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Tax-Free Earning
Invest through the RateSetter IF ISA tax-free ‘wrapper’.
Put your money to work
Invest in a portfolio of loans to businesses, property developers and individuals.
Provision Fund protection
A buffer against poorly performing loans with a 100% track record.
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Rolling Market
Total lending to date £2,619,184,670
Total interest returned to investors £105m
Capital at risk. No FSCS protection. Instant access not guaranteed.
The Provision Fund has a 100% track record, with every investor receiving back every penny they invested, but it does not provide a guarantee.
1. A diversified portfolio
Active loans figures correct as of 2nd July 2018
Table updated on 2nd July 2018.
2. Protecting your investment
We never forget we're looking after your money. We take a careful approach to lending and only lend to borrowers who are creditworthy when the loan is granted and can demonstrate that they are able to pay back the loan. Borrowers’ creditworthiness may change over time and cannot be guaranteed. Your investment and any reinvestments could be matched with new or existing loans to individuals, businesses, property developers and existing loans to other lending businesses (specialist financial businesses who lend onwards to individuals and businesses – now discontinued as a source of new lending).
Understanding Your Risk - Lending Criteria When the Loan is Granted
Table updated on 2nd July 2018.
RateSetter seeks to protect your investment through
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Rigorous underwriting at application stage: robust credit and affordability checks on all borrowers.
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Portfolio management: loan portfolio is diversified across many types borrowers in different sectors.
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Thorough arrears management: for the small proportion of borrowers who miss payments, RateSetter’s specialist arrears management team has a 3-step plan designed to help get things back on track:
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Debt review and affordability analysis to assess borrower's unique situation.
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Consolidation strategy offered to reduce debt repayments.
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Repayment plan adjustments to increase likelihood of full repayment.
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The Provision Fund:
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If a borrower misses a payment, the Provision Fund reimburses investors.
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If the loan goes into default, the Provision Fund takes over the loan and repays outstanding capital to the investors.
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Even after a loan is transferred to the Provision Fund, we continue making efforts to recover the unpaid balance. This cash flow is an incremental asset of the Fund, over and above the cash balances we show on the website.
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Property development loans make up 11% of our active loan book and are performing in line with expectations, with 61 development schemes completed without issue. All property development loans are secured against the property at a maximum loan to value of 65%, so a default does not automatically mean a loss. Hence for property development loans that are in default, RateSetter examines whether maximum value would be delivered via an immediate sale or by completing the development and then selling it. If an immediate sale is the best option, we would proceed with that. In the scenario where maximum value would be delivered by completing the development, RateSetter would immediately step in to take control of the development; we would charge off the expected loss from the Provision Fund (rather than the full outstanding balance); and we would complete the development as quickly as possible, then sell it. If additional finance was required to facilitate the completion and sale of the property, that would come from the RateSetter market, with a ceiling for total lending of 80% of the property’s post development value (this threshold is kept under regular review).
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The loan portfolio performance is monitored at aggregate and segment level to ensure performance remains within our risk appetite. You can track default metrics in our data hub.
3. The Provision Fund
Investments with RateSetter are protected by the Provision Fund which provides a buffer against poorly-performing loans. The Provision Fund reimburses investors if a borrower misses a payment. If a borrower defaults, the Provision Fund takes over the loan, repaying any outstanding capital to RateSetter investors.
RateSetter aims to manage the size of the Provision Fund so that it covers all expected future loan defaults. This chart uses our performance data to illustrate how the Provision Fund buffer protects investors against the effect of loan defaults.
How the Provision Fund protects your returns
Provision Fund figures correct as of 2nd July 2018
The Provision Fund spreads risk across all loans under management so investors are vested in the performance of the RateSetter portfolio as a whole rather than the performance of the loans they are contractually matched to.
The Provision Fund has a 100% track record: to date, every one of our 65,863 individual investors has received back every penny of the £2,619,184,670 that has been lent. Despite this track record, the Provision Fund does not provide a guarantee, so your capital and interest are at risk if the Provision Fund is depleted by increased borrower defaults. Investments in peer-to-peer lending are not covered by the Financial Services Compensation Scheme (FSCS).
The Provision Fund money is held by RateSetter Trustee Services Limited, a wholly owned subsidiary of Retail Money Market Ltd (RateSetter is a trading name of Retail Money Market Ltd). The Provision Fund is legally obliged to reimburse investors when borrowers miss a payment, providing there is sufficient money in the Provision Fund to do so.
