Ratesetter to launch peer-to-peer service to IFAs
Peer to peer finance business RateSetter has confirmed that it is talking to IFAs about selling its savings products.
Peer-to-peer finance is where money is lent between savers and creditworthy borrowers. Ratesetter claims its service benefits the saver as they can achieve an interest rate on their savings of up to seven per cent per annum on the money lent.
To achieve this level of interest, savers would have to commit to locking away their capital for 36 months. During this period they would not be able to access their savings, but they will receive monthly repayment instalments with the option to reinvest.
If savers do not decide to lock away their money they can choose the 'rolling market' option, which Ratesetter says carries an interest rate of up to 4.5 per cent but allows individuals to withdraw money with 30-days notice.
RateSetter charges the borrower a one-off admin charge of just over £100, as well as a risk provision fee of around £50. The risk fee is held in a fund by RateSetter to provide recompense to the saver in the event of a default on a loan.
This risk fee is paid held in a fund by Ratesetter to provide a return on capital in the event of a default on a loan.
Rhydian Lewis, CEO at Ratesetter, said: "If the saver has locked in for three years with £5,000 of their savings and is receiving seven per cent interest per annum, the borrower will pay seven per cent interest on the money owed to the saver.
"They will pay the capital and the interest back to the saver. Once the saver receives their first instalment, they have the opportunity to reinvest that; that is what most of our savers choose to do.
"Currently we have outstanding loans of £5.5m. We expect the borrower default rate to be less than 1.4 per cent of all borrowers. Therefore we expect the bad debt on the existing book to be £75,000, but we currently have £250,000 in the provision of risk pot.
"Savers have received every bit of capital and interest owed to them. There is a risk that savers could lose their capital but it is minimal."
The firm, which has teamed up with Zopa and the Funding Circle to launch a new trade association called The Peer-to-Peer Finance Association, receives over 300 enquiries a day but currently only accepts about eight per cent of these to ensure that the borrowers are high calibre.
Mr Lewis said: "In the long-term, we want to introduce this concept to IFAs and we expect to do this in the autumn. In October, the firm will be one years old."