CapitalStackers highlights ‘unintended consequences’ of Covid loans
CapitalStackers has described the unintended consequences of Covid loan schemes.
The peer-to-peer property lender warned that the emergency loans have skewed the marketplace, cutting out the need for mezzanine finance and artificially propping up house prices.
The platform said that while the government loan schemes, such as the coronavirus business interruption loan scheme and bounce back loan scheme, supported borrowers and enabled homes to continue to be built, there were unintended consequences.
It said that there was an “unnaturally-skewed marketplace” between lenders taking part in the schemes with institutional funding and P2P platforms using retail funds.
CapitalStackers said that the recovery loan scheme (RLS) artificially propped up house prices and encouraged banks to lend more than they otherwise might, which can erase the need for mezzanine finance, which specialist finance services.
The platform also questioned what will happen when a substantial number of bounce back loans default.
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“Of course, in the plus column, they enabled homes to continue being built, hence great news for house buyers,” CapitalStackers said in a blog on its website.
“And it was also great news for borrowers. But at what cost to the nation? And what are the unintended consequences?”
The blog gave an example of an entrepreneur running an upmarket wine bar with quality products and pricing that “keeps out the Riff-raff.”
It compares this with the government setting up another wine bar next door that sells cheaper products and undercuts you.
“The need for such an outlet is of course questionable,” the blog said.
“The risks to both clientele and established businesses predictable. But this is pretty much the situation faced by the property P2P industry and the small private lenders who depend on them to make their money work.”
CapitalStackers added that the “natural order will be restored” when the RLS ends in June.
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“Good, sound building schemes will once again be funded by a combination of sensible banks, P2P and the developers themselves,” the platform said in the blog.
