HP is a type of finance where a borrower has use of a new asset while paying for it through regular instalments. The borrower may return the asset and end the agreement or take ownership of the asset when the final payment is made. HP agreements are therefore secured and if a borrower defaults the lender can repossess the asset.
HP agreements will be financed from RateSetter’s existing investment markets. This means that once the products are launched, new and existing lenders may be matched to HP agreements. The legal ownership of the underlying asset in each HP agreement will be held by RateSetter on behalf of lenders until the borrower makes their final payment. Capital and interest will be returned to RateSetter’s investors each month in the usual manner as the borrowers make their regular payments.
As with all RateSetter loans, HP agreements will pay into the Provision Fund. If a HP borrower defaults, the Provision Fund will act as a buffer for lenders and it will then make recoveries using the asset the agreement is secured against. Please note that the fact that HP agreements are secured against assets does not change the way the Provision Fund works in relation to these agreements and we always like to be clear that the Provision Fund does not provide a guarantee of safety.
As mentioned above, we are intending to make borrowing through HP available to both businesses and consumers, thus increasing RateSetter’s customer offering while maintaining a healthy regard for risk management.
Nearer to launch, we will publish more detail about each product, including forecast default rates and underwriting criteria, on our website with a further update via this blog.