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.

Highlights

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?

The secondary market enables you to buy and sell loan parts with other investors, meaning you can build a diversified portfolio quickly.   

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%.

LPs sold

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%.

property LPs

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.

primvssec

Conclusion

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

Jack Pritchett

Senior Communications Manager

 

46 thoughts on “A roundup of the first week with fixed interest rates

  1. 1) The speed at which loans are filling has meant it is near impossible to place bids manually. Thanks FC !
    2) With regard to individual bidders taking more than 20% of a loan, stopping this is a trivial coding exercise (clue: If ‘sum of money already bid + current bid’ > 20% of loan, reject it) so I can’t see why you don’t fix it.

  2. Hi Clive, thanks for your comments. Appreciate the speed of loans funding has increased since launching fixed rates, but it is showing signs of slowing down as the market adjusts and the median time increases. On your second point, we’re monitoring whether any accounts take up more than 20% of loans and since the first week, there have been no other cases of this happening. Please get in touch if you have any further questions, we’re over on the forum too: https://forum.fundingcircle.com/

    • Hi Funding circle. It may be the case that you limit any account to no more than 20% of the loan, BUT there are far more than 5 people out there placing multiple bids, so 100% of the loan in filled before I even get a chance to read the details of what the loan is for. The use of BOTS must stop, not just for me, but to return FC to what I believe was your original intention of many investors supporting each loan request.

      • Here, here. It should be more like 1%…or even 0.1% and give 1000 investors a shot at it. I’d be staggered if there are actually 1000 bots out there…but you never know.

  3. If you’re going to provide statistics you should at least compare like with like, and not just take the best numbers/information from each given topic. e.g. you can’t compare new fixed rate loans on the Primary Market with older pre-existing loans on the Secondary Market. And the speed of loans filling is meaningless to average across all loan grades. The only ones filling slowly are the low rate A+ and A grades that the bots don’t want, and the top rate C, D and E grades fill up almost instantly with bots. It’s obvious to every user of the platform and your ‘claims’ that everything is rosy and working well are not justified by poor use of statistics.

    And can you explain your sentence from point 1) above…
    “…and £6.3 million of new fixed rate loans were listed on the partial loans marketplace”.

    What is the partial loans marketplace? Do you mean the Secondary Market?

    • Hi TonyL, we wanted to show how the interest rates available on both the primary and secondary market compare to one another. Please let us know if there is another comparison you would be interest in seeing and we’ll get back in touch. Recently there have been more A+ and A loans than other risk bands which is contributing to the other bands filling faster. You can see the split of risk bands in the Weekly Lending Review and in the loanbook available on the statistics pages. The partial loans marketplace is where loans are funded by a number of investors, who hold loan parts. These are the loans you see on the loan requests page within your account. Whole loans are where one large investor, such as an organisation, funds the whole loan. The split of whole and partial loans are detailed in the Weekly lending Review. Hope this helps, Becky

      • It’s not that I want another comparison in particular. What I object to is misrepresentation of the figures being used to justify the current state of affairs. For example, your chart indicates that the average E loan on the secondary market is 17.5%. In fact you will barely find anything over 17.5% over the entire secondary market let alone an average of 17.5%. And if you care to compare like with like you will find that a 36 month ‘E’ loan, which as you correctly state is 17.7% on the primary market is typically 15.5% to a secondary market buyer (see 16180 and 16112 at the time of writing). So the way you represent it on the chart misrepresents the two markets as being nearly equal. From an investors point of view they are far from it. Frankly you should remove that chart from the above blog…such misrepresentation has no place on a professional investing platform. Shame.

  4. As predicted by many lenders, fixed rates have led to borrowers simply not bothering to answer our legitimate questions. Its 11.20 am on 13 October 2015 and I have 6 A+ or A loans to possibly lend to-losing interest in the FC proposition I am afraid.

  5. To counter the grumbles, I would like to thank Becky and the FC team for the recent changes and communications. These issues are very complicated and unintended consequences of change hard to predict. The key benefit I find of the fixed interest rates is that I can let my account look after itself much more easily, knowing that I am not bidding at unfavourable interest rates. Previously I didn’t feel comfortable using autobid but now I do, as the playing field has levelled and as a major bonus bid money isn’t tied up waiting many days for loans to fill.

    • Exactly why I dislike the new system – before you could choose Autobid and sit back, but may not get rates as good as people who were selective and engaged with the bidding model – they could do research and choose local companies and/or assess each company – now it’s just stick your money in and it goes – no fun, no opportunity for people who want to spend more time – yes simple, yes, rubbish!

      • Hi Chris, sorry to hear you’re not enjoying the new system. We know some investors will not earn the returns they’ve been used to, but we moved from an auction model to benefit the majority of our customers. Hope you still consider Funding Circle to be a good investment going forward.

          • FC has Fixed Costs so the more borrowers it can force through its sausage machine, the more profits for FC. Lenders are a side issue, especially with institutional money coming in. Looking at the changes made by FC over the last two years would certainly support my argument.

    • Hi John, thanks for getting in touch and really glad to hear you’re enjoying the new system. Becky.

    • John, will you be saying that when you start to loose money. Due diligence is the key here…”I can let my account look after itself “, Autobid will not find the poor risk loans for you.

  6. Hi Becky, in the first two graphs above, why do the sum of % of loan parts sold exceed 100%? Is the data correct but just not normalised to 100%?

