There have been some indicators in the past weeks that Zopa is working to restructure the offered product and to re-introduce a non Safeguard offer to investors. But it was only todays the Zopa announced the details.
This is the announcement email:
Today, we are very excited to announce the next generation of Zopa lending products!
Over the past months we’ve been listening to our lenders about what they want from their lending products, and what matters most when it comes to lending through our platform. You’ve told us ease of access and the ability to take on more risk are key to offering a broader, more appealing product set. Based on your feedback, we’ll soon offer more choice and providing benefits from recent regulatory changes, particularly around the tax status of peer-to-peer interest.
In mid March, we’ll be replacing our existing lender products with three new ones: Zopa Classic, Zopa Access, and Zopa Plus. Together, these products will offer much more choice and flexibility to both existing and new Zopa lenders. As with all peer-to-peer lending, your investments are not covered by the Financial Services Compensation Scheme (FSCS), so your capital is at risk. If you wish to access your money by selling your loans, this is dependent on other lenders being available to purchase those loans.
We are sharing indicative rates today, and exact rates will be announced on 1st March. As with our existing rates, the new product rates will vary with the market, so if borrower interest rates go up, the rates on your new loans will go up too and vice-versa.
The New Zopa Products
Zopa Classic (4-5%) – Safeguard lending
Zopa Classic will give customers the security of Safeguard and access to their money at any time, subject to a 1% fee. This product is most similar to what our lenders have today, however what’s new is that it combines 1-5 year loan terms.
Zopa Access (3-4%) – Safeguard lending with fee free easy access
For customers who value easy access to their money, we’ve created Zopa Access, which has Safeguard but which has no access fee and a slightly lower expected return.
Zopa Plus (6 -7%) – Non-Safeguard lending, some added risk with higher returns
For customers who are willing to accept more risk for higher returns, we’ve created Zopa Plus. Over the last year we have been testing the performance of D and E rated borrowers with our institutional lenders, and based on these tests, we would like to offer loans with D and E rated customers to all lenders. With the introduction of Zopa Plus, customers can lend across A*-E risk markets. Loans in Zopa Plus are not Safeguarded, and so it will suit customers who don’t require this additional security as they are comfortable lending their money via Zopa’s diversification model. Predicted rates of return will be higher but will come with some additional risk.
When the new products launch, what will happen to customers’ loans that are in the short and long products?
If you’re a current Zopa lender, then as we retire the existing short and long products, your repayments will cycle into the new Zopa Classic product. So the rates will stay the same on your existing loans, but as they get repaid, the repayments will be used to buy new loans within the Zopa Classic product.
How will customers be able to have multiple products? How can they be funded?
Customers will be able to have multiple lending products with us – you can have an Access, Classic and Plus product – however only one can be selected for new funds at any given time.
If you are an existing customer and you wish to move your existing loans from Zopa Classic into one of the other new products, you can choose to turn off re-lending and allow repayments to collect within the holding account and then allocate those funds to a new product. Alternatively, you may sell your loans and purchase new ones within a new product.
In my view there are 3 major aspects:
- Expansion in D and E rated borrowers
- Introduction of Non Safeguard Loans
- Removal of term selection choice for the product that is somewhat similar to what investors are accustomed currently
According to the FAQ, all of the new lender products will be available for the IF-ISA.
The Safeguard Option is not as important to retail lenders as it was before, because with the tax changes UK investors can now offset losses against interest earned.
Zopa offers this explanation on why they created the new offers:
Opening up to markets
Today, when a borrower makes a loan application, we score their application using a wide range of information, such as income, mortgage and debt levels, to give them a rating from A*-E.
Currently we only offer individual lenders the opportunity to lend to borrowers we rate as A*-C.
Over the last year we have been testing the performance of D and E-rated borrowers with our institutional lenders. Based on these tests, we now feel confident to offer loans with D and E-rated customers to all lenders.
All customers accepted by Zopa must continue to meet our strict lending criteria for UK residency, minimum age, income and affordability. Customers may be scored as D or E due to a number of factors, including higher levels of personal debt or limited credit histories, which makes them slightly higher risk than our C-rated customers. Including these markets in the lending mix for individual lenders does not mean we will be approving more loans or taking on more risk; we will simply be sharing a proportion of the higher yielding borrowers across individual and institutional investors.
New product – without Safeguard
We know that some, but not all, lenders want the opportunity to achieve higher yields by taking on a higher level of risk. That’s why we plan to offer a new product that will enable lenders to accept A*- E-rated loans without Safeguard. Offering this product without Safeguard is better for borrowers – it means they will not have to pay a high upfront fee – and it will also be better for lenders who want to take on more risk for a higher expected return after defaults.