ZOPA has clarified the expected implications of phasing out of its provision fund as it prepares to launch Zopa Core on Thursday, a new account which will not be backed by the fund.
On 15 June, the peer-to-peer platform’s target date for unveiling its Innovative Finance ISA, the new account will formally take over from the firms’ existing Access and Classic products, whose safeguard fund will be phased out by December this year.
Existing safeguarded loans and new loans purchased before that deadline will continue to be covered by the fund until they reach maturity.
This is set to translate into a lower coverage ratio in the run up to December, the platform’s chief product officer Andrew Lawson (pictured) said, as loans will contribute less upfront and more through repayments.
However, between December 2017 and 2022, which is when Zopa expects to finalise the closure of the fund, safeguarded loans are poised to benefit from a higher coverage ratio, he said.
Ongoing monthly contribution will in fact be spread across a smaller pool of loans, without new assets coming in to dilute the coverage balance.
Meanwhile, the platform’s Core account will lend in the same lower-risk brackets as its Access and Classic counterparts, but offer higher target return of 3.9 per cent, compared to 3.7 per cent and 2.9 per cent respectively.
The product will run alongside Zopa Plus, with the platform aiming to make both offerings available within its IFISA wrapper starting from next Thursday, as it expects to have obtained HMRC approval by then.