Leading consumer lender Zopa has issued an update on the mechanics of its soon-to-launch suite of new lending products.
Zopa announced two weeks ago that, from mid-March, retail investors will be able to invest in the marketplace without the coverage of the Safeguard fund. The platform in fact launched a trio of new products; Zopa Access, Zopa Classic and Zopa Plus. The foremost of these will pay the lowest interest rate of the three, but will charge no exit fees to investors. By investing in the lattermost account, investors will forego the protection of the Safeguard.
We now know more about what each of the new products will look like. Zopa Access will have an expected interest rate after losses of 3.5%, and will be covered by Safeguard. Access investors will not be charged any exit fees. The account is designed – as the name would suggest – to provide investors with a highly flexible investment product. Zopa has, however, been at pains to stress that withdrawals are subject to investor demand. Whilst this hasn’t been a problem to date, liquidity cannot be guaranteed. Access investors obtain exposure to individual borrowers, in A* to C risk markets, with loan terms ranging up to 5 years.
Zopa Classic investors take exposure to the same set of borrowers. Investors should expect a rate of 4.5% per annum. They too are covered by Safeguard. They will be charged a 1% fee to sell out of loans ahead of schedule. Both the Zopa Access and Zopa Classic accounts will carry a minimum investment of £10, but the platform recommends investments of at least £1,000 – in order to allow for sufficient diversification.
The Zopa Plus account, as we know, is pitched at those seeking a higher return for commensurately higher risk. Expected interest rates after losses stand at 6.5%. Safeguard coverage is not included. A 1% exit fee will apply. The minimum investment amount has been fixed at £1,000. The platform tells us that the purpose of this is to ensure that only a very small proportion (no more than 1%) of an investor’s money is lent to a single borrower, ensuring appropriate diversification of risk. Risk in the Plus account is enhanced not only due to the absence of a safety net, but also due to the borrowers being lent to. These borrowers dwell within the platform’s A* to E risk markets. Giles Andrews – speaking at a recent gathering of peer-to-peer platform founders – stated that even the platform’s D and E rated loans are of a high quality, and ought not to be seen as “sub-prime”.
Questions of practicality have also been addressed. Investors are able to invest in multiple products (i.e. Access and Plus) through the platform. Existing lenders should expect to see repayments cycled into the Zopa Classic product (which is, by definition, nigh on identical to the existing Zopa model). Auto-investors should expect to see repayments used to purchase new loans within the Zopa Classic account. To quickly switch between products, investors will be required to sell existing loan parts and then to re-invest in their preferred product – or of course to wait for the completion of existing agreements before re-investment.
These changes are set to implemented in mid-March, just a few weeks before the arrival of changes to bad debt relief rules (allowing P2P investors to offset losses against income tax) and the advent of the much-hyped Innovative Finance ISA.