along with others) that in order to prevent gaming of the system, 14 days was way too excessive. In most instances an hour or 2 would suffice as rates return to normal. In fact their new problem of taking a couple of days to effect the sell out works to prevent gaming although that is another unintended consequence. As alluded to in the second half of the sentence that you cut, I don't think those consequences were entirely "unintended" but merely "a price worth paying".
The main thing that it avoids is lenders intentionally liquidating their "rolling" balance at the time they see higher rates (or at least delaying doing so until rates have risen substantially for a prolonged period), as they pay a "penalty" of no interest for 14 days for doing so, and risk the higher rates no longer being available later...
I expect that from RateSetter's perspective, it's better to have to plug the gap to a higher interest rate for a small number of loans that couldn't be matched against "normal" rates during such a spike, than to have a much larger number of loans switched to take advantage of the higher matching rates... kind-of like the difference between a single large wave that crashes over the top of flood defences (it'll cost something to clear up, but the water level returns to "normal" right after) vs the effect of the overall water level rising even by a smaller amount (e.g. a tsunami or flood).
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trevor
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Post by trevor on Jun 25, 2019 12:30:41 GMT
I'm amazed that the MR calculation hasn't increased the rolling MR. As long as they keep it this low it won't attract new passive money and us active members will sit tight and wait until later in the day when the v high rates seen recently are available. It can't be good for RS.
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sl75
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Post by sl75 on Jun 25, 2019 12:48:21 GMT
I'm amazed that the MR calculation hasn't increased the rolling MR. As long as they keep it this low it won't attract new passive money and us active members will sit tight and wait until later in the day when the v high rates seen recently are available. It can't be good for RS. It has been increasing. Check out the RateTrends where you'll see that MR was 3.0% at the end of May, 3.1% from 1 June, 3.2% from 16 June, 3.3% from 21 June. My bet is it'll be 3.4% tomorrow.
It's also worth noting that it only got down to 3.0% due to large numbers of "active members" who intentionally undercut the previous market rates up to at least early May. Active members turn out to be quite fickle...
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trevor
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Post by trevor on Jun 25, 2019 16:07:52 GMT
Sorry, let me reword. I'm amazed that the upward trend in rates has not been a lot quicker. I am aware rates have increased recently.
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Post by propman on Jun 26, 2019 10:18:17 GMT
Sorry, let me reword. I'm amazed that the upward trend in rates has not been a lot quicker. I am aware rates have increased recently. hat is presum ably deliberate on the grounds that the majority will relend at MR and the money added at that rate will encourage most active members to relend around that figure. That (and more consistent rates for the tranches of MR funds) is why they exrtended the average to the longer period. The amount lent at MR (and any lent at "lend it now" most of the time) will uinevitably slow any upward adjustment. I am pleasantly surprised how quickly it has risen with all 3 markets a few notches up already.
- PM
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