Zopa Update

Zopa safegaurd offer

Zopa has changed the rules of the game slightly

Merely days after my post on Zopa, they went and changed the game slightly. It’s almost as if they knew. It by no means represents a radical overhaul but is a fairly significant progression. I don’t intend to offer a comprehensive review of it, but felt it was right to at least touch on it briefly in the interest of fairness.

The innovation is called a ‘Safeguard offer’. As the name might suggest, it is designed to offer increased safety to borrowers. The basic principle is that whereas previously if a borrower defaulted, the capital and interest that borrower still owed was more than likely lost, now it will be guaranteed and paid for by a separate fund.

The benefit of this is clear – there is no longer a risk in lending. Not only is the capital guaranteed to be returned, but also any interest. On the face of things this appears to be of great benefit to Zopa lenders.

The money in the fund is garnered from the fees borrowers already pay according to Zopa, so on the face of it this means it won’t cost lenders anything. However, there is another change that will affect lenders.

Aside from the security, the other main change involved in the Safeguard offer is that no longer does the lender set an interest rate at which they wish to loan. Instead a general Tracker rate is set centrally by Zopa to determine the rate at which money is lent on any given day.

Zopa says it will adjust this rate by looking at:

  • The rates being set in its own market
  • The rates competitors charge for loans
  • Average savings rates

This may not represent such great news for lenders, although as I write this, the projected rates are 5.1% – exactly the same as they were when I wrote my original Zopa post. This time without the same risk involved.

Zopa Safegaurd offer Tracker rates

The latest Tracker Rates (correct at 06/05/13)

How much difference will it really make to investment returns? Well in my experience on Zopa (and it is fairly limited) I have never had a single defaulter. The stringent checks seemed to keep out most people who were likely to default and as such actually meant that returns in my case have been about 0.5% higher than what Zopa suggested as the expected average.

The appeal of such a competitive rate without any risk is certainly strong and as such represents a good investment. Personally, I have taken the choice not to switch the funds I have over because I am satisfied with the performance I have been getting, and I feel the extra half a percent will outweigh the risk in the long run.

However, I have set up the earnings from my existing Zopa offer to go straight into a new Safeguard offer to be lent out, and plan to monitor which performs best in the long term. I feel it is a case of ‘only time will tell’ for now.

Note: Traditional lending offers are still available, and Zopa has given no indication that they intend to remove this although one would imagine it is probably in their long-term plan. As such, those who prefer a little risk for the potential of higher reward might be well advised to get in there quick.

For more detailed information on the changes visit Zopa.com, or see a rather more in depth article here.

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