The platform’s investors will no longer see interest rates change on a monthly basis.
RateSetter’s most popular investment option, used by two-thirds of its investors, is being restructured.
Up to now, investments in the rolling market have been re-invested (and money matched with different borrowers) on a monthly basis. This resulted in investors’ interest rates changing every month. Critical feedback from RateSetter customers has prompted the platform to alter this.
The company has today announced that, from 6 June 2019, investments will remain matched to the same borrower, at the same interest rate, from the point of investment until the point that loans are fully repaid.
“Of course, the Rolling market will continue to ‘roll’ but this will only affect money that is due for reinvestment,” wrote the platform’s co-founder Peter Behrens, in a statement. “In other words, as borrowers repay every month, the money that is repaid will simply be matched to new borrowers at the Market Rate.”
Interest rates on RateSetter are a supply and demand game – when lender demand outstrips borrower appetite, rates go down, and vice versa. The platform call this its ‘Market Rate’.
93 per cent of the platform’s investors currently choose to reinvest at the market rate. Believing that this proportion will continue to rise over time, RateSetter has elected to cease allowing investors to set a bespoke rate for reinvested money in the rolling market. However, investors will still be able to choose between setting their own rate or taking the market rate when lending out new money via the platform.
The platform’s market rate is determined exclusively by new money coming into the marketplace.
Subject to liquidity, investors are able to withdraw funds from the rolling market without incurring a fee. As part of this service, RateSetter bears the risk of not being able to transfer loan parts to another investor at the same interest rate – meaning it would have to cover the difference in rate itself, were no match to be found.
“This means that when an investor withdraws from the Rolling market and immediately reinvests at a higher interest rate, it has a cost to RateSetter and can artificially alter the Market Rate,” wrote Behrens.
The platform is therefore implementing a new ‘fair usage policy’ which prevents investors from lending new money on RateSetter for 14 days after a withdrawal.