|
|
Post by takeshi on Mar 23, 2016 19:23:56 GMT
How will Zopa Access cope with a rate rise?
If rates rise investors may withdraw from Access - leaving who to pick up the now unattractive micro-loans?
|
|
|
|
Post by blanik on Mar 24, 2016 12:30:24 GMT
On the main product description page secure2.zopa.com/lender/account/select_product/standard it says... "If you sell your loans to another lender, a premium may be charged if your loans are worth less than the open market (for example, if rates for loans have increased)." So although there is no fee to sell an Access product, there may be a premium! ( How many complaints will that generate from new lenders who just see the word 'Access'? ) |
|
|
|
Post by propman on Mar 24, 2016 13:38:42 GMT
While somewhat underhand, I think the effect is unlikely to be that large. Large rate rises are only likely with a loss in confidence in Z or P2P generally. As there are a portfolio of loans, only those with the lowest rates are likely to be affected and these may be the shorter ones. So it will be the higher rate loans sold if ratezs rise with premiums only paid by those selling the majority of their investment. As even these will only see a premium on a small proportion of loans, the premium is likely to appear modest across the portfolio (In the same way that the RS fees seem modest despite high fees on older loans).
I know people will be upset as pennies often call for compensation on the Forum and we have become used to the Nanny FSA punishing institutions for expecting their customers to actually read about the products they are purchasing. Remains to be seen where FCA comes out 'though.
PM
|
|
james
Posts: 2,205
Likes: 955
|
Post by james on Mar 27, 2016 3:46:53 GMT
How will Zopa Access cope with a rate rise? If rates rise investors may withdraw from Access - leaving who to pick up the now unattractive micro-loans? Zopa's Access product is NOT a product that is suitable for quick access needs. Do not use it if that is what you want. To the extent that Zopa might promote it as a product suitable for that need Zopa would be misleading investors. New lenders can pick up the loans because the people withdrawing money from Zopa Access will take a capital loss to cause their rate to match the current market position. Lets pretend that there is a product designed for easy access that has a renewing one month term and following an exchange rate crisis in relation to brexit the Bank of England raises Bank Rate by 12% over night vs say a 3% access rate. Because the loan term is one month the capital loss if the increase happened on the first day and was immediately reflected in the Zopa rates to borrowers would be 1% - 1/12th of a year's worth. Or an investor could hold to maturity at the end of the month and have no capital loss at all. It would be quite a safe product when it comes to rates, in much the same way as short-dated bonds - corporate or government with short time to end of term - are the go-to place for protection against rate rises with traditional investments. Zopa Access is not that type of product. Zopa's FAQ instead says that all of the new products will invest in a mixture of loans of all durations and that most of their loans are for five years. Take one of those five year loans as an example. The seller now gets their selling price cut by enough to pay the 12% interest rate difference for five years. Go to a loan calculator and plug in £5,000 amount, 60 months and 3% interest rate. That calculator tells you that the monthly payments are £89.76. Not set the interest rate to 15% - the 12% increase plus the 3% original - and adjust down the amount until the monthly payment is again £89.75. The new amount is £3,853 to get to £89.77 payment. So the capital loss a selling investor would take to do it immediately for this 60 month loan is £5000 - £3853 = £1147. The actual lending will be to a mixture of durations so the actual loss on £5,000 invested would be lower than that so it's more of an upper bound. And of course I picked a rather extreme situation of a major currency crisis. However, it does illustrate why the Zopa Access product has a name that itself is misleading since it does tend to imply that the product is intended for easy access. So, how does Zopa describe the product: "Zopa Access Great if you're new to Zopa, or if you want to dip into your money occasionally". With due respect to Zopa, a product where there can be substantial capital loss is not really one that is suitable for those who want to dip into their money occasionally, for reasonable meanings of that word occasionally. Do not use the Zopa Access product if you will need occasional access to your money. Because of the mixture of loans that can be used it is unsuitable for this purpose. So what can you use instead? Well, it just so happens that Zopa's major competitor is RateSetter and RateSetter does have a product that is suitable for occasional or even frequent access to the money: they have a monthly term product. As illustrated in the calculation above, because their term is only one month, the potential capital loss is hugely lower than with the Zopa product. As you can see from the product description of the RateSetter Access product: 1 month term, repaid at term - so in one month anyway - and no fees for early withdrawal. Which means in plain English meaning that you won't even pay that fee they normally charge for the capital change needed to match rates. However, they have form in this area and they are probably not telling the truth about there being no fee, perhaps westonkevRS might want to confirm or deny whether it is true that there really would be a fee of a capital loss was required to match rates. However, this is largely moot for this comparison, of the two products, the RateSetter product wins hands down for occasional access and you should not even consider using the Zopa product. RateSetter really does deliver at least rapid access with low or no capital loss while the Zopa product doesn't. At least if I believe the Zopa descriptions in their FAQ.Later, RateSetter have now renamed their Monthly product to Rolling and made it more clear that the terms are not monthly but instead can be up to five years for the underlying investments. No fee for exiting but if no buyer is available at your lending rate your money might be locked in until the end of the terms of the underlying loans. Provided interest rates change slowly the RateSeter product seems like the winner in access terms but if there is a large rate shift there might be no way to get all of the money out, so in such adverse circumstances it might lock you in. in a corresponding situation with Zopa you'd take a capital loss instead of a lock in.
