A roundup of the first week with fixed interest rates
Fixed interest rates have been on the marketplace for just over a week since launching on Monday 28th September, so we wanted to share some initial insights into the trends we’re seeing. Many of you have asked for some details about how the first week has been, so we hope you find the below useful.
1) You helped 175 businesses across the UK access finance last week and £6.3 million of new fixed rate loans were listed on the partial loans marketplace.
2) 8 businesses had their loans listed and accepted in one day, meaning committed funds are being used efficiently and businesses are accessing loans faster than before.
3) Secondary market liquidity has increased with more loan parts selling, as a proportion of those listed, than previous weeks.
Speed of funding loans on the primary market
Before launching fixed rates we expected the average time taken for loans to fund to decrease. Last week, many of you will have seen loan requests filling particularly quickly, which was mainly caused by an increase in available funds and fewer loans available to lend to:
1) In the week before fixed interest rates launched, £5.4 million of loans were listed on the partial marketplace, compared to £6 million and £6.3 million listed in the previous 2 weeks. This created more available funds for the week commencing 28th September, contributing to loans filling quickly.
2) A small number of investor accounts were filling a high proportion of loans in the opening minutes of a loan request. This activity breaches our terms and conditions, as there is a 20% funding limit in place for each loan.
The median time to fund loans increased as the week progressed, from 1 hour on Monday, when an electronics company in Nottingham had their vehicle loan fund in just one minute, to 26 hours on Friday.
Whilst we want the marketplace to help businesses with fast access to finance, we recognise that some investors want time to carry out their own research. We’re working to strike a balance between fast access to finance and time for due diligence as we move forward.
How have fixed rates affected the secondary market?
Over the past week and since fixed rates have launched, liquidity on the secondary market has increased with 94% of business loan parts sold when listed at par, 80% of loan parts sold with a discount and 45% sold with a premium, excluding property loan parts. This is based on the number of loan parts listed and sold in each week.
We’ve also seen a sustained rise in the proportion of loan parts sold at a discount since the beginning of September, further improving liquidity for you. Autobid has been updated so it can buy loan parts listed at a discount, and the maximum discount available when selling loan parts has also been increased from 3% to 20%.
What about property?
A lower proportion of property loan parts have sold during this period in comparison to business loan parts and this difference can be attributed to the cashback promotion we have been running on property loans. Comparing the lines on both graphs, discounted loan parts are selling for both business and property loans at a similar rate of 80%.
Buyer rates on the secondary market
The weighted average buyer rates for loan parts which are currently on the secondary market are listed below, shown beside the current fixed interest rates on the primary market. These are gross interest rates, before fees and estimated bad debts and data is correct as of 5th October. Your actual return may be higher or lower as your capital is at risk.
We hope the information provided has been a useful snapshot of the marketplace today, a week and half since launching fixed interest rates for new loans. We are working to strike a balance between the experience of both investors and borrowers, so we will continue to monitor the speed of loans funding and take steps to ensure time is given to review lending opportunities.
The current funding process has proved to be more efficient than before, and we hope you see the benefits of your money working harder for you soon.
We’re over on the forum to help answer any further questions you have.
The Funding Circle team