    • Hi Hazel, this is because it’s a time-based graph rather than a cohort graph, as the cohort of loan parts listed for sale can take 2 weeks to mature. Therefore it’s possible to have a week in which more loan parts were sold than were listed. Hope that makes sense but please let me know if there’s anything else we can help with.

  7. Just had a quick look at the current loans wanting funding, 3 left….whats happened!!! Fixed rates are not working for me. No time for due dilligence. It looks like most people are just throwing money at anything that moves. Wonder what the reaction will be when we start to see companies unable to pay and people start to loose money (via their own actions..no fault of FC)

    • Hi Gill, thanks for your comments and sorry to hear you feel there’s no time for due diligence. More than £1m of new loans have been listed today, with more in the pipeline. We publish full performance data on the stats page https://www.fundingcircle.com/statistics and bad debt performance continues to fall within our estimates.

      • “bad debt performance continues to fall”

        And yet I recently received an email from FC saying my very well diversified portfolio had suffered bad debts to the tune of 0.6% in one month (7.2% per year !). If that keeps up, I’ll be withdrawing my money (as I did once in the early days of FC when your bad debts crept up and up).

  8. As others have pointed out, the changes to the marketplace have not been positive at all with a lot of the choice for investors seemingly gone

  9. So, just what can be done about borrowers who don’t answer the questions put to them? The auto bidding allows borrowers to ignore any and all questions, and lenders’ concerns do not appear to be given any respect. I have seen so many loan parts on sale where the q&a sections still remain unanswered even after months/years of loan progress.

    • Hi Jon, thanks for your comment. There is a funding cap in place for Autobid and borrowers are urged to answer questions during their loan request, however it is up to the business owner, or the person filling out the application on their behalf, whether they choose to answer them. Over the years we’ve found that some businesses are really engaged with the funding process, who we expect to continue to answer questions, whereas others are not and are are unlikely to answer. Borrowers are only able to respond during the funding process (7 or 14 days), after which the Q&A closes. Appreciate this is not the answer you’re looking for, but we feel borrowers who engage will continue to do so.

      • If Borrowers are not going to engage [and FC you will no doubt have the stats], then why do you also allow them to post accounting information that is over 12 months out of date? Question: what sensible lender lends money to a business on such out of date information? Answer: he doesn’t.

  10. I could not agree more with the comment below. Before fixed rates came in there were typically 50 to 80 loans available to lend to, today it is, or rather was, 17 and most of those are closed. I am not sure how FC claim that fixed rates will give us more opportunities is going to be delivered. I think I will just withdraw my money as it comes back in now as this particular golden goose seems to be in the intensive care unit.

    • Hi Bill, thanks for getting in touch. Appreciate there were fewer loans available to lend to recently, but the volume of loans listed on the marketplace has increased over the past few days and we’re boosting our marketing efforts to attract more creditworthy businesses.

  11. I too am losing interest with FC. When I first lent I chose particular interesting .local to my geographical region. I chose businesses I liked the sound of that we’re also low risk. Now all the loans are named similarly. Difficult to choose now.
    Also since fixed rates came into being there are very few opportunities.
    It’s changed a lot and it’s not good.

    • Hi there, thanks for getting in touch. More loans have been listed this week – there was a bug affecting listings last week which held things up unfortunately. You can still choose businesses by region, industry and risk profile, and we’re committed to investors always knowing who they’re lending to.

  12. Yeah – FC started off by dropping the debt profile data that they used to have. Next they removed recent Management Accounts and now they have moved to a ‘very quick to fill’ fixed rate interest rates. This obviously improves the throughput of borrowers but from a more thoughtful lenders’ perspective none of the above makes their life easier. I am with the comments below. FC is losing its edge and investing is actually harder as there is no time to do any due diligence.

  13. I loved the following:
    “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.”

    But FC did not appear to do anything about it!

    • Hi James, we’re monitoring this activity and will take action if more than 20% is funded. This has only happened once since the first week.

      • Fixing the problem via software will be a lot less effort – and a lot more certain – than monitoring it.

      • Looking at the offers – 70 – 80% filled in the first 24 hours. Quite often big chunk goes in first 10 minutes. It is all auto-bidders.

  14. Seriously killed the fun of bidding and investing with FC. Anybody know any other P2P lenders who use the old model?

  15. Yes, not what I signed up for, who can recommend another platform that is more like the previous FC??

      • What do you mean by ‘efficiency’? If you mean that money is tied up for less time, then possibly. If you mean that it benefits all investors monetarily then the answer is a clear no, as an FC advisor informed me.

        • I think “efficiency” (as defined by FC) is the ability for us to get a lower rate of return with less effort being expended on our part and less cost on their part.

          • Hi Clive, we expect the time taken for loans to fund to decrease, allowing businesses to accept their loans faster than before meaning money will be tied up for less time.

  16. I am very disappointed to find that I now have to leave FC alone. The new system means that no proper analysis can be made, dumb money is being thrown at the loans and this will only end badly.
    There was a wonderful opportunity to do something right here but you have blown it.
    The borrowers were tending to show the UK’s dirty little secret, that all too often the management of SMEs is woefully short of capability and that is why the traditional banks have found them very hard to lend to.
    We had a chance here to pick out the ones with a chance of doing it right, but that has now gone and eventually the funds who are throwing money at FC to raise their yields are going to end up as tomorrow’s scandal headlines.
    It is no good relying on FC’s grading since it is clearly in their short term interest to upgrade. My suspicions were confirmed when receiving a solicitation letter to my dormant consulting company, with no income for ten years and no assets, which had apparently been “pre-approved” for borrowing

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