Peer to peer lending giant Zopa is cutting interest rates for investors following the Bank of England official rate cut to 0.25%.
Investors across the board are likely to see a 0.2% slice off their earnings from lending cash through the online platform.
Zopa is the UK’s biggest peer to peer lender, advancing more than £1.6 billion ploughed into the company by investors since 2004.
The money goes mainly to personal borrowers by matching their credit profiles with the risk investors are prepared to accept.
Peer to peer lending offers investors a higher return on their cash than high street banks and building societies.
Interest rates tumble
Borrowers also gain from paying lower rates and less fees for a loan than they would in the high street.
Zopa says existing lending arrangements will stay at their current rates, but business written from September 1, 2016 will come under the new deal.
The platform has three levels of account for investors –
- Rates for the Access account will be cut from 3.5% a year to 3.3% for investors
- The rate of return on the Classic account will drop from 4.3% to 4.1%. This account also carries a 1% withdrawal charge
- The Plus account also sees rates fall from 6.7% to 6.5%. This account is a favourite with investors willing to advance cash to borrowers with a riskier credit profile
Zopa explained that rate cuts by almost 100 providers since the Bank of England announcement have led to banks slashing their lending rates making peer to peer deals less attractive.
Queues for loans
“Headline rates for borrowers across the board are at a record low,” a Zopa spokesman said.
“It’s important that we stay competitive while maintaining our high standard of borrower.”
More competition in the sector has forced Zopa to take on more borrowers with a poor credit rating.
The platform only passed 1% of risky business at one stage, but this has risen to 20% of advances.
“Banks have already reduced their rates dramatically: in many cases by more than 0.25%. This lack of competitiveness for investors from the banks has led to a surge in new lenders at Zopa; meaning slower lending speeds and queues of, on average, 10 days in Classic,” said the spokesman.
“This is something we closely monitor and manage. As we are a marketplace it’s essential that we maintain the balance between borrowing and lending.”