Ratesetter Review (UK)
** Ratesetter review updated January 13th, 2018**
Read my comprehensive unbiased Ratesetter review highlighting my investing experiences after 2+ years as a lender and see why it remains a favourable choice.
Established in October 2010, I considered Ratesetter to be one of the safer peer to peer lending companies. The investment options are basic and very easy to understand. Ratesetter does require a watchful eye and some hands-on time to achieve the best return rates. Despite the fluctuating rates and some recent poor business decisions, I still like Ratesetter.
My December 2017 Allocation: Slightly Increased
My annual rate of return: 6% (After fees but before taxes)
|Est. Annual Returns:||Up to 6.6%
|Recent Return Rate Trend:||⬆︎|
|My Risk Rating *:|
|Loan Types:||Consumer, property, business|
|Loan Security:||Consumer loans unsecured, property, personal guarantees|
|Lender Fees:||Avg. 1.73% exit fee on 3 & 5 yr products|
|Avg. Lender Portfolio Size:||£22,000|
|Time to Become Invested:||Auto-invest is Instant, manual varies on rate you accept|
|Time Needed Managing:||Low|
|Lending Agreements With:||Borrowers|
|Cashback Offer:||£100 bonus on £5,000 + investment. (See terms on sign up page.)|
|Sign Up:||Sign Up|
* This opinion risk factors in loan types, interest returns, company history, default numbers and my own investing experience. Risk rating explained here.
The Ratesetter Review: What You Need To Know
- Safer peer to peer lending option
- Competitive rates of return; can still achieve 6+% on 5 year term, 4%+ Rolling
- Established in 2010; longer operating history than most peer to peer companies
- Funded by companies such as Woodford and Artemis
- Loans given to credit worthy borrowers
- Low default rates
- Provision fund with interest buffer to cover lenders equally
- Possible to exit loans early
- Easy to use
- Fluctuating return rates can be frustrating
- Need to be hands-on to get best returns
- Exit fees on 1,3 & 5 year loans can be high
- Provision fund is discretionary
- Early loan repayments can leave large uninvested sums in your account
- Idle money leads to lower returns
- Larger lump sums of your money can into single loans
- Some unsecured loans in portfolio
- Some questionable company decisions made in 2016
- Ratesetter has some sneaky secondary market practices (see What Are The Fees section)
Ratesetter isn’t the perfect peer to peer company and has recently announced some difficulties they have faced regarding their wholesale lending. I will explain more about this below. The good news is Ratesetter has admitted their mistakes and been transparent with the information and the fixes implemented to protect the interest of lenders.
Even though Ratesetter hasn’t experienced a severe economic downturn, it remains in my Top 5 Peer To Peer Lending Report.
Read more below in my exclusive Ratesetter review.
Ratesetter’s Company Financials
|31st March 2016||31st March 2015|
|Revenue||£ 18,458,205||£ 12,571,797|
|Pretax Profit / (Loss)||£ (4,889,658)||£ 475,656|
|Net Assets||£ 24,112,287||£ 28,122,808|
Latest financials taken from Companies House and added for informational purposes.
Ratesetter Review: My experiences so far and thoughts on the recent loan issues..
I have been investing in Ratesetter since early 2015. I have a special love for Ratesetter as it took my peer to peer lending virginity without buying me dinner. Ratesetter was the perfect entry point into peer to peer lending as it provided simplicity, safety (in the peer to peer world), a provision fund and a possible exit strategy. I continue to invest through Ratesetter but I withdraw interest payments when the rates aren’t attractive.
In late July 2017, Ratesetter publicly announced it had “intervened over and above the usual course of business with three of its borrowers”.
I’ll try to summarise this event.
The Financial Conduct Authority (FCA) has been putting pressure on Ratesetter to act appropriately in order to protect the interests of the lenders and has discouraged wholesale lending practices. Ratesetter had a wholesale lending team that lent money to other lending companies. The wholesale lending department was discontinued in December 2016, probably due to FCA pressure. Within the wholesale lending, third parties were relied upon for underwriting which in my opinion, could have been of subpar quality.