Neither product appears suitable for those who want easy regular access to their funds or occasional access to the money because neither provides a cost free assured access to it.
|
|
spiral
Member of DD Central
Posts: 908 
Likes: 455
|
Post by spiral on Mar 27, 2016 6:35:35 GMT
perhaps westonkevRS might want to confirm or deny whether it is true that there really would be a fee of a capital loss was required to match rates. I hope he does  . There has been an ongoing debate about this on the RS forum. Customer Services appear to be giving conflicting info and from those that have tried it, the results are not conclusive. e.g. one tried a sellout when rates were higher only to find their sellout waited for the rates to drop (a couple of hours) so its unclear as to how long RS would have left it waiting and equally what they would've done had the rates not dropped. Others think they have sold out immediately with no fee but there is an unknown as to how this compensation figure would present itself. If its just a drop in the interest received, sellers may not be aware that they have incurred a penalty.
|
|
james
Posts: 2,205
Likes: 955
|
Post by james on Mar 27, 2016 8:26:51 GMT
perhaps westonkevRS might want to confirm or deny whether it is true that there really would be a fee of a capital loss was required to match rates. If its just a drop in the interest received, sellers may not be aware that they have incurred a penalty. Provided they realise it has happened the eventual outcome should be easy: the fee will be refunded. As you can see from above there is an explicit statement in the product description that there will be no fee. That then triggers FCA Treating Customers Fairly Outcome 5: that outcomes will be as consumers "have led them to expect". No fee in description, so no fee is the required outcome. Of course it may take a referral to the FOS to get there. And of course Outcome 5 is involved in the Zopa Access product, in relation to what Zopa is leading customers to expect it to do. Zopa, to their credit, at least do have a fairly in your face observation about the potential for capital loss but still, the product design appears to be fundamentally unsuitable for the purpose given by Zopa. And proper product design for purpose is one of the things that the FCA is supposed to be paying attention to. Of the two, while neither seems to without fault with these two products (unless there really is no RateSetter fee), at least RateSetter's really is suitable for the job based on that one month term. Of course, whether either of the two is best is another matter, but at least face to face with two big competitors RateSetter is way ahead in this one.
|
|
|
|
Post by fuzzyiceberg on Mar 27, 2016 8:51:36 GMT
If there is a 12% increase in rates P2P will be the last of anyone's worries. Pretty much anyone with a variable rate mortgage will be unable to service their loans, fixed rate mortgages will be un-refinancable all resulting in the mother of property price crashes and ensuing bankruptcy of people, banks and building societies (again!) combined with a vicious recession/depression the likes of which we have not seen since the 30's. Not gonna happen - no governement will allow it. It will allow the currency to take the hit and enjoy the inflation effect on the nominal tax take reducing the deficit and reducing the real terms value of public debt.
|
|
|
|
Post by yorkman on Mar 27, 2016 9:02:03 GMT
30 years ago my mortgage rate was 15%. The world didn't end.
