Note: Article first written 1st Aug 2016, fully updated 19th Dec 2016.
Zopa is the oldest and largest P2P lender in the UK. This established track record and the massive size of its loan-book means it’s generally regarded as one of the safer P2P platforms. In March 2016 they restructured their investment products into three accounts: Access, Classic and Plus. These offer either easier access to sell out, or longer term investments with and without a safety fund.
In November 2016 they applied for a full banking licence, which if granted would let them offer products like overdrafts and cash deposit accounts. This is unlikely to happen before 2018 however. Also in the pipeline is the Innovative Finance ISA. So, with Zopa we have a large, established platform that is more likely to target a mainstream consumer investor looking for a trusted brand.
Expected Returns: 3.1%-6.3%
Safety Fund: Yes (optional)
Sell Out: You can sell loans early, with conditions
Minimum Investment: £10 (Access & Classic accounts), £1000 (Plus account)
Cashback: £50 on £2000 investment, paid straight after £2000 loaned out [details how to claim] Time taken to get my total investment matched: 14 days (on £2000)
‘Lending Velocity’= 7.14% per day
My New Investor Strategy
I view Zopa as an easy fire and forget platform. Due to the lower perceived platform risk associated with it, I’d expect it to attract a wider audience of general savers looking for a home for their money. Even for those open to a higher risk/reward platform the returns are good when you take account of their cashback in the first year. This ‘new investor’ strategy aims to take advantage of the new customer offer by selling out of a product after one year and adding the cashback returns to your overall return:
Zopa Access 1 Year Strategy
Cashback: £50 = 2.5%
Total Return: 5.6%
Zopa Plus 1 Year Strategy
Cashback: £50 = 2.5%
Expected Returns: 6.3%
Sell Out Fee: -1%
Total Expected Return: 7.8%
Zopa P2P Lending Review
Zopa now offer 3 distinct lender products, best described in their own words:
Zopa Classic (4-5%) – Safeguard lending
Zopa Classic will give customers the security of Safeguard and access to their money at any time, subject to a 1% fee. This product is most similar to what our lenders have today, however what’s new is that it combines 1 – 5 year loan terms.
Zopa Access (3-4%) – Safeguard lending with fee free easy access
For customers who value easy access to their money, we’ve created Zopa Access, which has Safeguard but which has no access fee and a slightly lower expected return.
Zopa Plus (6-7%) – Non-Safeguard lending, some added risk with higher returns
For customers who are willing to accept more risk for higher returns, we’ve created Zopa Plus. Over the last year we have been testing the performance of D and E rated borrowers with our institutional lenders, and based on these tests, we would like to offer loans with D and E rated customers to all lenders. With the introduction of Zopa Plus, customers can lend across A*-E risk markets. Loans in Zopa Plus are not Safeguarded, and so it will suit customers who don’t require this additional security as they are comfortable lending their money via Zopa’s diversification model. Predicted rates of return will be higher but will come with some additional risk.
To clarify as I understand it, the Zopa Plus product takes your £1000 minimum investment and invests in at least 100 different loans (1% minimum). Some of these are at a higher risk (D and E rated). You have the ability to access your loan book from within your Zopa account, and with the Zopa Plus account you may have an average interest rate of 10-14%. They project that after defaults you should have a 6.7% return, and force you to initially invest at least £1000 to ensure you have a wide enough diversification.
My Zopa Lending Experience
Overall, it’s a very simple platform to use that also has detailed access to your underlying loan book. The new customer cashback was really easy too – the day after my £2000 was fully loaned out they credited my account with another £50. Full terms and conditions along with a working referral link can be found here.
I went with the Zopa Access account as I thought it would be easy to withdraw the money if needed. It took about two weeks to lend out at 3.3%. Surely, if it takes 2 weeks to lend out my money there should be a high demand to make it easy to sell again? I was quite surprised that it was not quite as easy as that:
It only let me sell about 33% of my Access account loans. I tried again over the next couple of days but was told:
When you click on the ‘selling your loans in our FAQs’ it takes you here. I had naïvely thought of the access account a bit like a slow withdrawal bank account, where I could withdraw the savings whenever I wanted. Now it appeared as if it was not that easy.
Why Can’t I Sell Zopa My Zopa Access Loans?
It mentions that some loans may not be able to be sold if there is a ‘pending repayment’. Looking at repayment dates in my loan-book from before my sale I have this distribution:
Comparing it to the distribution given within my Zopa Dashboard after the sale:
It’s clear that the delay is due to repayment dates. I’ll update this post in a few days to confirm, but it appears that the Zopa Access account is pretty easy to withdraw money, unless the loans are repaying. You’ll have to log in a week later to sell the remaining chunk of your loans.
Update 1 week later: The difficulties in selling out were indeed due to the repayment dates. I waited a few days and had the ability to sell everything. One nice bonus was that when I sold some of my loans, my interest rate actually went up to 3.8% due to the random selection of what was sold!
December 2016 Investment Controls
As of December 2nd 2016, due to excess deposits by investors, Zopa have added extra controls on new cash deposits. Existing lenders with money in Zopa can still reinvest their capital and interest. In an email to lenders, Zopa said:
Throughout December, we will monitor the levels of new money. When necessary, we’ll stop all inbound transfers while we disburse the new funds already in the queue.
Currently, the time to lend new money is projected to be slow, so we are not accepting new money transfers. You can check your Weekly Update email and live tracker in My Zopa for the latest information.
If they’ve stopped deposits, when you log into your account you’ll see:
Zopa have said they will review this on a week-by-week basis. If they are taking deposits, you’ll see something along the lines of ‘We currently have a platform limit of £1,400,000’ (this is what it said when I checked on December 19th).
Summary & Comparison to Other P2P Lending Platforms
Zopa is a well established platform that appears to be targeting the mass market with its simple hands off approach. For me, it would help if they explain in more detail with visual examples why people may have a delay selling out of their loans. I imagine that many first time P2P lenders will use the access account without thinking that they may have to wait a week to withdraw all of it. Then, come some emergency where they need to withdraw, it may be frustrating to be prevented from doing so with no well defined explanation. With Zopa Plus you are automatically spreading your risk in a wide basket of higher risk loans and getting a return closer to higher risk platforms. Once they finalise the Innovative Finance ISA, then Zopa Plus will potentially offer an attractive balance between risk, return and hands off automated investment.
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