One of the borrowers, Vehicle Trading Group Limited (VTGL) which provides loans to car dealerships, went into administration due to over-borrowing. Naughty naughty VTGL! Ratesetter purchased VGTL and its two subsidiaries in order to continue its vehicle lending business and also to protect the interests of lenders. Ratesetter’s new arrangements will have lenders’ matched directly to end borrowers rather through the convoluted system that was previously in place.
The problem was that Vehicle Trading Group Limited lent £12m of Ratesetter’s money to a company called Adpod which is an advertising company. Adpod was mismanaged and ran into financial difficulty so Ratesetter stepped in to take Adpod over rather than have the losses impact Ratesetter’s Provision fund and its lenders. Adpod’s loan is now about £8.5m and Ratesetter will operate Adpod and stand behind the monthly payments until the loan is paid off.
The third company that Ratesetter has become involved with George Banco Limited (GBL), a consumer loans company. Ratesetter’s involvement came as a result of FCA regulation (the FCA didn’t like wholesale lending). Ratesetter is now a minority shareholder of GBL and the loans will be wound down to completion.
Ratesetter offered all lenders’ the opportunity to sell out of their loans at no charge to which I declined. This is actually a smart move for Ratesetter as they can take over the older higher paying interest loans and reissue them to new lenders’ at lower return rates, pocketing the difference.
Many readers have emailed me asking if I’m still comfortable lending through Ratesetter. I think Ratesetter became overly complacent and in an effort to grow and place more money into borrowers hands, started lending to companies it shouldn’t. I hope these mistakes will be learned from and policies will be put in place to prevent such issues in the future.
My view is that Ratesetter has been transparent with its mistakes and has taken action to rectify this situation. They have ceased wholesale lending in order to have more control over where lenders’ money is placed.
To be honest I fully expect some peer to peer companies to make boneheaded lending moves since alternative finance is such a new sector. It’s possible one bad lending decision could lead to its trading demise. As a lender, you can’t achieve decent investing returns without taking some risk and that’s why it’s so important to spread your money over many different investing companies.
Personally, I think Ratesetter’s interventions will pay off in the future and since rates are rising, I will likely increase my investment with them.
What Is A Ratesetter?
Ratesetter is a peer to peer lending company where lenders loan money directly to borrowers via lending terms of either instant access (Rolling rate), one year or up to five years. The Rolling account is invested in a mix of one year and five-year loans.
Most borrowing types are personal, commercial and property loans. Property loans make up a small percentage of loans so it’s important to know most loans are unsecured.
Lenders can either choose the current market return rates (auto investing – not recommended) or set their own return rates (recommended). Even though you may actually be lending to a few borrowers, diversification is achieved by all lenders sharing in bad debts equally.
How Can I Contact Ratesetter?
UK Tel: 0203 1426226
When Did Ratesetter Launch?
Are They Regulated?
Yes, by the UK Government’s Financial Conduct Authority #633741 under full permission. FCA regulation is nothing like the FSCS (Financial Services Compensation Scheme), which covers consumers when they deposit money in banks. The FCA does have the ability to pursue criminal action against companies which violate its standards, but the FCA is not a government entity and it’s funded by the very companies it regulates.
How Do I Sign Up / Any Bonuses?
Click here to sign up for Ratesetter. (New customers receive £100 cashback on the investment of £5,000 or more. Bonus is received one year after your investment is made. This payment is made by Ratesetter and does not come from your investment. When you open an account through my website it helps me to continue to operate and offer reviews.)
Who Can Open An Account?
Any person 18 years or older who has a UK bank account and can pass the verification check.
What’s The Signup Process Like?
Simple. They run the usual i.d. checks.
What’s The Minimum Deposit / Investment?
Debit card deposit: £10 (£1.50 fee for deposits of less than £1,000)
Bank transfer deposit: No Minimum
Investment into loans: £10 minimum
How Are Deposits Made?
Via bank transfer
Does Ratesetter Offer An Innovative Finance ISA?
Not yet but now Ratesetter is fully FCA authorised I expect to see an IFISA soon.
How Much Interest Are Lenders’ Paid?
Rolling: 2.5% – 4.6% with a historical average of 3.1%
1 Year: 3.0% – 5% with a historical average of 3.6%
5 Year: 4% – 6.5% with a historical average of 5.9%
Several months ago, i was struggling to achieve 5% in the five-year market but what a difference a few months can make.
