Further enhancements to our loan book transparency
The financial crisis in 2008 showed just how serious a lack of transparency in financial services can be. From the outset, our industry sought to address this and has led the way in setting new standards for transparency in financial services.
At RateSetter, we are big believers in transparency and its role in underpinning the growth of markets. A year ago, RateSetter was among the first businesses in our industry to publish our loan book in full. In the autumn we also started to publish quarterly updates to provide a high level view of the diversity of our investors and borrowers, illustrating the progress against our strategy to broaden and deepen our loan book across lots of sectors and channels.
We have recently published data on annual returns performance which shows that after lending close to £1bn over five years, RateSetter investors have achieved exactly the level of return expected in every single year we have been operating.
Today, we are improving transparency further by publishing more detail on our loan book. You can access the loan book in the usual way by logging into your account selecting “RateSetter Info” and then “Loan Book”.
We thought it would be helpful to provide some commentary on the new information that is now available along with a forward look for 2016.
What does the loan book show?
The loan book reflects the position at the end of 2015, when total loans outstanding on the platform stood at £517m. We will update it on a monthly basis going forwards.
59% of lending is to individuals, who commonly use funds for a significant purchase such as a car or home improvement. Another common use is to pay off more expensive credit – demand is strong given the compelling value of our personal loans, however, we take a cautious approach to approving such applications because we want to ensure the loan is affordable. Loans that are grouped into the “other” category include those for medical, legal or tax bills and small-to-medium sized purchases such as holidays, musical instruments and mobile phones.
31% of lending is to businesses. We originally started lending to sole traders and self-employed people who required a loan for business purposes. We subsequently expanded to limited companies across a wide range of sectors, lending for various purposes such as working capital or investment, often with a debenture over the company or a personal guarantee from the directors. We also expanded to financial businesses that lend to individuals and businesses, taking security over their loans.
11% of lending is to property developers - entirely focused on residential development and targeting loan to values at or below 65 per cent.
The year ahead
Looking ahead to 2016, we expect to see further strong growth and will seek greater diversity as we continue to broaden and deepen our market, while ensuring that the loan book and Provision Fund grow in a sustainable manner.
Over the last two years we have invested strategically in expertise to be able to originate, underwrite and service multiple types of loan. We will continue to invest and use this expertise to keep growing and diversifying our consumer and business lending – while always focusing on the levels of risk and reward and ensuring that our underwriting is robust.
We will also be mindful of the economic cycle. The environment in which marketplace lending in the UK has grown over the last five years has been benign, but RateSetter is taking a long term perspective to deliver through the ups and downs of future cycles - all our actions will take the economic cycle into account.
All markets grow with transparency. We will therefore continue to look for ways to improve the level of data we provide.