RateSetter sellout excessive fees for "income" products.

My father invested in RS in good faith for 5 years in the early days when the rates were considerably higher.  Now his health is failing and could do with a bit of cash we looked into selling up, but the costs are horrific.  We have some 5 years loans at 8%, and 3-years at 6.8%.  I looked at it a fair return as an early adopter.  

I think the fees are so exorbitant that if we sell out the 6.8% 3 year loan in the last month then the fees will be more than the value of the loan itself.  So if I sold out my loan I would have to pay RateSetter for the privilege!  

RateSetter has many excellent and innovative features, and is generally well run, but the sell out fees are, in my opinion, exploitative and just not fair.  

In consequence I am running down my former investment of over £60K.  

I'm surprised the regulator has not had something to say about it, but I expect they will wait for the first complaint.  

RateSetter had an advantage over Zopa in being able to look at their system and design an improved model.  But other platforms being designed now can benefit by including RateSetter's features, and there is strong and growing competition, so RS may end up having to review their sell out fees.  

I understand RateSetter's motivation in trying to discourage lenders from lending for 5 years with no intention of hold to term.  But a 1% selling fee, plus another lender to step in, should be sufficient deterrent, and would not, in my opinion harm the market but make it more efficient.  

I agree.  Flipping on FC is a problem as it distorts the market rewarding those with time on their hands rather than genuine investors interested in lending to businesses.  But that is not a problem on RS.  An Assetz Captial approach would be best of allowing a lender to sell off a loan at a discount but not at a profit.  

Most Building Societies/Banks would either prohibit any early redemptions or charge a fee of 6 months interest.

The Zopa Model is far too generous. Where 1 year money is earning only 2% it is possible to save in Zopa 5yr at 5.2% and sell after 12 months for a 1% fee, thus earning 4.2% for 12 months.

Now if you hold a large chunk of a 5yr RS Loan and want to sell out with 3 months to go RS calculates the interest as though you had really meant to save for three years and the fee is an adjustment to allow for this. You have already taken the higher rate for 4.75 yrs.

FC loan flipping is irrelevant since they operate a completely different system. 

You did, of course read the terms and conditions before investing, the fee is not kept secret.

Actually the fee was not made public at the time of my investment, because there was no sell out option at the time, only a promise that such a feature was in the pipeline.  

Secondly even on the lender FAQ it simply says: "You can access your money that is on loan at short notice using the "Sellout" function. Sellout will allow you to sell your contracts provided there is a new lender available to match your existing loans. On the Sellout page, enter the amount that you would like to withdraw from any given market. Click "Calculate" and RateSetter will automatically identify the amount of loans to be sold to achieve the amount you would like to access. It will show the calculation of the interest to be paid and any fees due. You can then click to proceed."

Also it says that "You can access your money that is on loan".  If I have some 3-years loans made at 6.8% with a couple of months to go then this statement is simply NOT true.  In theory I can access some of the money (by forfeiting the balance in fees), but in fact the clawback of interest earned on the previous 2 and a bit years, means that I actually get nothing back.  

For example I lent at 6.8% on the 3 year market, when the monthly rate was 4.1% (there was no yearly bond at the time).  So I lose 2.7% which has been paid out over each of most of the 3 years, and that's before any admin fees.  

First time posting but thought i'd add my 2c.

I've been a Funding Circle lender for quite a while now but just dipping my toe into Ratesetter. In my mind the excessive fees Ratesetter charge to sellout longer term loans are totally illogical and prevent me wanting to put money in anything other than the 1 year market. 

I simply don't understand the reasoning of their fees. If i hold a 5-year loan for 2 years and then want to sell it on then the buyer will be happy (getting a 3 year loan at a 5 year rate) and i'll be happy (getting my money back early) Why should Ratesetter decide to punish me by saying "you only lent for 2 years we're taking back the higher interest you've earned". I can only think of two reasons 

1) Nannyish protection. They don't want people relying on a secondary market because it may become illiquid if interest rates rise or defaults scare new buyers off. But p2p is all about taking responsibility. I'm perfectly aware of the risk that when it comes down to it i may not be able to sell on (or only at a big discount)

2) Market fixing: they want the monthly market rates low and the 5-yearly rates high for business reasons. I can understand wanting monthly rates low (means they can offer low variable rate loans) but keeping 5-yearly loans high? From their stats that's where most of the demand is. 

It can't really be the fees themselves as it'll be a rounding error compared to the money they make on origination. 

PS I'm not a FC flipper myself, but i don't object to them. If they want to spend their lives buying and selling loan parts for small margin i don't see a problem. For me the secondary market simply lets me invest in longer term markets with the reassurance that i'll probably be able to get my money out earlier if i want to.

This advertisement from Skipton BS made me think of this thread, especially when I read 2% AER in a 2-year bond where "withdrawels or early closure are not allowed prior to the maturity date". Full Stop.

Any idea what happens if a lender dies whilst holding substantial 5 year loans. I am not sure so have stopped putting any more into RS for now. Would the executors have to take the hit on early redemption or can RS accounts be bequeathed.