As of October 2017, I was able to lend money on the five-year market at 6.5% which is very encouraging but rates do fluctuate hour by hour. When you lend at the five-year term, you will receive both capital and interest payments monthly. When you receive your monthly repayment, your money may sit on the open market while it is being re-lent. The time it sits on the market depends on the interest rate you’re willing to accept.
Unfortunately, there isn’t a simple answer to how much lenders can expect to receive since as there are many variables. Sometimes the return rates make no logical sense. For example in early December 2016, the five-year rate was lower than the now-defunct three-year rate.
Due to the fluctuation of rates, it’s possible to have money sit idle or in the Rolling Market as you try to obtain reasonable longer-term rates. Idle money collecting little or no interest can have a detrimental effect on returns. I would estimate that due to idle money time, you will receive 0.10-0.30% less than advertised rates.
Is Interest Paid Immediately Or When the Loan Starts?
Interest accrues as soon as your money is matched to a loan.
When Is Interest Paid?
Rolling: Capital and interest are paid when you sell out / withdraw.
1 Year: Capital and interest are paid at the end of the term.
5 year: Capital and interest are paid monthly.
Am I Lending To Ratesetter Or The Borrower?
Ratesetter is a true peer to peer lending company so you’re loaning money directly to borrowers. This is good for lenders.
What Are The Fees?
Ratesetter has exit fees that vary depending on what product you are selling, what your interest rates were when you bought the loans, and what the current interest rates are. Estimated sell out fees can be anywhere from 1% to 2.75%.
If you want to estimate the fees, do the following:
Step 1: Click on the Withdraw link inside your account
Step 2: Click on Sellout at the bottom of the screen:
Step 3: Enter desired sellout amounts and fees will be shown:
On a positive note, the Rolling market account has no exit fee.
Also note that if you choose to exit one, three and five-year loans early, there are some sneaky stipulations buried deep within Ratesetter’s Terms & Conditions page (section 9). Ratesetter will offer your loan parts to other lenders if you want to sell out. If a buyer exists and the current interest rate on offer is lower than your achieved rate, Ratesetter keeps the difference in the future accrued interest. If the existing rate is higher than your achieved rate, you are penalized and it comes out of the amount owed to you when sold to another investor.
If you are investing in Ratesetter with a plan on exiting early, you should consider using the short term Rolling account due to the costly exit fees on the one year and five year products.
Ratesetter also charges a £1.50 fee for debit card deposits of less than £1,000.
How Much Time Will I Need To Spend Managing My Investments?
I spend approximately 10 minutes per week using Ratesetter. To earn the best rates, you will need to log on and make sure your reinvestment target rate settings are realistic otherwise your money will sit idly in your Holding Account earning you zero interest.
If you want Ratesetter to be a completely hands-off product, you can set your reinvestments to be lent at market rates, but beware as your returns may suffer because Ratesetter will lend your money at the current demand rate.
How Long Are The Investment Terms?
Rolling (easy access/ no minimum time frame), one year or five years. The Rolling account invests your money across loans ranging from six months to five years. Any loan can be repaid early by the borrower. This has been frequently occurring since interest rates have dropped as borrowers are refinancing their loans or looking elsewhere for lower rates.
What Security Does Ratesetter Lend Against?
Ratesetter lists its borrowers’ types as individuals, business / commercial loans, and property. Although it doesn’t specifically list each loan, Ratesetter states “Commercial loans include unsecured loans to sole traders and small businesses and secured loans to larger businesses.” I presume most loans are unsecured except for property loans, which make up a relatively small part of Ratesetter’s loan book.
What Are The Loan Default Rates?
Default rates were 2.78% for 2015 and 0.98% for 2016. For 2016, only 0.06% of all loans were in trouble. These bad debt rates are very low but expect them to rise if the economy worsens. You can see current statistics here.
What Are The Main Risks?
Company Failure: This is a risk with every peer to peer lending company. If the business model fails, investors could lose all of their investments though it’s more likely they would lose some of their investment. I consider Ratesetter to be one of the safer peer to peer lending companies but even they have made lending mistakes. Ratesetter’s provision fund, lending criteria and business model funded by investment heavy hitters such as Woodford and Artemis, make company failure is less of a concern.