The Provision Fund is classified as ‘restricted cash and investments’, which means it cannot be used to fund RateSetter’s operations while it is held within RateSetter Trustee Services Limited. Any surplus (where losses are less than money received) at the end of a loan’s life will accrue to RateSetter but will remain in the Provision Fund unless the RateSetter Board deem that the Provision Fund is strong enough for it to be paid to Retail Money Market Ltd.
Where is the Provision Fund Invested?
Disclosure
In 2017, RateSetter restructured its wholesale lending and as part of that restructuring controlled three businesses. The operations of two of the businesses, which specialise in motor finance, were subsequently integrated into RateSetter. The assets of the other business, which specialises in advertising, were sold in spring 2018. Each business still has outstanding loans with RateSetter’s investors, which are repaying in line with their schedules. New investments and reinvestments may be matched with one or more of these loans.
The loans made to the motor finance businesses are secured on their underlying loan portfolios. RateSetter intervened to cover the repayments of the advertising business using RateSetter’s own company funds. This prevented the loan from being defaulted to the Provision Fund. This intervention was an exception and will not happen again. These loans are reflected in our published performance figures.
4. Risks
Openness and Simplicity are important values for us at RateSetter, so we want to be clear with you about the risks of investing with us. We think that investors should be provided with the relevant information so that they can assess the level of risk and make an informed decision as to whether to invest. So in that spirit, here’s a summary of the key risks of investing with RateSetter and how we help you manage them.
Credit Risk
Credit Risk is the risk that borrowers do not repay their loans. Peer-to-peer lending is not covered by the Financial Services Compensation Scheme, so capital is at risk.
RateSetter seeks to mitigate this risk through rigorous underwriting at application stage, diversifying lending and careful arrears management. The Provision Fund provides a buffer against poorly-performing loans, and applies to all investors immediately and equally.
As RateSetter investors only lend to borrowers who are creditworthy when the loan is originated, expected losses are low, but we're always focused on anticipating risks and developing appropriate mitigants. We monitor the performance of loans and run scenario tests to model the impact of changes in default rates on the Provision Fund.
In the event that credit losses were to increase significantly, the following things would happen:
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The Provision Fund would reduce in value as it reimburses investors for missed payments.
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The Provision Fund is large enough to cover credit losses up to 126% of expected losses. If credit losses rose above this level, the Provision Fund would be depleted and investors would earn less interest than they expected, but their capital would be unaffected.
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If credit losses rose even further and exceeded 260% of expected loses, investors would start to lose capital, which means that they would get back less money than they put in.
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In this instance, it may take longer than expected for investors to receive their money back and access to funds may be restricted.
Access Risk
If you want access your invested funds your matched loans will need to be transferred to other investors. There is a risk that no other investors are available at that time to replace your investment, so you may have to wait to receive your money. This rarely happens, but we want to be clear that access to your money is not guaranteed.
To access your investment early, log into your account, click on the 'Money Out' page and then 'Release Investment' to access your personalised quote, including fees. Should you go ahead and transfer your matched loans, we will return the money to your holding account the same day, subject to being able to transfer your loans to another investor.
Platform Risk
If RateSetter ceases trading, we have a fully-funded run-off plan that would be activated and administered by a third party. Contracts between investors and borrowers remain binding and loan repayments and the Provision Fund would continue to operate.
During the run-off period, any monies owed to RateSetter would be used to cover the costs of the run-off process and ensure that contracts with borrowers are fulfilled and investors are repaid in line with those contracts. Investors’ money would always remain entirely separate to RateSetter’s money throughout any run-off process.
5. Investment Plans
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Rolling
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Loan terms: Your money will be invested in loans with a maximum term of 5 years.
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Earnings: Your money, plus interest, is repaid by borrowers every month. These repayments are automatically reinvested at the Market Rate so your earning compounds.
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Access: You can request to release your reinvestment anytime, free of charge. Normally, investments are instantly released from funds rolling in the market. However, this isn't like an instant access bank account so it's possible that you will have to wait for the monthly repayments.
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1 Year
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Loan terms: Your money will be invested in loans with a maximum term of 1 year.
