RateSetter review

3 star rating

What we like

What we don't like

Key facts

  • RateSetter is one of the largest P2P investment platforms and has a long track record
  • Investors can convert their investments into cash quickly and simply
  • A provision fund exists, which reduces risk for investors
  • The products are simple, and it does not require much time to keep funds fully invested
  • It is possible to invest larger sums more easily than other platforms
  • Investors can invest via a SIPP pension account and (soon) an ISA account
  • We think the size of the provision fund should be increased to provide more buffer versus expected loss levels
  • Returns are not high (3.8-6% currently depending on product). The platform suits investors who are looking for a simple P2P product and may need access to funds quickly (by selling in the secondary market or using the 'rolling' market)
  • It is hard to predict how well RateSetter unsecured loans would perform in a downturn. Some of the person loan interest rates seem aggressively low
  • Loan types - 80% of Ratesetter's loans are unsecured loans to individuals. The remainder are loans to small businesses and real estate developers
  • Collaterals - Only 10% of the Ratesetter portfolio is secured on real estate
  • Protection fund? - Yes
  • Autobid available? - Yes
  • Secondary market? - An indirect secondary market exists - investors can 'sellout' their 1 and 5 year investments early if they pay a fee (average 1.2%). No fees for selling a 'rolling rate' investment, although interest rate earned is lower
  • Is platform profitable? - No. £4MM loss (last financial period available)

Conclusions on RateSetter

RateSetter is one of the 'Big 3' UK platforms, alongside Zopa and Funding Circle. This means that it has major backing behind it, a well functioning website, and good liquidity. It is designed for investors who want to earn more than a term deposit, but don't want to devote too much time or effort to their investments. Investors in RateSetter have their money invested across a large number of loans, providing good diversification. Investors can choose from the 'rolling' monthly market or 1 and 5 year markets. The 1 and 5 year markets offer slightly higher returns, but investors have to pay fees if they want to sell their investments early. Investors need to set 'bid' levels for the return they want in each market. To maximise returns, some investors log in regularly to take advantage of fluctuations / spikes in rates. RateSetter is most suitable for investors who prefer simple products they can 'set and forget', with a stable return profile.

We do have some concerns about Ratesetter though. The provision fund is currently only funded at 116% of expected losses - if there is an economic downturn we have doubts that the provision fund will be sufficient in size. Ratesetter is also one of the most aggressive lenders currently in the personal loans market. It is true that they focus on lending to borrowers with lower risk profiles. However the very low rates they are charging means that there is a risk that the portfolio will perform poorly during the next economic downturn, as there will be relatively little interest income available to offset any future defaults. Defaults have been increasing, and were above expectations for loans made in 2014, 2015 and 2016. We would expect many investors to quickly seek an exit if there is an indication that defaults are increasing. Since July 2017 the interest rates paid to investors have been steadily increasing on all their products. While this seems good news for investors, as they are earning 2-3% pa extra, it may also indicate that some investors are becoming wary. 

£100 bonus for new Ratesetter investors

RateSetter is offering new investors a £100 bonus. To qualify, visit Ratesetter and open an account using this link.  

Investors will receive their £100 bonus automatically into their account. It will be paid once investors have invested a minimum of £5,000 for 12 months. Full details are provided on the Ratesetter site. 

Our legal page contains disclosures and the full terms and conditions of the use of the ExploreP2P site. 

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