Should P2P investors worry about Bank of England interest rate hikes?

The Bank of England is widely expected to increase interest rates for the fifth consecutive month this week, but what impact could it have on peer-to-peer investor returns?

The Bank’s Monetary Policy Committee’s monthly interest rate meeting takes place on Thursday 16 June and policymakers are predicted to increase the base rate figure from one per cent to 1.25 per cent.

A rate rise tends to push up the cost of finance elsewhere such as on mortgages and loans and occasionally banks will even increase savings rates to attract deposits.

While P2P lending is an investment rather than savings product and doesn’t have Financial Services Compensation Scheme protection, higher cash deposit rates may still provide competition for platforms.

There are already signs that cash saving rates are slowly rising.

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

Moneyfacts data shows the average one-year bond rate rose month-on-month to 1.24 per cent in April and stands at its highest level in over two years.

This is the biggest month-on-month rise since April 2011 and is the highest average rate recorded since November 2019.

The average one-year fixed ISA now stands at 1.02 per cent, passing the one per cent barrier for the first time since April 2020.

The average longer-term fixed ISA rate has also increased to 1.49 per cent, the largest monthly rise since July 2008 and stands at its highest point since August 2019.

But analysis by Peer2Peer Finance News shows interest rates on offer from P2P lenders still remain far higher than mainstream providers even when banks and building societies are increasing their offers in response to moves by the Bank of England.

We analysed publicly available data from two of the main P2P lenders and found that while the Bank of England has been increasing rates since the end of last year, there is still a large gap between what banks and P2P lending platforms offer.

Read more: Savings rates on the rise but P2P lenders still offer seven times more

For example, Assetz Capital investors have earned 5.3 per cent so far in 2022 before arrears and defaults.

That is lower than the 6.5 per cent investors earned on the platform last year but there is still time for that to grow and it remains 4.06 percentage points higher than the average one-year bond rate, albeit with more risk.

Similarly, CrowdProperty investor rates were 7.76 per cent last year and are currently at seven per cent.

The P2P property lender also appears to be offering borrowers lower rates, falling from 10.13 per cent last year to 9.5 per cent so far in 2022.

This data from two of the largest P2P lenders shows that P2P lending continues to provide an alternative way to invest your money that is uncorrelated from the mainstream markets, letting you diversify your investments and not worry too much about small increases in savings rates.

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