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Earnings: Your money, plus interest, is repaid by borrowers at the end of the loan term (although borrowers may choose to repay early). Your money will be reinvested according to your settings.
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Access: You can request to release your reinvestment early, before borrowers have repaid. Normally, investments are instantly released from funds in the market. However, this isn't like an instant access bank account so it's possible that you will have to wait for the repayments. The fee for early access is 0.3%.
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5 Year
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Loan terms: Your money will be invested in loans with a maximum term of 5 years.
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Earnings: Your money, plus interest, is repaid by borrowers every month (although borrowers may choose to repay early). Your money will be reinvested according to your settings.
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Access: You can request to release your reinvestment early, before borrowers have repaid. Normally, investments are instantly released from funds in the market. However, this isn't like an instant access bank account so it's possible that you will have to wait for the repayments. The fee for early access is 1.5%.
What do these rates mean?
These are the rates of interest you can expect to earn when your money is matched to a borrower. The rates vary by market and are a function of supply and demand on that market, i.e. the supply of money from investors and the demand for money from borrowers. To ensure a strong supply of borrowers into the RateSetter market, borrowers are matched to the lowest rate available when their loan is available for matching. These rates don’t take into account any tax you need to pay. Interest is paid with no tax withheld. Any interest you earn should be included as income when you submit your tax return.
Will my rate change?
You can expect to receive that rate for as long as you’re matched with that borrower. If you’re matched with another borrower in the future, it’s likely to be at a different rate. Investors in the Rolling Market are re-matched every month. Investors in the 1 Year and 5 Year markets, who have set their re-investment options to re-match them in the same market, are re-matched when their matched borrower pays off their loan, either in line with their repayment schedule or early. Investors can also set their re-investment options to credit any money from matched loan repayments into their RateSetter holding account, where it can be withdrawn or reinvested at a later date.
Set your own rate
You can choose to set your own rate for initial investments and any reinvestments, but you may have to wait longer for your investment to be matched if your rate is higher than the market rate. To match your money faster, you can choose the ‘Lend It Now Rate’ for new investments, which will match your investment to the next available loan. This will result in your money being matched faster but may result in you receiving a lower rate. For reinvestments, you can choose the daily ‘Market Rate’, which will match your loan with available loans on the day of reinvestment. The daily ‘Market Rate’ is set based on an average of matches over the previous 24 hours.
Are there any fees?
There are no initial investment fees or annual management fees when investing with RateSetter.
There are no fees when you request to ‘Release Your Investment’ from the Rolling Market. If you invest in the 1 Year market or the 5 Year market and want to ‘Release Your Investment’ before the end of your term, you will pay a Transfer fee. You can access a personalised quote for this fee by logging into your account.
6. Performance
Actual and expected default rates
Figures correct as of the 2nd July 2018.
Loans originated prior to 2014 amount to 0.4% of the portfolio are not included in the above.
Updated on 2nd July 2018.
How are expected losses calculated and validated?
The expected losses are estimated based on quantitative analysis of actual loss data.
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Quarterly review: Expected losses on active loans are recalculated by our risk assessment experts every three months. The expected losses are estimated based on quantitative analysis of historical lending using industry standard techniques. For recent lending, we look at early arrears data to inform the decision around lifetime expected losses.
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Expected Loss Committee: Expected losses figures are signed-off at RateSetter’s Expected Loss Committee, which comprises the CEO, CFO, Head of Credit and Head of Commercial Credit Risk, before any updates are made to the official figures quoted on the website.
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Board Risk Committee: The Board Risk Committee is responsible for signing off the methodology used in arriving at an expected losses calculation.
7. Key information
Invest in a diversified loan portfolio
RateSetter offers you the opportunity to invest in a diversified portfolio of loans to individuals (mainly lower risk but some
higher risk), businesses, property developers and other lending businesses (specialist financial businesses who lend onwards to individuals and businesses – discontinued in December 2016 as a source of new lending). We no longer write new loans via other lending businesses. Existing loans are running down as they repay over time in accordance with their existing loan schedule. However new lender money may still be matched to existing loans when other lenders have exited early.
Your capital and interest are at risk if the Provision Fund is depleted by increased borrower defaults. There is no recourse to FSCS Instant access to your money is not guaranteed.
Your Investment
Your investment and any reinvestments could be matched with new loans or existing loans.
