21 replies to this topic

[Philanthropist]

After a long Bank Holiday w/end the rates still seem impossibly low - 6% headline rate before fees and bad debt was briefly 'too high' in A* Shorter loans just now.  Even for a 20% taxpayer this equates to only about 4.4% gross in the building society, which gives very little risk premium.  Is Zopa becoming permanently uncompetitive?

[Gricehead]

Philanthropist, on 06 June 2012 - 14:49, said:

After a long Bank Holiday w/end the rates still seem impossibly low - 6% headline rate before fees and bad debt was briefly 'too high' in A* Shorter loans just now.  Even for a 20% taxpayer this equates to only about 4.4% gross in the building society, which gives very little risk premium.  Is Zopa becoming permanently uncompetitive?

Permanently, most likely not. Temporarily, probably.

(8.1% headline, with a bad debt forecast of 5.2% in C shorter is comical)

Edited by Gricehead, 06 June 2012 - 15:14.

[propman]

Isn't this just the usual effect of the 1st of the month payment run combined with autolend and some zapped money returning to the market, currently 3 week old 6.4% offers would be matched to a £15k request.

- PM

[kabsoft]

propman, on 06 June 2012 - 20:57, said:

Isn't this just the usual effect of the 1st of the month payment run combined with autolend and some zapped money returning to the market, currently 3 week old 6.4% offers would be matched to a £15k request.

- PM

Yes, that's how I see it. We're still a few days behind on payments and the underwriters will still have plenty of matches to process from the long weekend so I wouldn't be surprised to see another £1m added/returned to the markets in the next couple of days. Even though demand has perked up today (nearly 300 quotes as I type) rates are going to head lower for a while.

K

[jkh]

It's been a bit of a washout for me on Zopa this bank holiday. A single solitary £10 in processing.

Think I'll take advantage of Funding Circle's 1% offer instead

[SteveS]

I have rather lost touch with Zopa after the last couple of years since the rates have been so poor. I lent nothing in 2011, but then in 2012, partly in order to stay in touch even if at a low rate, and partly because there was an upward blip in the rates some loans went out at the end of March and then again at the end of May and now the jubilee weekend.

So to my question. This last weekend the money going out (still in processing) was offered at 6.5% a* short. However I see from 'lj' graphs that the top of the zopa was 6.8%. I have had money patiently sitting at 6.7% un-taken also. Can anyone explain to me how the rates get to 6.8 without taking 6.7 money?

Thanks.

[figures18]

I'm pretty useless with graphs but I'll take a stab at an answer till someone else answers you properly.

There was a short period of time late night Tues through to the beginning of the working day, (underwriting/repayment run) on Wed when it was possible that 6.8% could have matched a large, probably £15k request.  I don't know if Elljay's charts reflect quotes or full applications?  It may be that during that time period 6.8% was the top of the Zopa but if borrowers didn't proceed with their applications you may well not have seen your 6.7% being hit, (if you were asleep for instance).  Also the underwriters started around 0800 on Wed so again it's possible that any match during that period would/could have disappeared before you noticed it.  Very few large loans came through over the w/end and moved into processing in A* shorter.

ps: that's my Olympic Squirrel doing his stretching exercises  

Edited by figures18, 07 June 2012 - 06:35.

[djia977]

Unfortunately it seems that the 1st of the month anomaly will only become more damaging as the amount of loans being unwittingly recycled at obscenely low rates from prior years becomes larger and larger. The larger amount of loan applications yesterday shows that that the flawed system of recycling payments away from the current zopa is allowing an opportunity for gaming by people on MSE etc. (i.e. on moneysavingexpert it will be flagged up that zopa apps should only be made after the 1st). This is both unfair to lenders and any particularly unfair to borrowers from other times during the month.

Some thought should be put into this by Zopa, perhaps the default for recycled money should be to relend at the latest 7 day average zopa. The current default of recycling at rates defined up to 5 years prior seems totally inappropriate given how risks and returns elsewhere could change.

Edited by djia977, 07 June 2012 - 08:15.

[CKemahli]

The problem is that, if there are people willing to accept the 4-5% rates that pop up when funds are returned then we have no right to demand that they raise their rates. To each their own, unfortunately, it seems as though a number of those investors do not alter their rates frequently, leaving Zopa effectively on automatic, as they will always pop back into the bottom of the Zone. Zopa is a market forces exercise, if everyone starts seeing the rates staying below what they would accept, the money will move elsewhere and the ZOPA itself will rise up again.

We can not demand a higher return, simply because a number of people are offering at very low rates, they may well be non-tax payers, happy with the 3-4% that they receive...who knows!!

