P2P borrower rates will not yet change despite new BoE rate rise

Peer-to-peer lending platforms do not plan to raise their borrower rates following the latest Bank of England base rate rise.

The central bank’s monetary policy committee has presided over a tenfold increase in rates over the past five months – from 0.1 per cent in December 2021, to one per cent by 5 May 2022.

Paul Heywood, chief data and analytics officer at Equifax UK, warned that the rise will increase the cost of variable loans.

Read more: Base rate rise will see banks “clobber” borrowers

“Borrowing continues to rise with consumers feeling the pinch of the cost-of-living crisis and this rise will increase the cost of variable loans including on credit cards and mortgages,” he said.

“Many consumers will see their disposable income cut even further.”

However, several P2P lending platforms have told Peer2Peer Finance News that they do not expect to see a rate spike in the near future.

Ben Shaw, chief executive of HNW Lending, said the base rate rising tenfold will not affect most platforms because it is not much compared to the borrower rates that most are charging, which are closer to 10 per cent. He added if there are further rises his platform may have to increase borrower rates and then raise lender returns to reflect this.

Read more: Mortgage approvals and consumer borrowing in decline

“The average P2P lender is charging a lot more than a bank, so an interest rate rise of one per cent relative to a borrower interest rate of 10 per cent isn’t huge,” Shaw said.

“In relation to bridging interest rates, 0.25 per cent is not really material so at least for us, we aren’t changing the interest rates for borrowers right now but if they continue to rise then we may look to do so.

“Regarding investor returns…if rate rises continue then we would look to pay investors more to reflect that fact that we are charging borrowers more. I would imagine as they creep upwards to two per cent at that point we would start to think about the right course of action.”

Filip Karadaghi, co-founder of LandlordInvest, said that following the base rate rise he would expect the pricing of bridging loans to raise but with the amount of money and lenders in the space this has not yet happened.

Read more: Demand for consumer lending rises

“The change of the base rate doesn’t really affect us, what affects us is the pricing we charge for borrowers,” Karadaghi said.

“We obviously want to make a profit from each deal. If the borrower rate is unchanged, inflation-adjusted returns for lenders will drop. The problem in the UK is there is an abundance of institutional capital and bridging lenders to operate at any level, regardless of profit.”

Bruce Davis, managing director of Abundance Investment, said that while P2P platforms offer alternative investments and are not competing with they could see a rise in lending opportunities.

“If bank funding costs rise, they tend to decrease the amount of lending they do, which may have the effect of increasing borrowing interest rates,” he said.

“Customers lending money to companies might expect to benefit as companies will seek borrowing from other sources – such as crowdfunding platforms.”