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Post by propman on Oct 6, 2016 12:10:42 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!) 3.7% is significantly higher than it was in quite a few periods. But I thought the comparison was with the MR on the day the longer loan was acquired. If that is the case, this is only a prospective change and any loan bought before the change will presumably still have the option to earn the 3 year MR on the day it was acquired if sold after 3 years of holding. I understand why people don't think that the level of fees charged to sellout loans held for a long period is reasonable, but I also understand why RS want to ensure no one can gain by buying and then selling loans. This has been long discussed, but that is not the line of this new thread.
- PM
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Post by westonkevRS on Oct 6, 2016 13:02:43 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. Borrowers are protected by regulation (no excessive fees, and cooling off periods) and competitive standards. We don't make these rules, we just play the game. Alas savers are not protected, hence why the universal approach to prohibitive fees on bond savings products - typically you can either not get your cash or you pay 1-years interest. RateSetter looks positively fee-free in comparison to majority of banks and Building Societies. Ultimately if you want a low/free fee loan parts sale market, thew are plenty of other platforms. Although they tend to be riskier platforms, IMHO. Kevin.
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sl75
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Post by sl75 on Oct 6, 2016 13:34:56 GMT
Alas savers are not protected, hence why the universal approach to prohibitive fees on bond savings products - typically you can either not get your cash or you pay 1-years interest. RateSetter looks positively fee-free in comparison to majority of banks and Building Societies. Towards the end of a contract RateSetter is many times more expensive than "the majority of banks and Building Societies". I've previously shown sell-out quotes where the fee was over 20% of the amount being sold out, which is far more than merely 1 years interest, and RateSetter have previously acknowledged that it is theoretically possible for the sellout fee to exceed the remaining amount of capital (and indicated that they wouldn't allow a sellout in such circumstances). If RateSetter would indeed cap the sellout fee at the equivalent of the total interest due under the contract over the following 12 months (or for the remaining term of the contract if shorter) that'd be great! Even just capping it at the interest rate multiplied by the amount being cashed out would be better than at present. Edit: Just checked, and my oldest saleable 5 year loan has a remaining balance of £11.40, with 9 repayments left to go and £0.36 of interest due for the remaining term of the contract. The rate on the loan is 8.0%, so 1 year's interest on this £11.40 (the comparison you highlighted) would be about £0.91. The actual fee that RateSetter wish to charge for selling out this loan is £2.10, which is far higher than the comparison you were making. On the contrary to what you claim, the majority of banks and Building Societies look positively fee-free in comparison to RateSetter in a scenario where it is necessary to cash in a bond a few months early.
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jo
Member of DD Central
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Post by jo on Oct 6, 2016 13:41:21 GMT
Let me translate:
We have no easily defensible reason for the present system. So go away.
#winning
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Post by easteregg on Oct 6, 2016 14:34:42 GMT
RateSetter don't have to provide a "sell out" feature, so the fact that it exists is a benefit. Some financial products do not have a "sell out" feature, or have restrictive terms.
I can see the point of view that the fees may appear disproportionally high, but the RateSetter's lending rate is also high compared with other financial products. Perhaps a fixed 2% fee may appear fairer?
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am
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Post by am on Oct 6, 2016 15:18:09 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. Borrowers are protected by regulation (no excessive fees, and cooling off periods) and competitive standards. We don't make these rules, we just play the game. Alas savers are not protected, hence why the universal approach to prohibitive fees on bond savings products - typically you can either not get your cash or you pay 1-years interest. RateSetter looks positively fee-free in comparison to majority of banks and Building Societies. Ultimately if you want a low/free fee loan parts sale market, thew are plenty of other platforms. Although they tend to be riskier platforms, IMHO. Kevin. From where I sit RateSetter doesn't look positively fee-free in comparison. At four years in, the amount reclaimed from a 5-year loan (if people are correct in believing that the difference between 1-year and 5-year will be what is reclaimed) is of the order of 8% or more, with a risk of a further, possibly even bigger, hit from a market-rate adjustment. A loss of 1 years interest on a building society bond product would currently be rather less than that.
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sl75
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Post by sl75 on Oct 6, 2016 16:15:08 GMT
From where I sit RateSetter doesn't look positively fee-free in comparison. At four years in, the amount reclaimed from a 5-year loan (if people are correct in believing that the difference between 1-year and 5-year will be what is reclaimed) is of the order of 8% or more, with a risk of a further, possibly even bigger, hit from a market-rate adjustment. A loss of 1 years interest on a building society bond product would currently be rather less than that. Actually it's a lot more than 8%. Suppose you made your last investment on a date when the 5 year rate 2% higher than the comparative market. 4 years later, you've either made no more 5 year loans, or already sold out the more recent ones, and want to sell out another £100 to go towards an urgent bill rather than waiting for the remaining repayments over the next year. You might naively think that 2% * 4 = 8%, and that 8% of £100 is £8 so you'd pay an £8 fee for this. My own estimate would be something in the region of £20-£30. If you genuinely expected the fee in the scenario described to be around an £8 fee, then RateSetter may have mis-sold their product to you by failing to adequately explain how their fees are calculated, and you might want to consider an official complaint if this was a material consideration when deciding to invest. For myself, I understood what they actually appear to be doing as one possible (over-literal) interpretation of how they described the sell-out fee, and checked, so for all my loans I was either not expecting to be able to sell out at all (which was originally the case at RateSetter and Zopa), or was aware of how the fee was calculated at the time of making the loan, so cannot personally claim to have been mis-sold it.
