P2P bosses predict rise in unsecured loan defaults
Peer-to-peer lending chiefs are predicting a rise in defaults for unsecured loans this year but not for asset-backed facilities.
The Bank of England’s latest credit conditions survey – which polls a range of bank and building society lenders – showed defaults for both mortgages and unsecured lending are predicted to rise in the first three months of this year.
Lee Birkett, chief executive of JustUs, said he expects there to be defaults in unsecured lending due to the tapering of government support for businesses, and Brexit-related issues.
He said JustUs does not expect a rise in defaults as it mainly conducts asset-backed lending. The small proportion of unsecured lending it does is to homeowners who need a relatively large amount of equity in their property to prove their financial standing, or to have a guarantor with that standing.
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“You’re going to have a natural storm for arrears because of Brexit and a lack of government support going forward,” Birkett said.
“It won’t affect us, we do asset-backed lending. If anyone lends to tenants they’re really exposed.
“There aren’t as many unsecured P2P platforms, if they are still operating, they may reach a bad debt threshold. It will be a tough year ahead but that’s why we’re asset-backed; asset-backed and property lending are the real backbone of P2P going forward.
“I wouldn’t want to go into an unsecured loan environment and don’t think many investors would want to either. The main reason being the rates you’d need to charge to make it profitable would be frowned upon because of the bad debt.
“This year, rates will go up and approval levels will go down for unsecured lending. When inflation’s high people can’t afford things and they default on loans.”
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Nicola Horlick, chief executive of Money&Co, agreed that defaults will rise for unsecured lending while her secured P2P lending platform will not be affected.
“For those platforms that have lent for working capital and are unsecured, I would expect that defaults will rise,” she said.
“We have only lent in our specialist areas and are secured and so I do not expect defaults to rise for Money&Co.”
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Meanwhile, Louis Schwartz, chief executive of Loanpad, said that his property-backed lending platform does not expect any losses on any current loans but highlighted that it is “never complacent with regards to defaults”.
“The P2P sector has many different lending types, and all lending of any scale will be affected by wider market conditions,” he said.
“We are never complacent with regards to defaults, however we believe our structure provides a lot of shelter for our investors from fluctuations in market conditions and prices.
“This is because our maximum loan-to-value is 50 per cent and our experienced lending partners hold a significant first-loss portion of every loan.
“We cannot guarantee anything of course but we do not expect any losses on any current loans.”
In addition, Invest & Fund said that it does not expect a rise in defaults.
“Within Invest & Fund and property development finance, then we continue to have a fully clean book and are confident that will continue,” said a spokesperson from Invest & Fund.
