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Safeguard

From 2013 to 2017, some of our products were offered with coverage from a provision fund called Safeguard.

During that time, it was a tax-efficient way for investors to offset bad debt against interest on their loans. It worked by buying up bad loans and paying back the investor. And, to date, all claims on Safeguard have been paid out.

In 2015, HMRC made some changes. New guidance meant investors could make a claim for tax relief on peer-to-peer losses directly. With the primary reason for the fund now removed, we took the decision that from 1 December 2017, we could retire all products with Safeguard coverage.

We retired products with Safeguard coverage 1 December 2017

Safeguard was funded based on expected lifetime default rates at loan origination for all A*–C safeguarded loans. In addition to these expectations we added an additional 10% buffer.

Total in Safeguard fund today

£6,533,194

Current coverage

0.84x

Future expected Safeguard income collected from regular borrower payments

£1,333,410

Coverage including future income

1.01x

Last updated 12 September 2018

How return is affected by default

This graph demonstrates what would happen to annual investor returns and how Safeguard would perform under different default rates. This reflects the current state of Safeguard across all A*–C safeguarded loans.

If defaults turn out to be lower than expected, the Safeguard fund buffer would increase. If defaults turn out to be higher than expected, then Safeguard would struggle to repay the expected interest. Defaults would have to be more than almost 4 times higher than expected before you would expect to lose capital on Safeguarded investments.

Safeguard responses

* Weighted average return / default (taking loan size into account).

Last updated 12 September 2018. Numbers based on expectations for disbursals from January to June 2018.

Fund usage and principal repaid

This table shows the amount paid out by the Safeguard fund to cover defaults for loans originated in that year, divided by the contributions made into the fund for those same loans.

We also look at the amount that has been paid back to understand whether the fund usage is in line with what we would expect at this stage of the loan lifetime. We expect the highest amount of defaults to happen in the first 18 months of a loan's life.

2013 2014 2015 2016 2017
Actual Safeguard fund usage 46% 80% 95% 92% 73%
Repaid

Percentage of principal repaid by borrowers (to date) on loans originated that year (excluding defaulted loans)

100% 96% 86% 71% 44%

Last updated 12 September 2018

Important information

Before you go any further, remember past performance is not a reliable indicator of future results. And forecasts are not a reliable indicator of future performance.

Read more about risk information.

Our risk statement has all the details.

Zopa's public loan book showing historical performance is available for download.

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