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am
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Post by am on Oct 6, 2016 22:48:10 GMT
If you genuinely expected the fee in the scenario described to be around an £8 fee, then RateSetter may have mis-sold their product to you by failing to adequately explain how their fees are calculated, and you might want to consider an official complaint if this was a material consideration when deciding to invest. For myself, I understood what they actually appear to be doing as one possible (over-literal) interpretation of how they described the sell-out fee, and checked, so for all my loans I was either not expecting to be able to sell out at all (which was originally the case at RateSetter and Zopa), or was aware of how the fee was calculated at the time of making the loan, so cannot personally claim to have been mis-sold it. Actually, it was a material consideration when deciding not to invest. I've only got token amounts in the longer term markets because the exit costs are punitive and unpredictable. (With the result that 80%-90% of my peak RS investment has gone elsewhere as rates fell.)
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Post by misotu on Oct 9, 2016 8:31:49 GMT
Oct 6, 2016 13:15:08 GMT 2 sl75 said:
If you genuinely expected the fee in the scenario described to be around an £8 fee, then RateSetter may have mis-sold their product to you by failing to adequately explain how their fees are calculated, and you might want to consider an official complaint if this was a material consideration when deciding to invest.
I have now asked RS twice, in writing, to give me the exact formula used to calculate sellout fees. Both times they just tell me to go to the sellout option and work through the process which will show me what it would cost to withdraw funds. But this doesn't show how the fee is calculated - it just gives a number with no explanation at all. I don't understand how the sellout formula works, except in rough terms, and RS won't tell me, so yes I think by any measure they have failed to explain adequately how their fees are calculated and have deflected requests for that information.
If I use the website sellout function is there a way of seeing how the fees break down and how the interest has been calculated? I particularly want to know what interest rates have been applied for what periods, and exactly how these are calculated.
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Post by misotu on Oct 9, 2016 9:49:13 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. Oh for goodness sake! There is the letter and then there is the spirit. We are on different pages. I am well aware that the rates for the 3-year market have recently been very poor and that no-one ever made a promise in this regard. The point is that an ordinary investor would expect there to be a sensible interest range between 1, 3 and 5 year markets. Indeed, RS expected this and have closed the 3-year when it failed to perform thusly. So no promises, no, but a general expectation on the part of both platform and lenders. And now we have the problem of a big disparity between 1 and 5 year rates, as I said originally. I wrote to RS to ask yet again for a more comprehensible explanation of their sellout formula. They sent me a link www.ratesetter.com/blog/article/an_update_on_sellout and here's what it says: So, a 5 Year Income contract sold out after 1 month receives the Monthly Access rate, after 12 months the 1 Year Bond rate, and after 36 months the 3 Year Income rate. These rates are based on a snapshot of the rates and markets that were available the day the contract was formed. OK, sounds reasonable. But in the email containing the link they said: I can confirm when a sellout is performed after 4 years for example on the 5 year income market, you would be received interest based on the average market rate for the 3 year income market for 3 years and the average of the 1 year market rate for the final year.
So it's either a snapshot or the average, we're not sure. Oh, and for some reason your money that has been in for 4 years doesn't get the 3-year rate for those 4 years. Er ... why not? Were you aware that money in there for four years would only get the 1 year rate for part of that term? I wasn't. How could I be? After all, the sellout calculator doesn't show the interest rates they've applied. Do you find that acceptably transparent and accountable? So in addition to being excessively punitive beyond the point of deterring the "gaming" that RS find so repugnant in punters and prefer to reserve for themselves, I suggest that the formula is poorly and inconsistently explained to customers, and there is an unacceptable lack of transparency regarding the calculation of sellout fees, with particular reference to the rates applied. All I am saying is that this is a golden opportunity to address this problematic area. I am still saying that. I have not said that I want fee-free access to my funds. I have said that I would like to see a better balance between a penalty for withdrawal and fair treatment of lenders. I am still saying that.
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Post by misotu on Oct 9, 2016 10:08:02 GMT
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!) 3.7% is significantly higher than it was in quite a few periods. But I thought the comparison was with the MR on the day the longer loan was acquired. If that is the case, this is only a prospective change and any loan bought before the change will presumably still have the option to earn the 3 year MR on the day it was acquired if sold after 3 years of holding. I understand why people don't think that the level of fees charged to sellout loans held for a long period is reasonable, but I also understand why RS want to ensure no one can gain by buying and then selling loans. This has been long discussed, but that is not the line of this new thread.