Your investments could be matched with:
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Rolling Market: loans ranging from 3 months to 5 years, which repay over life of the loan;
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1 Year Market: 1 year loans which are scheduled to repay at the end of the loan term;
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5 Year Market: loans up to 5 years, which repay over the life of the loan.
You are appointing RateSetter as your exclusive agent to act in all matters relating to the origination, negotiation, administration and management of your matched loans.
We take a careful approach to lending and only lend to borrowers who are creditworthy when the loan is granted and who can demonstrate that they are able to pay back the loan. Borrowers’ creditworthiness may change over time and cannot be guaranteed. You can track default metrics in the 'Key Information' section of the RateSetter Members Area.
You can request what happens to your investment when your matched loans repay by setting your own re-investment options. If you instruct us to reinvest it, we will reinvest it in new or existing loans when suitable loans become available. Borrowers are matched to the lowest rate available when their loan is available for matching. If you choose to place your funds in a Holding account, these can then be withdrawn or reinvested at a later time.
Interest rates
The rate you receive is a function of supply and demand on the market; supply of money from...
investors and the demand for money from borrowers).
For new investments, you can choose the ‘Lend It Now Rate’, which will match your investment to the next available loan. This will result in your money being matched faster but may result in you receiving a lower rate.
For reinvestments, you can choose the daily ‘Market Rate’, which will match your investment with available loans on the day of reinvestment. The daily ‘Market Rate’ is set based on an average of matches over the previous 24 hours.
Fees
There are no initial investment fees or annual management fees when investing with RateSetter. If...
you invest in the 1 Year Market or the 5 Year Market and you want to access your money before the end of your term, you will pay a Transfer fee as your loans will need to be transferred to new investors. You can access a personalised quote for these fees in the Member Area on ratesetter.com.
There are no fees when you release your investment from the Rolling Market.
Release your investment
You can access money invested in the Rolling Market at any time without fees, provided there’s another investor available to take your place in your matched loan contracts.
For 1, 3* and 5 year investments, you have the option to transfer your matched loan contracts to an available investor and release your investment. A Transfer fee is payable, as you’re exiting your matched loan contracts before their term.
We will always provide you with an estimate of how much money you’ll release, including any earned interest and any Transfer fees payable.
*Please note: the 3 year market was closed to new investment in August 2016.
The Provision Fund
The Provision Fund is made up of payments received from every borrower, based on RateSetter’s
assessment of their creditworthiness when the loan is granted. RateSetter aims to maintain the Provision Fund at a level intended to cover all expected future defaults. The Provision Fund has a 100% track record to date; every individual investor has received the returns they expected. This is not a guarantee for the future and your capital and interest are at risk if the Provision Fund is depleted by increased borrower defaults.
Each investor is directly matched with one or more borrowers, but as the Provision Fund effectively spreads risk across the whole loan book, investors are exposed to the performance of the RateSetter loan book as a whole - not the performance of the specific loans they are matched to.
More information about the Provision Fund can be found in section 3 of this page. Please read this information as it indicates the extent to which the Provision Fund can be expected to cover loan defaults.
This is not a guarantee for the future and your capital and interest are at risk if the Provision Fund is depleted by increased borrower defaults.
Interventions
In early 2017, RateSetter intervened with the restructuring of one of its major borrowers. This resulted in RateSetter controlling three businesses.
The operations of two of the businesses, which specialise in motor finance, were subsequently integrated into RateSetter. The assets of the other business, which specialises in advertising, were sold in spring 2018.
Each business still has outstanding loans with RateSetter investors, which are repaying in line with their schedules.
The loans made to the motor finance businesses are secured on their underlying loan portfolios. RateSetter intervened to cover the repayments of the advertising business using RateSetter’s own company funds. This prevented the loan from being defaulted to the Provision Fund. This intervention was an exception and will not happen again.
New investments and reinvestments may be matched with one or more of these loans.
Any potential conflict of interest with regards to these loans is mitigated by ensuring that the management of all credit decisions are independent from the management of RateSetter’s ownership of the businesses themselves.
RateSetter details
You can contact RateSetter at [email protected] or by calling 020 3142 6226. RateSetter is a...
trading name for Retail Money Market Limited (company no. 7075792) and our offices are at 55 Bishopsgate, London, EC2N 3AS. RateSetter is authorised and regulated by the Financial Conduct Authority (Ref. 722768).