P2P platforms more competitive as interest rates soar
Rising interest rates could pose an opportunity for peer-to-peer lending platforms, as mainstream lenders withdraw products and savers search around for yield.
The Bank of England yesterday raised interest rates by 0.75 percentage points to three per cent – the largest increase in 30 years.
The policy move has resulted in banks and other traditional lenders limiting the availability of credit or significantly increasing the cost of borrowing.
However, P2P platforms have lower operating costs than their competition and are not subject to the same capital requirements. Furthermore, as they are funded by the crowd, they are not tied to the Bank’s base rate.
“Over the last few weeks, our competitors’ offerings have either vanished into thin air or have hardened by “eye-watering” amounts,” Paul Sonabend, executive chairman at Relendex, said.
“Relendex is seeing high quality business, that in more normal times would have gone to a bank or other established lender, being offered to our platform.
“Perhaps unsurprisingly, it would appear that whilst in a low-inflation environment savers are often complacent about maximising their savings returns, with inflation at current levels it has become important for them to find decent yields and savers are now more actively seeking out the better returns offered by our industry,” he added.
Read more: How to address inflation with your P2P portfolio
While P2P platforms already have an offering that competes with traditional finance, some are going even further and taking the opportunity to increase their comparative appeal.
“With our focus on servicing the residential development market and our ability to react quickly, we have decided to offer locked-in interest rates at the point of drawdown, which will remain locked in for the duration of the facility,” Alan Fletcher, partnership director at Invest & Fund, said.
Read more: Investors can expect “higher quality” P2P loans
Kuflink chief executive Narinder Khattoare is more cautious, but notes that has seen more borrowers head to the platform.
“The plus side from P2P is that there are fixed rates on both sides, the key here is not to overexpose ourselves and lend knowing that both parties are able to exit the loan,” he adds.
Neil Faulkner, head of research and chief executive at 4th Way, said it was not the rising interest rates that would ultimately increase the number of P2P users, but “the industry’s growing track record in treating borrowers fairly and providing investors with highly satisfactory returns.”