[djia977]

CKemahli, on 07 June 2012 - 09:17, said:

The problem is that, if there are people willing to accept the 4-5% rates that pop up when funds are returned then we have no right to demand that they raise their rates. To each their own, unfortunately, it seems as though a number of those investors do not alter their rates frequently, leaving Zopa effectively on automatic, as they will always pop back into the bottom of the Zone. Zopa is a market forces exercise, if everyone starts seeing the rates staying below what they would accept, the money will move elsewhere and the ZOPA itself will rise up again.

We can not demand a higher return, simply because a number of people are offering at very low rates, they may well be non-tax payers, happy with the 3-4% that they receive...who knows!!

The problem is that I very much doubt that many people are aware of the rates at which their money is relent, and the way in which this money gives a very unfair advantage to borrowers who game the system around the 1st of each month. I'm all for market forces, but when structural flaws are left unchecked we end up acting against those very forces.

Edited by djia977, 07 June 2012 - 09:38.

[Parker Pyne]

I suppose one answer might be to insist that repayments are made on the same date of the month that the loan is disbursed. Over time that would spread the repayments more evenly. But that would remove one of Zopa's selling points, the ability to pick a repayment date that fits in with the borrower's cash flow.

[Toffeeboy]

djia977, on 07 June 2012 - 09:37, said:

The problem is that I very much doubt that many people are aware of the rates at which their money is relent, and the way in which this money gives a very unfair advantage to borrowers who game the system around the 1st of each month. I'm all for market forces, but when structural flaws are left unchecked we end up acting against those very forces.

What are you going on about? So some borrowers actually take the time to realise that they can get a better rate if they apply for a loan early in the month just after the payment run for the 1st of the month. How does that effect you as a lender? If there anything wrong with a borrower going for the lowest rate that they can get?

I am sure that the people relending their money via auto lend are aware of the rates that their money is going out at because they set the rates when they set up the original lending offer. That is the rate that they wanted to lend their money out not some rate set from previous rates that they have no control over at all. Zopa provides us with the platform to lend to the borrowers and estimates bad debts for us based on their lending criteria. Why does everyone seem to think that Zopa should do more? They are not your personal financial advisers.

So some people lend at low rates, do you know all their circumstances to be able to say they don't want to do that? Maybe they are social lenders and earn enough elsewhere so are giving something back. It is the same for everyone in an auction, you go as far as you are prepared to go and if someone is prepared to go further then you don't win. Simples  

[propman]

djia977, on 07 June 2012 - 08:14, said:

Unfortunately it seems that the 1st of the month anomaly will only become more damaging as the amount of loans being unwittingly recycled at obscenely low rates from prior years becomes larger and larger. The larger amount of loan applications yesterday shows that that the flawed system of recycling payments away from the current zopa is allowing an opportunity for gaming by people on MSE etc. (i.e. on moneysavingexpert it will be flagged up that zopa apps should only be made after the 1st). This is both unfair to lenders and any particularly unfair to borrowers from other times during the month.

Some thought should be put into this by Zopa, perhaps the default for recycled money should be to relend at the latest 7 day average zopa. The current default of recycling at rates defined up to 5 years prior seems totally inappropriate given how risks and returns elsewhere could change.

It is in Zopa's interest to keep lenders' rates as low as possible. If people are happy with these rates, why should Zopa change them? I think many of these people would be much more annoyed if the rate set turned out to be too high to lend at. This would often be the case where rates are falling. In addition, as ZAs will always try and pick the highest achievable rates, this mechanism would put upward pressure on rates as you would be increasing the lowest rates the average would rise which would lift the rates of the majority...

At the end of the day if sufficient others to match requested loans are prepared to lend at rates below those you are happy with, you need to accept that Zopa is not currently for you. I would like nice juicy rates to be reserved for me, but that is not how a market works! If you want higher rates I suggest that you try RS or FC. These come with greater uncertainty (i.e. risk). Zopa has gone through their stage of development to become more mainstream. This has provided comfort to the risk averse like me, but at the cost of increased lender competition.

As always JMHO

- PM

[sl75]

SteveS, on 07 June 2012 - 06:09, said:

So to my question. This last weekend the money going out (still in processing) was offered at 6.5% a* short. However I see from 'lj' graphs that the top of the zopa was 6.8%. I have had money patiently sitting at 6.7% un-taken also. Can anyone explain to me how the rates get to 6.8 without taking 6.7 money?

It's due to the difference between the way that Zopa describe their calculation of "the ZOPA" on the edit offer page, vs the way that it is actually implemented.

"It is defined by the range of interest rates that were included in all the approved loans in the market over the last seven days" as stated on the edit offer page is (unless they changed it) rather inaccurate, and probably misleads many lenders every day.