- PM
Depends whether you believe the RS blog or their emailed advice I'm afraid. Blog says it's a snapshot, July 2016 email says: "I can confirm when a sellout is performed after 4 years for example on the 5 year income market, you would be received interest based on the average market rate for the 3 year income market for 3 years and the average of the 1 year market rate for the final year. The interest earned would be up to the date prior to the sellout and from the date after the contract was formed. In addition you will be charged a flat rate of 0.25% and also possibly an assignment fee." Note also that the 3-year rate, however calculated, only applies for 3 of those years. For the fourth, apparently, you only get the 1 year rate. Counter-intuitive much? Sounds a bit sharp to me. While we're on the subject, what on earth does "The interest earned would be up to the date prior to the sellout and from the date after the contract was formed." mean? Does it mean the day after the contract was formed and the day before the sellout? That's not what it says. These "dates" could be anything at all - a month different, a week different ... Given all this, if RS refuse to change the formula, they must at least provide a detailed sellout-fee calculation, showing the interest rates applied and how these have been calculated. Vague arm-waving explanations on the web site are clearly insufficient.
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Post by misotu on Oct 9, 2016 10:50:23 GMT
Alas savers are not protected, hence why the universal approach to prohibitive fees on bond savings products - typically you can either not get your cash or you pay 1-years interest. RateSetter looks positively fee-free in comparison to majority of banks and Building Societies. Ultimately if you want a low/free fee loan parts sale market, thew are plenty of other platforms. Although they tend to be riskier platforms, IMHO. Kevin. I don't want either low or free fee access. What I want is *fair* access, including a penalty, that is comprehensible, transparent and consistently explained by RS. See the above posts - the whole sell-out fee situation is a dog's dinner with RS issuing conflicting advice and a ridiculous lack of transparency in the sell-out fee calculator with particular regard to the interest rates applied and over what term. In addition, there are situations where sell-out fees are unjustifiably high, as other posters have pointed out. Aside from this, RS has made no statement on how the sell-out formula will work for five-year loans taken out before the demise of the 3-year market. Your blog says that the 3-year snap-shot rate applies, which makes it simple enough. But the email I have says an "average" rate over the term. The possible permutations are numerous and, given that you weren't even applying the 3-year rate to the whole 4 years on 5 year loans sold out a year early, I have to say that I have very little trust in calculations I can't see or check.
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am
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Post by am on Oct 9, 2016 11:55:46 GMT
Look at what the FAQ says... That's all. No promises. While it not in the FAQ, sellout is still being presented as involving a "small fee". However we now have the statistic - "Average Sell Out fee (across our 1 and 5 year markets): 0.72%." This compares to the ~3% it would currently cost me to (almost) close my 5 year account. Is this statistic the average per transaction or per pound withdrawn? To be fair, if you pull your money near the start of the term, it's probably cheaper to get it out of RateSetter than a building society bond. But a change of circumstances that means that you need access to the money is likely to be more probable towards the end of the term.
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Post by westonkevRS on Oct 10, 2016 6:17:07 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. Borrowers are protected by regulation (no excessive fees, and cooling off periods) and competitive standards. We don't make these rules, we just play the game. Alas savers are not protected, hence why the universal approach to prohibitive fees on bond savings products - typically you can either not get your cash or you pay 1-years interest. RateSetter looks positively fee-free in comparison to majority of banks and Building Societies. Ultimately if you want a low/free fee loan parts sale market, thew are plenty of other platforms. Although they tend to be riskier platforms, IMHO. Kevin. Just a quick note post weekend introspection. Personally forum readers will know that I'm quite harsh on sell-out. It could be because as a lender I'm in it for the long-term, I lend fully expect to only get my money back in monthly chunks. I don't want my returns reduced (that would probably happen if there was a sell-out function, as it would reduce the yield curve). Also perhaps there's a bit of the banker still in me..... However "RateSetter" is a more focussed on the customer experience than myself, for example the removed sell-out fees on rolling money and the level of data transparency. Chances are eventually the sell-out fees will be reviewed, and made a little more straight forward and easy to predict. I just doubt I'll be on the project team! Kevin.
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Post by ruralres66 on Oct 10, 2016 8:23:03 GMT
As one element of the calculation or formula for a sellout fee and cost to be applied has gone with the 3 year rate demise, (and eventual withdrawal) I suggest RS should be obligated to review their practice and sooner rather than later to maintain confidence with the more long term lenders. Otherwise RS may see a haemorrhage of" experienced" or they call the "expert" lenders........
With the business context evolving and changing and personally, with the majority of my loans currently placed in he 3 year market, I am unable to have confidence in how and where to invest.
Family concerns on RS 2014 default and pressure on PF, saw me triggering a mass selling out of 50% of my loans incurring a huge fee this summer. Try as I may, I couldn't fathom how this large cumulative fee was calculated.
Since then, I have been in lockdown only using the Rolling "Market". But, being cynical, I suspect this was, in part, RS's game plan in the removal of the three year option? I was getting a fair return on three year, an average of 4.2% whereas the Rolling is now nearer 3.1%...
Do others have the same suspicion?
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