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Post by misotu on Oct 5, 2016 11:31:26 GMT
Now that the three-year market has gone, sell-out charges for five-year loans will be unacceptably high if based on the average one-year rate.
As it is, the cost of selling my existing five-year loans is around 3% of the value of my funds according to the web-site.
This compares pretty poorly with Zopa's Classic fee of 1%.
Are there plans to revise the formula now?
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jo
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Post by jo on Oct 5, 2016 15:56:18 GMT
It should. It's a ludicrous system.
I can't think of another example in financial services where you could sell something from one market yielding (say) 6.25%, with (say) an average maturity of 3 years yielding (say) 3% - and be charged up to 4% for it.
Ahead of the 'it's what you signed up for', I know and intend to run to maturity. But that doesn't stop me thinking the above.
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Post by propman on Oct 5, 2016 17:04:08 GMT
It seems that RS have frozen the 3 year rate at 3.7%. Not sure whether this will be used for sales of any loans purchased after today that have been held for 3+ years.
- PM
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Post by westonkevRS on Oct 5, 2016 20:47:16 GMT
Regular forum members will know that with the exception of death, I have limited sympathy in terms of what is considered fair exit fees, or how they are determined. There are so many factors to consir, not least not rewarding the "gamers". Lenders choosing 5-years are rewarded with higher rates, that's the yield curve in action. If we had to provide cheaper sell-out costs, that "insurance" would have to be paid from somewhere, and it would probably mean lower returns. Personally I prefer to get higher returns, understanding that my money is tied up exception for an emergency for which I'll be charged. I don't see why my returns should be lower to support others. I appreciate that exit fees are lower at some other platforms, and that will be part of their overall package that you should consider. Of course we could copy the Banks and Building Societies, for example Nationwide BS pay 1% AER with very prohibitive sell-out fees: Which is almost guaranteed to mean you'll lose some capital, not just a reduction of interest. I know that they are FSCS protected, hence the difference in 1% AER to the risk based 5%+ AER from RateSetter. But that doesn't explain any other product differences. Kevin.
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ashtondav
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Post by ashtondav on Oct 6, 2016 6:55:51 GMT
The charge is disproportionate compared to a borrower who can repay early with no penalty at all. 1% is fair. 3%+ is quire frankly ludicrous.
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Post by graham34 on Oct 6, 2016 7:21:09 GMT
The charge is disproportionate compared to a borrower who can repay early with no penalty at all. 1% is fair. 3%+ is quire frankly ludicrous. Don't borrowers pay an up-front fee. In that case if they repay early then that fee will be proportionally higher for the life of the loan than it would be over the full term.
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adrianc
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Post by adrianc on Oct 6, 2016 7:26:56 GMT
The charge is disproportionate compared to a borrower who can repay early with no penalty at all. 1% is fair. 3%+ is quire frankly ludicrous. For me to sell my entire 5yr holding (first investment Nov 14, average rate 6.4%), it would cost me just under 2.75%. For me to sell three-quarters of my holding, it would cost me just under 2.1%. For me to sell half of my holding, it would cost me just over 1.4%. For me to sell one-quarter of my holding, it would cost me just over 0.5%. Considering I knew at the time I put the money in that it was a five year product, and compared to the lock-ins from equivalent term mainstream financial products, I think that's perfectly fair. Compare with term savings products - don't compare with tradeable-part investments, because they MIGHT be liquid, they might not be - as those of us coming to the end of our bonus period with LC know only too well. You might like to re-read the post from westonkevRS and think a bit harder on why your complaint sounds a bit petulant from here. You are getting a rate that is much higher than one given to somebody who can repay early with no penalty. On RS, if you want early repayment with no penalty, then you want the rolling market, not the five-year. And you'll get about 3% from that - so the 5yr is still WAY ahead in terms of return, even after that repayment penalty.
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jo
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Post by jo on Oct 6, 2016 7:40:14 GMT
The charge is disproportionate compared to a borrower who can repay early with no penalty at all. 1% is fair. 3%+ is quire frankly ludicrous. Yip, it sure is.