Economic downturn: Ratesetter has yet to experience a severe downturn in the economy. If a downturn were to occur, Ratesetter might experience higher borrower default rates since most loans are unsecured.
Lowering of underwriting quality: One of Ratesetter’s draws is they lend to high-quality borrowers who they consider low risk. There is always a risk that Ratesetter will lower their underwriting standards and defaults will rise.
Is There A Provision Fund?
Yes, and Ratesetter lists the balance as over £20 million, however, £12 million is in cash while £7.8 million is considered expected future funds. That will buy a few packets of Monster Munch! The provision fund supposedly has enough money to cover defaults by 118% but this fund is discretionary, meaning the Directors decide when and if the fund is used. See the latest number here.
Ratesetter has made some extensive changes to its terms and conditions in regards to how their Provision Fund operates. Ratesetter is now allowed to manage the Provision Fund’s health and size by reducing costs, using future loan funds and interest or reducing lenders interest returns. These changes are designed to keep the fund replenished in times of financial troubles. Some people were understandably unsettled by these changes but I appreciate Ratesetter’s forward-thinking to protect lender’s interests. I think these generally good changes will allow Ratesetter to act in times of trouble. For those unhappy with the changes, Ratesetter allowed lenders to exit the with no selling fees.
What Happens If Ratesetter Goes Bust?
Ratesetter has an independent trustee in place to ensure lenders loans are handled correctly and to ensure wind down of the company. Since lenders and borrowers are contracted between each other, borrowers would continue (in theory) to make payments to lenders via the trustee.
Honestly, if Ratesetter failed (or any peer to peer lending company), there’s no telling whether lenders would get their money back as the wind-down process would be complicated and the administrator’s fees could be absurd. Let’s hope Ratesetter stays in business.
THUMBS UP FOR RATESETTER:
Safety + Provision Fund
Ratesetter is considered to be one of the safer peer to peer lending companies. Their underwriting team supposedly only loans to high-quality borrowers who are in the low risk of default category. The provision fund while not guaranteed, provides an extra layer of safety and is in place to pay lenders in the event of loan defaults or economic downturns.
Ratesetter is well funded and has a longer history dating back to 2010. Many lenders discount the importance of a company being operating correctly and having access to funding, but I consider these to be important factors.
Lender Return Rates
While the days of 7% interest rates have long passed, when you factor in safety, Ratesetter’s rates are still good. Rates are constantly fluctuating so I never use auto invest and always set my own rates. Despite falling rates, I’ve still been able to achieve rates as high as 6.5% using the five-year term. Certainly much better than savings bonds or high street bank rates.
Low Default Rates / No Lender Has Lost Money
Loss rates have remained low at a total of 2.29% as of September 2017. Ratesetter reports no lender has lost money through Ratesetter.
Ratesetter offers a way for you to be able to exit your loans early. You select how much you want to sell and Ratesetter shows you how much your exit value will be minus fees. Fees vary depending on what you are trying to sell but through my experimenting, they range from 0.25% – 2.75% although Ratesetter claims the average fee is a little over 1%.
The Rolling market still offers great liquidity and I continue to be able to sell within a few seconds. Being able to liquidate existing loans isn’t guaranteed but I believe liquidating during normal economic markets shouldn’t be a problem.
Deposits, Payments & Withdrawals
Use a debit card for instant deposits. Monthly payments have always been on time and withdrawals can be as fast as the same business day.
It’s very easy to use and looks great. Here is the Portfolio dashboard:
TIP: Ratesetter makes it tricky to access the page where you can set your own interest rate (purposely?). Here is how you can quickly access this page.
Most pages display the current lending rate box. You can click on the rate term you want to invest in:
You will be taken directly to the investing page where you can set your own rate:
THUMBS DOWN FOR RATESETTER:
Fluctuating Interest Rates
Other peer to peer lending sites offer fixed interest rates, which makes reinvesting much easier and less time-consuming. Some people like to be hands-on with their investing but if that’s not for you, consider Lending Works.
Many conspiracy theory investors speculate on why Ratesetter’s rates fluctuate so much and how the rates are calculated. No one has a definitive answer as Ratesetter seems to do what it wants to do. Large influxes lender money can also impact rates.
