RateSetter celebrated its 10-year anniversary this week, having played a major part in the evolution of the peer-to-peer lending industry over the past decade.
The ‘big three’ P2P lending platform was founded by chief executive Rhydian Lewis in 2010, introducing the provision fund model.
Since then the platform has lent over £4bn, mostly in consumer and property loans, with a small proportion in asset finance.
RateSetter, which has £687m in loans under management, has repaid £3.5bn to investors, including £182.6m in interest.
After being acquired by Metro Bank this year, going forward the bank will fund its consumer loans rather than P2P investors, while other loans will continue to be funded by P2P lenders.
Here Peer2Peer Finance News looks at some of RateSetter’s returns, lending volumes, losses and how it has dealt with the Covid-19 crisis.
The platform has paid 4.4 per cent in average total annual returns to investors, with this figure pretty consistent among the years.
Pre-2016, RateSetter paid 4.8 per cent in annual returns, which then dropped to 4.3 per cent in 2016 and 4.1 per cent in 2017, before rising to 4.4 per cent in both 2018 and 2019.
Investors received a 3.7 per cent average return between January and July 2020 – a year-on-year drop of 0.7 per cent.
However, since 4 May 2020, half of all lender returns have been diverted to RateSetter’s provision fund. Therefore, an investor earning 3.7 per cent in interest between January and May would see their actual returns halved to 1.85 per cent.
In 2016 and 2017 RateSetter’s lending volumes remained flat at about £626m and £625m respectively, before jumping to £709m in 2018 and £786m in 2019.
However, during this year, the platform has been hit by Covid-19 and so far, has lent £276m in 2020 with £219m left to repay.
Provision fund and losses
Currently RateSetter’s provision fund buffer (£23.5m) and expected future investor interest (£28.5m) means the capital buffer of £52m will cover expected future losses of £33.9m.
Use of the provision fund has risen to an all-time high this year while the expected loss rate at which loans were written is expected to come in at three per cent during 2020, slightly lower than the 3.1 per cent total average in the actual loss rate of loans.
The loss rate of loans was three per cent pre-2016, then fluctuated to 3.4 and 3.3 per cent in the following years, before jumping to an all-time high of 4.5 per cent in 2018. It dropped to 2.3 per cent in 2019 and is at 0.5 per cent so far this year.
The coronavirus has taken a big hit on the consumer lending and car finance markets, therefore affecting the platform’s loans in these areas.
At the start of May, RateSetter halved interest rates for all accounts for the rest of the year, as a response to the economic uncertainty caused by the pandemic.
In June, RateSetter said after seeing a drop in consumer lending volumes, it adopted a cautious approach to managing this, tightening its lending criteria to favour homeowners and customers with greater affordability and creditworthiness.
During the same month, RateSetter reported fewer consumer borrowers were requesting a payment break and said that its asset finance division had suffered fewer defaults than expected.
This year, the platform has conducted a greater proportion of property lending.
During the past three months, property has made up 70 per cent of RateSetter’s portfolio, compared to 23 per cent of its overall portfolio.