P2P consumer loans could be hardest hit by Covid-19

Peer-to-peer consumer loans may be worst hit by the coronavirus crunch but there will be a knock-on effect elsewhere, industry observers have claimed.

Andrew Hagger, founder of personal finance website Moneycomms, has warned that consumer lending will see a higher level of defaults than other segments of the credit market but said no sector will be immune.

“No sector will come out of this unscathed – with many potential job losses, consumer loans will suffer higher levels of defaults than platforms will have prepared for, however this will also have a knock-on effect and the property market will be negatively impacted,” he said.

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Hagger also highlighted issues with demand for withdrawals – there have been delays on platforms such as RateSetter and Assetz Capital – meaning investors will have to “sit tight.”

However, Lisa Best, head of financial services content at alternative investments research firm Intelligent Partnership, said consumer loans could offer better returns as there are now higher risks due to the economic uncertainty. Meanwhile, property loans offer the security of bricks and mortar but valuations may change, she added.

“For P2P, the depth of provision funds may well be tested as well as the real extent of diversification across loans,” she said.

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Arrears and defaults may only be declared in the coming weeks, but most platforms have been working with borrowers to assess their needs and in some cases allow repayment plans or payment breaks.

In the consumer space, Zopa has tightened its lending criteria, while Lending Works initiated a 90-day ban on new loans due to end in July.

The Financial Conduct Authority has ordered consumer lenders to honour requests for payment breaks, but Nadeem Siam, founder of P2P consumer lender Fund Ourselves, said not many borrowers have taken these up.

“Maybe the government’s furlough scheme has done its job or people in our portfolio are not affected,” he said. “We are keeping an eye on things though.

“Some of our larger investors have added to their portfolio and it is the smaller ones who have tried to withdraw.”

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