Fluctuating rates can also be caused by investors using the auto lend feature. Auto lend assigns low rates on behalf of these lenders and if there is a large queue of auto-lenders, market rates remain low.
Need To Be Hands-On To Get The Best Returns
Your unmatched funds can sit idly by earning you zero if you don’t keep a watchful eye on your account. You can go for the hands-off auto-invest option, but you’re likely to receive some horribly low return rates since rates fluctuate by the second. I don’t spend much time on this and thankfully setting target rates only take a few mouse clicks:
Larger Lump Sums Can Be Invested Into Single Loans
I consider Ratesetter a buy and hold investment. If you plan on exiting, the fees can be up to a hefty 2.75%. I recommend Ratesetter as a long-term investment to avoid the exit fees. Remember there are no exit fees on the Rolling Market.
Most of Ratesetter’s loans are unsecured. Ratesetter only lends to prime borrowers, but if Ratesetter decided to lower their underwriting standards, defaults could easily rise. Would it be better for Ratesetter to offer secured loans? Yes of course but it’s not too much of a worry since lenders are mostly taking smaller consumer type loans similar to Zopa.
Early Loan Repayments Can Leave Large Uninvested Sums In Your Account
Since all lenders share risk equally, this can mean a large lump sum of your money can go into a single loan. If that loan is repaid early, you will find your account with a larger than normal holding balance. It’s important to pay attention to the repayment notification emails so you can re-lend as soon as possible.
Idle Money = Lower Returns
Reinvesting payments doesn’t always happen quickly, so when repayments sit idly in your account looking for a home, your returns will always be lower than advertised rates. I’ve calculated my returns to be 0.2% less due to this factor.
Set Your Own Rate Page Not Easy To Find
Ratesetter makes this page rather difficult to access although you can directly access it by clicking on the loan rate box. I’m starting to wonder if Ratesetter made this page purposely difficult to find.
When lenders use auto-lend and are willing to loan money at low rates, Ratesetter can loan money to borrowers at lower rates making them more competitive against other loan companies. See my above tip on how to quickly locate the “set your own rate”.
No Email Notification When Monthly Payments Are Received
Small negative but an annoyance none the less. Sometimes I forget to log into my account and when I do remember, I find funds sitting in my account doing nothing. The way around this is to look at your loan repayment dates and set yourself a reminder to log in and reinvest.
Starting out I was extremely nervous about peer to peer lending. Ratesetter was the first peer to peer lending site I experimented with. I started out using the monthly term (now called Rolling), which paid 3.5% annually, and I was ecstatic to receive my capital and interest at the end of the first month. I reinvested for the next two months, did some research and spoke with the staff. As I become increasingly more comfortable, I increased my investment and lending term lengths. I proceeded to lend using the three-year term at 5.8% and the five-year term at 6.6%. I continue to re-lend using the five-year term when I can achieve rates of 5.8% o higher and I have recently achieved rates of up to 6.5%.
Due to fluctuation interest rates and higher lending demand, patience is needed to obtain better returns rates.
Ratesetter Review Conclusion
Despite some recent troubles, I still continue to invest through Ratesetter while withdrawing interest payments if I can’t obtain certain rate levels. Ratesetter has been offering peer to peer loans since 2010. Its low default rates and longer operating history make it one of the safer peer to peer lending options. Ratesetter is a profitable business lending to prime borrowers with a lower risk of default. Many consider Ratesette to be boring since investment options are basic however in the investment world, boring can be good.
Lender return rates have been fluctuating but it’s still possible to obtain five-year rates of 6% and higher. Ratesetter does require some hands-on time to achieve the best returns. Stay away from the low-yielding auto-lend option. Most loans are unsecured and the company has yet to be tested by an economic downturn. Despite the downsides, if you are new to the peer to peer lending world, I recommend Ratesetter as a great starting point.
Click here to sign up for Ratesetter. (New customers receive £100 cashback on the investment of £5,000 or more. Bonus is received one year after investment. This payment is made by Ratesetter and does not come from your investment. When you open an account through my website it helps me to continue to operate and offer reviews.)
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** This review is for information purposes only and should not be regarded as investment advice. Opinions expressed in this review are only opinions based on my own personal experiences. As with any financial investment, peer to peer lending involves risks, so never invest more than you can afford to lose. **