P2P well placed for a recession
Peer-to-peer lending is well placed to survive a recession, according to multiple industry stakeholders.
Goldman Sachs recently predicted that the UK will slide into a deeper recession than previously forecast, with a four-quarter cumulative decline in GDP of 1.6 per cent now expected.
Meanwhile, EY analysts have said that the UK is likely to be in a recession until at least the summer of 2023, with the economy set to contract by 0.3 per cent next year.
However, Mike Carter, head of platform lending at Innovate Finance’s 36H Group, said that P2P’s buoyant performance during the Covid crisis showed that the sector is able to survive an economic downturn.
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“The Covid crisis was a dry run for how the sector would be impacted by a recession,” Carter said.
“This recession may be longer than the Covid recession but not nearly as severe in the drop in economic activity, and without the macro uncertainty risk of lock-downs. The sector performed well through the Covid crisis and should do through this recession too.”
Cormac Leech, founder and chief executive of AxiaFunder, said that while property lenders may be more vulnerable “due to the double whammy of weaker economic growth and higher interest rates”, consumer lending “will probably fare somewhat better provided that the credit underwriting has been done properly.”
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Meanwhile, Paul Sonabend, executive chairman of P2P property lender Relendex said that traditional P2P lenders may be insulated from the economic turmoil as they are not lending off their balance sheets.
“There is no way to determine how the P2P industry will fare, as P2P is a mechanism not an investment class,” said Paul Sonabend.
“Individual companies will prosper or fail depending upon the products they are offering and their outcomes.
“To a small extent P2P companies who are not balance sheet lenders should be less effected by any downturn as they should not be taking a direct hit to their capital.”
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