Zopa drops rates, more platforms to follow?

By Ryan Weeks on Thursday 1 September 2016

Alternative Lending

The UK’s largest marketplace lender is cutting lender rates by 0.2 per cent across all three of its products.

Interest rates on Zopa’s Access, Classic and Plus account will fall to 3.3 per cent, 4.1 per cent and 6.5 per cent respectively, effective as of September 8th. The decision has been taken as a direct result of the recent cut to interest rates by the Bank of England, to a record low of 0.25 per cent. While Zopa claims not to be “as closely tied to the interest rate as high street banks”, adjustments have nonetheless proven necessary.

The rate that Zopa delivers to its lenders is, of course, inexorably linked to the rate charged to its borrowers. And that latter rate was the first to fall, as the platform took steps to remain competitive while maintaining a “high standard of borrower”.

Zopa says that many banks have already cut rates by more than 0.25 per cent, which has led to “a surge in new lenders” for the platform. Investors have been queuing an average of 10 days to put money to work in Zopa’s Classic account over the past few weeks. Part of the reason for lowering borrower rates is to maintain the balance between borrowers and lenders on the platform, an equilibrium that Zopa calls “essential”.

UK peer-to-peer lenders were overwhelmingly positive in the wake of the Bank of England's decision to cut rates in early August, with a number of sector representatives saying that the move would prompt large swathes of investors to look to P2P in the search for return. But there’ll be nothing for those investors to lend against if the platforms can't stay competitive on the borrower side, hence today’s adjustment.

According to AltFi Data Analytics, average gross interest rates across Zopa products fell from 7.2 per cent to 6.7 per cent in July. That rate will surely fall further in August. But rates did not fall for all of the platform’s risk bands in July, despite the fact that a cut to the base rate was seen as a near-inevitability for the better part of the month. This simply goes to show that there is more going on behind the scenes than meets the eye, and that the end rate delivered to investors (who have exposure to multiple risk bands) is the product of a complex blend of different rates and risk categories.

Whether or not Zopa’s peers will follow suit remains to be seen. Rates at rival P2P lender RateSetter are determined by the market, rather than by the platform. And at this stage, the market seems to be following a similar pattern. Average gross interest rates at RateSetter fell from 4.7 per cent to 4.4 per cent in July, and one must assume that they have continued to drop in August. We should be able to say for certain within a week or two. Stay tuned. 

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Zopa Bank
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