Nervous equity investors should consider Zopa lending
Zopa (zopa.com) - the world’s first marketplace where people meet to lend and borrow money – says the current climate for private investors is creating the ideal time to consider lending on Zopa. As interest rates rise, markets are feeling a ‘credit crunch’ that is causing stock prices to fall – and investors to suffer. However, those same increasing interest rates have made lending on Zopa more attractive than ever, with recent rises helping the average return to lenders to pass the 7% p.a. mark. Some members lending to higher risk borrowers (but still very much prime market borrowers) are enjoying returns of more than 10% p.a.
During last week markets around the world fell, mainly on the back of fears of an impending credit crunch, removing the impetus behind the merger and acquisition activity that has been one of the key drivers of rising markets over recent months. Last week America’s Dow Jones index fell by 4.2% - its biggest weekly drop in more than five years. And stock markets in the UK, Germany, France, Japan and Hong Kong also saw substantial falls.
As the graph below shows, across the four Zopa markets (A, A, B and C), Zopa lenders have enjoyed very attractive returns throughout this time. Upward pressure on interest rates has had the knock on effect of increasing the ‘going rates’ on unsecured loans, including those offered via the Zopa marketplace. So although Zopa continues to offer some of the very lowest rates available to borrowers in the UK, the average new Zopa loan rate has gone up as the rest of the market charges more for borrowing.
The appeal of Zopa lending to private investors is set to be boosted yet further in the near future when tax-free lending is introduced. Zopa members will be able to shelter their Zopa lending within a SIPP, making lenders’ monthly returns from their borrowers entirely tax free.
Giles Andrews, Managing Director of Zopa UK said, “Zopa lending has been attractive to private investors since we launched more than two years ago, offering far better returns than cash-based products but at only marginally more risk. With stock markets looking far from rosy currently and interest rates generally on the rise, Zopa lending has never been a more valuable alternative. Investors looking for safer and more secure returns on their money at rates well in excess of cash products should give Zopa a serious look right now.”