LENDING Works has unveiled plans to reduce interest rates and put more money into its Shield contingency fund to make the platform more resilient.
The peer-to-peer lender said one motivation for the changes was to comply with the incoming Financial Conduct Authority regulations and to ensure the Lending Works Shield is “more resilient and robust, particularly given the current uncertain political and economic environment.”
From January, its terms and conditions will allow it to alter interest rates if the loans aren’t performing as expected.
Lending Works said it will pass on more of the future interest margin on the existing loan portfolio to minimise the impact on investor returns.
This means investors will be around 0.4 per cent per year better off than they would have been without the contribution, Lending Works said.
As a result, existing investors will see fixed rates reduced from an average of 5.2 per cent to 4.8 per cent in the new year.
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The platform is waiving fees for any investors wishing to sell their loans between now and the changes going live.
Interest rates for new investors will be determined by the pricing committee in January.
In another change, Lending Works will stop taking out insurance policies on the loans against causes of default such as critical illness, which Nick Harding (pictured), chief executive of the platform, said will save on premiums and make the Shield more effective and efficient.
“We’re making some changes to the way the Shield operates to ensure it is more resilient and robust over the long-term,” Harding said.
“Investing via Lending Works will continue to be fair, simple, trusted and consistent, and the Shield is integral to these principles.
“The changes mean that interest rates paid to investors become variable, if required, to account for variations in the performance of the loan portfolio.
“This will enable the Shield to continue to provide first-loss cover, regardless of any adversity caused by economic or political conditions, such as those that we currently face.”
Harding said the platform will also be releasing its appropriateness tests and self-certification questionnaires in time for the regulatory deadline of 9 December and will be hiring more staff.