From the fuller description given (on these forums) when they started using the new ZOPA calculation, a more accurate version of the above would be something like "It is defined by the range of loan sizes that were approved in the market over the last seven days, and the rates available right now".


As figures says, the 6.8% "top of the ZOPA" would have been the rate that a £15k loan application WOULD have matched up to if one had been submitted at that moment. But presumably it wasn't (or perhaps it was but the borrower took one look at the rate and cancelled the application).


My personal opinion, however, is that it would be better for the calculation to be changed to match the description, rather than for the description to be changed to match the calculation... as however you describe the current calculation it is either going to be inaccurate or sound "a bit complicated", and the current description tends to imply that the ZOPA shouldn't change rapidly, and checking it once a week or so should be sufficient.


[Edit to reply to another post]

djia977, on 07 June 2012 - 08:14, said:

Some thought should be put into this by Zopa, perhaps the default for recycled money should be to relend at the latest 7 day average zopa. The current default of recycling at rates defined up to 5 years prior seems totally inappropriate given how risks and returns elsewhere could change.

The default is to follow the lender's last instructions until or unless the lender changes those instructions (or is confirmed as being deceased...!)

Zopa can't set rates for you for regulatory reasons. This has always been the position as far as I'm aware, and just a couple of weeks ago they confirmed it yet again in response to a similar question on twitter: https://twitter.com/...490470750453762

Edited by sl75, 07 June 2012 - 12:02.

[Gorgeous George]

The 'problem' isn't that borrowers are gaming the system by timing loan applications for early in the month. The problem is that Zopa's loan rates vary too often. If borrowers avoided applying early in the month then the low rates would be around for longer.

Variable Zopa fees help to stabilize rates. Shortening the offer bands would also help. 5% to 9% for A* and 9% to 20% for  C.

Maybe we could make Zopa even less interesting by removing the risk groups similar to RateSetter.

GG

Edited by Gorgeous George, 07 June 2012 - 11:56.

[propman]

Gorgeous George, on 07 June 2012 - 11:52, said:

Variable Zopa fees help to stabilize rates. Shortening the offer bands would also help. 5% to 9% for A* and 9% to 20% for  C.

Maybe we could make Zopa even less interesting by removing the risk groups similar to RateSetter.

As I see it, the variable fees help to reduce the variation in APRs for medium to large loans, unless these are varied as lender rates change (higher after payment runs and lower at the end of the weekend), they won't stop the variability from the changing amount of unmatched funded offers.

I prefer Zopa's option to allow a restriction in how risky a market we are exposed to. Given the bad debt tax relief issue and variability between lenders as to what risk ppremium is charged, I would like this to stay as it is! RS justify the single market on the grounds that the Provision Fund covers everyone and the assumption is that it will pay out all unpaid repayments. One of the reasons I limit my lending there is that I do not consider the adequacy of the Fund / credit checking of RS to be proven yet and so factor in a significant probability that the Fund will prove insufficient, particularly on 5 year loans.

JMHO

- PM

[bollidear]

propman, on 07 June 2012 - 12:03, said:

........ One of the reasons I limit my lending there is that I do not consider the adequacy of the Fund / credit checking of RS to be proven yet and so factor in a significant probability that the Fund will prove insufficient, particularly on 5 year loans......

I understand what you are saying, but at what point would you consider RS a "safe haven"? I've been with them 18 months now and the fund has been fine. Even if it does get chunks taken out of it, I would still have had 0% risk for at least 50% of the loans term.

Zopa has presented me with £250 bad debt against £970 interest over 3 years with FC bad debt is now running at £100 over 18 months on around £5k investment. Yes Secure take the biscuit on the bad debt stakes though!

I don't need/want to over analyse, as there are many other factors involved in the figures, but I can't see the issue with the RS fund not being sufficient. From the published data, I don't see a significant risk of under-provision at all, and I'm not going to wait 5 years to satisfy myself that it is relatively safe after all.

I think to say "rates falling through the floor" is a little dramatic. No-one can realistically expect their preferred rate to be available every day. Peaks and troughs occur in every lending platform and its the investors obligation to take advantage of the peaks. Ratesetter have just a significant peak following a significant trough, so it's all about the timing of your lending - and not the consistency of the market rate.

[marshall2k]

Some good news from the boss

Quote

I'm on holiday and record day for lending @Zopa . Over 100 loans in a day for first time. Moral of the story?

Via twitter

[Gricehead]

So we're pretty much nailed on to beat the record for seven day disbursal, even with a double bank holiday this week? Hot on the heels of a 12 month low last week.

[SteveS]

Thanks for the replies guys!