|
|
|
|
Post by lb on Mar 27, 2016 12:12:39 GMT
How will Zopa Access cope with a rate rise? If rates rise investors may withdraw from Access - leaving who to pick up the now unattractive micro-loans? Zopa's Access product is NOT a product that is suitable for quick access needs. Do not use it if that is what you want. To the extent that Zopa might promote it as a product suitable for that need Zopa would be misleading investors. New lenders can pick up the loans because the people withdrawing money from Zopa Access will take a capital loss to cause their rate to match the current market position. Lets pretend that there is a product designed for easy access that has a renewing one month term and following an exchange rate crisis in relation to brexit the Bank of England raises Bank Rate by 12% over night vs say a 3% access rate. Because the loan term is one month the capital loss if the increase happened on the first day and was immediately reflected in the Zopa rates to borrowers would be 1% - 1/12th of a year's worth. Or an investor could hold to maturity at the end of the month and have no capital loss at all. It would be quite a safe product when it comes to rates, in much the same way as short-dated bonds - corporate or government with short time to end of term - are the go-to place for protection against rate rises with traditional investments. Zopa Access is not that type of product. Zopa's FAQ instead says that all of the new products will invest in a mixture of loans of all durations and that most of their loans are for five years. Take one of those five year loans as an example. The seller now gets their selling price cut by enough to pay the 12% interest rate difference for five years. Go to a loan calculator and plug in £5,000 amount, 60 months and 3% interest rate. That calculator tells you that the monthly payments are £89.76. Not set the interest rate to 15% - the 12% increase plus the 3% original - and adjust down the amount until the monthly payment is again £89.75. The new amount is £3,853 to get to £89.77 payment. So the capital loss a selling investor would take to do it immediately for this 60 month loan is £5000 - £3853 = £1147. The actual lending will be to a mixture of durations so the actual loss on £5,000 invested would be lower than that so it's more of an upper bound. And of course I picked a rather extreme situation of a major currency crisis. However, it does illustrate why the Zopa Access product has a name that itself is misleading since it does tend to imply that the product is intended for easy access. So, how does Zopa describe the product: "Zopa Access Great if you're new to Zopa, or if you want to dip into your money occasionally". With due respect to Zopa, a product where there can be substantial capital loss is not really one that is suitable for those who want to dip into their money occasionally, for reasonable meanings of that word occasionally. Do not use the Zopa Access product if you will need occasional access to your money. Because of the mixture of loans that can be used it is unsuitable for this purpose. So what can you use instead? Well, it just so happens that Zopa's major competitor is RateSetter and RateSetter does have a product that is suitable for occasional or even frequent access to the money: they have a monthly term product. As illustrated in the calculation above, because their term is only one month, the potential capital loss is hugely lower than with the Zopa product. As you can see from the product description of the RateSetter Access product: 1 month term, repaid at term - so in one month anyway - and no fees for early withdrawal. Which means in plain English meaning that you won't even pay that fee they normally charge for the capital change needed to match rates. However, they have form in this area and they are probably not telling the truth about there being no fee, perhaps westonkevRS might want to confirm or deny whether it is true that there really would be a fee of a capital loss was required to match rates. However, this is largely moot for this comparison, of the two products, the RateSetter product wins hands down for occasional access and you should not even consider using the Zopa product. RateSetter really does deliver at least rapid access with low or no capital loss while the Zopa product doesn't. At least if I believe the Zopa descriptions in their FAQ.
james why do you consider there to be a difference between Zopa Access and RS Access? Both have no fee but do have possible premium to sell. With both products your funds are invested in loans of far longer than one month. Both require new lenders funds to match your withdrawals.
Its not as if RS lend your money into one month loans ...
Your Zopa example applies to RS also (as far as I am aware) except RS say that monthly money is mostly used in loans with 1 or 2 years remaining. However, if you were in a position where you were tied into your 'lower term of 1 or 2 year loans (due to lack of new lenders) then I think it is fair to say a resolution event has occurred and you are tied in for the full term of all loans i.e. more than 5 years.
So where exactly is the difference that makes Zopa unsuitable and RS suitable ... ?
|
|
james
Posts: 2,205
Likes: 955
|
Post by james on Mar 27, 2016 13:35:36 GMT
So where exactly is the difference that makes Zopa unsuitable and RS suitable ... ? One month term. So low potential fee, if there is one, to cover the difference between rates and the opportunity to exit without fee just by waiting a maximum of a month. Roughly, that lets pretend one month case is what applies to RateSetter.
RateSetter have now renamed their product to Rolling and more clearly say that the underlying loans can be for up to five years. The fee difference appears to remain.
|
|
am
Posts: 1,495
Likes: 601
|
Post by am on Mar 27, 2016 13:50:41 GMT
30 years ago my mortgage rate was 15%. The world didn't end. In many cases it's not the rate that does the harm; it's the rapid change of rate that causes problems.
|
|
|
|
Post by GSV3MIaC on Mar 27, 2016 14:45:38 GMT
And 30 .. well 35 .. years ago inflation was running at 15-20% too (as were many wage increases); and people were mortgaged for a rather lower multiple of their salary, in general.
|
|
|
|
Post by uncletone on Mar 27, 2016 17:28:44 GMT
I maxed out at £210 a month (it rose to that from the initial £125.50) for a £15,000 mortgage. Still living in a four bedroomed semi with 150 feet of garden, and only worth £19950.... |
|
|
|
Post by bracknellboy on Mar 27, 2016 18:07:08 GMT
I maxed out at £210 a month (it rose to that from the initial £125.50) for a £15,000 mortgage. Still living in a four bedroomed semi with 150 feet of garden, and only worth £19950.... : have you considered applying to SS/AC/FS etc. for a Development Loan to do something with that 150 ft ?
|
|
|
|
Post by uncletone on Mar 27, 2016 18:22:11 GMT
Too old, too tired. I'll struggle on with me pension and preferential National Trust rates...
|
|
.