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Post by misotu on Oct 6, 2016 8:00:12 GMT
Regular forum members will know that with the exception of death, I have limited sympathy in terms of what is considered fair exit fees, or how they are determined. There are so many factors to consir, not least not rewarding the "gamers". Lenders choosing 5-years are rewarded with higher rates, that's the yield curve in action. If we had to provide cheaper sell-out costs, that "insurance" would have to be paid from somewhere, and it would probably mean lower returns. Personally I prefer to get higher returns, understanding that my money is tied up exception for an emergency for which I'll be charged. I don't see why my returns should be lower to support others. I appreciate that exit fees are lower at some other platforms, and that will be part of their overall package that you should consider. Of course we could copy the Banks and Building Societies, for example Nationwide BS pay 1% AER with very prohibitive sell-out fees: Which is almost guaranteed to mean you'll lose some capital, not just a reduction of interest. I know that they are FSCS protected, hence the difference in 1% AER to the risk based 5%+ AER from RateSetter. But that doesn't explain any other product differences. Kevin. I was aware of your view already, but this is a different issue. It is a legal and ethical issue. When I invested my 5-year money, I understood that there was a three-year market and that this three-year rate would be used, as appropriate, to calculate my sell-out fees in the event that I had to sell early. You have now changed this, massively to my detriment. I don't think you can do that legally, as it seems to be a fundamental part of my original agreement with RS. And I don't think you should do it ethically, especially given that P2P is "all about trust". Seems to me there is a golden opportunity here to take a good long look at the sell-out formula and revise it to reflect in a more balanced manner the need to deter gaming while avoiding excessive gouging for profit. But at the very least we need clarity for the investors who put money into five-years prior to the demise of the three-year market.
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wapping35
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Post by wapping35 on Oct 6, 2016 8:06:15 GMT
Interesting thread to read. Isn't what the Rolling market doing (using longer period loans for short term lending) also "gaming" the system and "gaming" the yield curve. Or is that just legitimate intermediation that any well functioning market would do. In the end RS sets the rules and you choose what to do.
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Post by misotu on Oct 6, 2016 8:08:02 GMT
It seems that RS have frozen the 3 year rate at 3.7%. Not sure whether this will be used for sales of any loans purchased after today that have been held for 3+ years.
- PM That wouldn't be reasonable though, would it? The three year market was offering silly low rates in the run-up to closure, often the same as the one year (occasionally lower, IIRC!)
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Post by misotu on Oct 6, 2016 8:24:30 GMT
Interesting thread to read. Isn't what the Rolling market doing (using longer period loans for short term lending) also "gaming" the system and "gaming" the yield curve. Or is that just legitimate intermediation that any well functioning market would do. In the end RS sets the rules and you choose what to do. Wry grin over here on the gaming observation. westonkev no doubt sees it differently. They are gaming with quite a lot of my money at the moment, so hopefully he'll bear that in mind when addressing my concerns You're right, RS sets the rules and we choose what to do. But the rules on which we based our decisions have now been changed, to our detriment, mid-contract. That's one point. And the other is that the basis of the present formula is highly unsatisfactory going forward, given the disappearance of the three-year market and the disparity between one- and five-year rates. I'm not arguing that there should be no penalty, nor that RS should not levy a charge for the admin.
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Post by ruralres66 on Oct 6, 2016 8:35:58 GMT
I agree there needs to be an appraisal. Nearly 50% of my lending was in the 3 year market which shows an average 5.2%. A sell out would not be cost effective atm, particularly as there are significant "repay early" events..... It appears the money will come back to me sooner rather than later anyway. Then I am at a loss where to put it for income.
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adrianc
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Post by adrianc on Oct 6, 2016 8:44:12 GMT
But the rules on which we based our decisions have now been changed, to our detriment, mid-contract. Have they? Nobody ever promised that 3yr would be near to 5yr rates - and, for quite a while, it's been a long way from them. Nobody ever promised that the 3yr market would always be there. Look at what the FAQ says... That's all. No promises. Except that there's no change in the practical disparity, as the three-year rate has been down at one-year levels for quite a while. Look at the market data graph - www.ratesetter.com/aboutus/statisticsStrip all bar the 1yr and 3yr rates out, and take the time down to the last year or so.
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wapping35
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Post by wapping35 on Oct 6, 2016 9:23:04 GMT
For me this is not a right(intermediation) or wrong(gaming) issue, it is a balance. The question is, does the closure of 3 yr lending mean that balance should be re-examined ? IMO if enough lenders email RS Customer service highlighting the issue they may look more favourably on "tweaking" the approach. Any way back to the day job of gaming the system.
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