Lending with Zopa

Regular_Fit · 29 December 2011 at 11:53PM

I found some threads on this site from several years back indicating that Zopa didn't offer a great deal for lenders. This seemed to be primarily because the rate of return through conventional saving/investment channels was better. However, now that returns from conventional savings have dropped off significantly, has anyone revisited Zopa as a lender in more recent times? Is the picture more favourable?

Pagan98 · 31 December 2011 at 1:35PM

I had a look at Zopa recently and concluded that the return was unfavourable once you factor in the lender charge, bad debt provision, no interest on funds waiting to be lent out and inability to write off bad debts against tax.

For example, on the A* market in September/October 2011, the median return after lender charge and anticipated bad debt was 4.90% gross. I reran the calculation the other day and the rates had slid further (sorry, can't find the spreadsheet). Many long term lenders are bemoaning the poor return.

Ratesetter seems to be tipped as a more attractive alternative, partly due to its provision fund to hopefully cover bad debt.

jcb208 · 31 December 2011 at 2:35PM

I lend a small amount with zopa and as said returns are not that good now ,also I have 2 bad debts and 1 on arragement thats paying 1p a month,also several late payers ,Apart from that I'm just averaging 5% but cant see it getting better in the next year

bobbyj_2 · 31 December 2011 at 7:35PM

the bad debts are low thus far because many of these sites haven't been around long enough for a borrower to even complete the full term. Look at the rates people are lending at !!!!!!! They must think it is the season of benevolence! It will all end in tears for many.

Derivative · 31 December 2011 at 9:02PM

I don't really see such sites as a good investment decision really.
You can get yourself a guaranteed 4.7% return on 5 years fixed at Yorkshire Bank.

jamesd · 1 January 2012 at 4:04AM

Rates at Zopa continue to be too low to be worthwhile. Remember, it's not a savings account, it's an investment where capital is at risk, so it should be compared to other such investments. Easy to find those paying more than Zopa does in funds that can be held in an ISA, look at the yield column for effective interest rate. But also check the capital value performance - it's not all about interest rates, have to watch capital gains or losses as well.

Even if you stick to savings to compare it to, you can get 8% for a year on up to £300 a month from First Direct in their regular saver account. If you don't pay in £300 in one month you can catch up later. Almost completely risk free, with FSCS protection. No point in even starting to think of Zopa until you're using that.

bobbyj wrote: »

the bad debts are low thus far because many of these sites haven't been around long enough for a borrower to even complete the full term.

That's not really the cause for Zopa, which for 2008 lending saw bad debt rates around twice the predicted overall rate. They now report that year against current bad debt allowance rates, not the ones used at the time people were lending, so their reports look better than it really is. Still looks bad. It's usually done better than that.

For all of the peer to peer lending systems a significant factor is the rate of growth. If you double your lending in a year you effectively halve your overall default rate, if few default in the first year, just because of the extra money lent. There are always some defaults in the first year but that's still a factor that reduces the apparent default rate significantly.

If you want to see how a peer to peer lender's underwriting is doing, insist on seeing bad debt for each period compared to the bad debt allowances given at the time the lending was done. That way later massaging of the figures won't make it look better than it really was presented to lenders at the time they decided to lend.

atush · 1 January 2012 at 11:45AM

I looked into ti, but found the reward wasn't worth the risk. I think a good blue chip, bought after recent falls, paying a good Divi is a better bet for me.

00ec25 · 1 January 2012 at 12:20PM

I have been a Zopa lender since 2009. It no longer offers a rate of return which is significnatly better than elsewhere given the level of risk you are exposed to and so as each repayment comes in each montyh I now withdraw it and pay it into the First direct account mentioned above as this is 8% and very low risk.
Zopa now compares very badly - if you are a high rate tax payer and experience the statistical average bad dabt rate then there are some Zopa markets with interest rates of 8 - 9 % which in reality after bad debt and tax give you a negative return
Many new lenders fall into the trap of thinking of Zopa as a savings account - it is not - it is an investment where your capital is at risk and IMHO the current rates of return do not provide enough margin to make that extra risk attractive at present
Also bear in mind that it can take some time to get money lent, until it is lent you earn nothing and over the course of a year this can lower your overall rate of return quite noticeably - hence a lot of new lenders are effectively chasing rates down just to get money lent out.

pqrdef · 1 January 2012 at 12:49PM

Statistical bad debt rates only become usefully indicative if you make a rather large number of loans, and even then, they're still subject to future economic conditions.

Most lenders should probably regard Zopa as analogous to Premium Bonds, where the return you get is just pot luck, at least until you put in £10K+. Except that with Zopa the upside is strictly limited, the returns are taxable, and you don't get guaranteed repayment of capital.

RateSetter is worth a look though.

bobbyj_2 · 1 January 2012 at 1:32PM

I think fundingcircle is more the danger as it's lending to business and it's my belief many of these businesses have of course been told a big fat 'NO MONEY' from the bank.

DireEmblem · 1 January 2012 at 3:14PM

The only downside to investing in funds as suggested above is the ISC, and having to take time to carefully pick your choice - past performance is not a great indicator for the future.

Lending with Zopa

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