Bye, bye RateSetter, it was good while it lasted

After last week’s news that RateSetter was increasing interest rates back to 100%! Now all lenders are getting their money back after Metro Bank bought the loan book. The lord giveth and the lord taketh I guess.

After I wrote about the good news at RateSetter just a few days ago, there comes news that all lenders positions are being liquidated and you can no longer lend on RateSetter.

This marks the end of almost 10 years of my RateSetter experiment for me. I get out with my money back, some interest and no losses. However, tt’s a bit of a slap in the face for lenders who had their interest rate cut by 50% for almost a year to get the news that they’ll get the full 100% (but not backdated interest) to find out that their loans are sold off and they get their principal back.

From the press release:

https://w“Metro Bank has been funding all new consumer lending following its acquisition of RateSetter in September 2020, since when the investor loan portfolio has been in run off. Today’s announcement follows the subsequent sale of RateSetter’s residential property development portfolio, a line of lending which is not an area of focus for Metro Bank, and was made possible by Metro Bank’s recent sale of a £3bn residential mortgage portfolio, which freed up capital for the purchase. The performance of the consumer loan portfolio has allowed the purchase to be at full value, despite the ongoing economic uncertainty.”

The portfolio purchase means that all RateSetter investors will receive their money back in full and the investing side of RateSetter will close no more lending for GFF. So all (£50) of my money back in April. It’s an end of an era.

So, RateSetter has been a pretty benign investment and it’s one that has caused me little to no worry, stress or even care. Once I set-up the automatic withdrawal function, I would just check each month how much interest I had received and how much money I had invested and put that in my Month-End accounts. Now, I get about £50 back and can forget about RateSetter forever – it’ll save me 2 minutes a month.

• Time invested = 9 years 9 months
• Total Interest = £2,936
• Average Lent = £5,620
• Internal Rate of Return (after tax = 4.5%
• IRR from all P2p = 10%

Back in the early days

I’ve been investing in P2P lending for a long time and wrote about my experiences here. One thing that I liked about Ratesetter was that you could choose your own rate to lend at – or set your own rate. I studied the markets and found that rates moved around on a daily and weekly basis based on supply/demand. I was able to pick up some decent rates and had some 5 year loans for 8.8%. One feature of many P2P lending was that rates plummeted and soon gone were 8% or 7% or 6% – in fact most recently the best that you could get was 4.0%. In the meantime the risk profile of loans didn’t change and many P2P platforms offered you the unique feature to make little interest on money lent, all subject to tax and combine that with lending to crooks who’ll take your money and run leaving you with a loss of capital and a tax bill . Ratesetter did the right thing and had a common fund to cover all losses and no investor ever lost a penny (but as a result, lending rates were a bit lower than Zopa and Ratesetter).

Would I invest again now in RateSetter?

Overall the rate of return is probably on a par with inflation or maybe just a bit above. But my lending was a bit lumpy. I think that I’d have been better of investing elsewhere. I did get a better rate than paying off the mortgage but that same money in a low cost ETF tracker would be worth a lot more now. There’s also something problematic about lending your money to other people. Yes you get it back with interest but it tends to not be at your convenience – so if you need the money NOW! You can access it (unless you take an interest hit). I’ve not been in the position to need money that desperately but for me, it makes me see that gambling with illiquid junk bonds is not for everyone and the rates don’t make it attractive (hence why I ran the portfolio down over the last 5 years).

Thanks, GFF