Industry Outlook: What does next year hold for P2P?
We are in challenging times, amid a deepening recession, cost-of-living crisis and soaring energy bills. What does this mean for the investment climate and, more specifically, peer-to-peer lending? We grill the industry’s leaders to find out their outlook for 2023…
Stuart Law, Chief executive, Assetz Capital
Property-backed P2P lending in 2023 remains, in our view, the strongest sector of the P2P industry. In uncertain times property security, particularly when residential in nature, gives great comfort to investors.
We can see that first time buyer property will be under the most pressure due to the cost-of-living squeeze on affordability likely affecting that market segment the most, unfortunately, but other segments will be quite resilient in prices. This will likely lead to a slowdown in delivery of new homes for first time buyers but in turn that will lead to support for prices. Overall, we do not expect material price falls in the context of the last year or two of strong growth.
Read more: Assetz chief: Institutions will drive us towards £2bn of lending
Jatin Ondhia, Chief executive, Shojin
In strong locations, demand still far outstrips supply, and this will support house prices. A more stable economic environment (at least compared to the past six months) should see more mortgages coming back into the market at sensible rates.
Times of uncertainty bring opportunity. In theory therefore, investors should go into 2023 looking to invest in P2P loans in real estate. As we have seen in the past, real estate does very well coming out of a downturn, so investors should still include a property allocation within their portfolio.
There will be headwinds, but most real estate projects are around 24 months, so the market should have recovered by the time the investments mature, and we expect to see good exits from projects started next year. The key thing is to remain diversified across projects, and this is best done through P2P platforms.
Brian Bartaby, Chief executive, Proplend
Commercial property is dealing with a combination of a rapid rise in the costs of debt and high inflation, together with the ongoing long-term structural shifts in demand precipitated by the pandemic. A recent RICS survey saw occupier enquiries fall for retail and grow modestly for offices, whilst demand for industrial remained strong. The lack of new stock being developed and softening yields is helping to create a floor on pricing.
Read more: Proplend hails November as record month
Investments are taking longer to transact but significant buying opportunities are presenting themselves, especially for cash and overseas buyers.
Cormac Leech, Chief executive, AxiaFunder
In 2023 I would expect to see inflation almost as high as this year but with much lower growth – a bad case of stagflation, last seen in the 1970s. The misery index defined as ‘inflation rate plus unemployment rate’ will increase further with a jump in unemployment more than offsetting any drop in inflation.
If history is any guide, equity markets will have another significant decline. By the end of 2023, I’d expect to see the Bank of England cutting rates. If this outlook is correct, property markets will see double digit declines. In this scenario, uncorrelated asset classes like litigation finance seem well positioned to outperform.
Paul Sonabend, Executive chairman, Relendex
The fundamentals of the UK housing market are unchanged. The country has a chronic housing shortage. As we also have a growing population this problem will persist given the fact that our housebuilders are unable to keep up with demand.
Assuming the Treasury estimate of a nine per cent decline on house prices over the next two years is correct, then prices will return to 2021 levels which are more than sufficient to support housebuilding projects.
Read more: How can P2P property investors buck the downturn?
At Relendex, we remain confident that the sustainable housing developers we finance will see their new homes sell for a premium. It is logical that a new home with a clean environment and all modern comforts with negligible energy costs is highly desirable compared with an older draughty one facing an annual £3,000 or greater energy bill.
Mike Carter, Head of platform lending, the 36H Group
The outlook for 2023 is of course dominated by the recession, with inflation and base rates forecast to peak over the next 12 months. For P2P platforms, the Covid crisis was a full dress rehearsal for managing their business through a downturn, although this time there has been some lead time to allow tightening of credit criteria and risk plans to be in place ahead of the downturn.
But this is also an opportunity for the sector to demonstrate its commitment to customers, both in terms of continuing to provide credit sensibly when others have pulled back (as we saw during Covid), and to help customers manage their loan commitments where the recession causes small- and medium-sized enterprises and consumers to have cash flow problems.