How platforms have adapted to the variable economy
The UK economy has wreaked havoc with the plans of many financial services firms, including peer-to-peer lenders. Amid rising interest rates and higher inflation, many P2P platforms have been forced to adapt to the new macroeconomic environment.
Folk2Folk recently announced that it has revised its three-year plan, implementing a new loan management system and modifying its strategy to focus primarily on the retail investment market.
“Folk2Folk continues to keep an eye on the future and we revised our three-year strategic plan to reflect the changing environment,” said Folk2Folk director Louis Mathers.
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“Our proactive portfolio management minimises unexpected shocks. However, there are significant external economic issues that continue with us into 2023, including rising interest rates, inflation and global instability. While we are confident of the continued strength of Folk2Folk, these factors will impact our growth in 2023 as indicated last year.
“We have strengthened our credit skills to ensure we make well informed decisions and we are ever more cautious about refinance proposals being passed to us.”
Kuflink has also strengthened its credit processes in recent months in order to reduce the impact of late payments. The P2P property lender has appointed a team of solicitors to contact borrowers six weeks before the loan term is up in order to head off any potential repayment delays. Where a loan term is extended and additional interest is charged, investors will receive higher returns.
Read more: P2P investors plan to keep on lending despite economy woes
Paul Auger, chief operating officer said the platform appreciates that lenders are seeing an increase in arrears.
“Our loans are completed either on a retained or rolled interest basis, meaning we do not collect monthly payments, what we have seen over the past months is an increase in requests for loan extensions,” he said.
“As a prudent lender, trusted by thousands of investors, we constantly monitor the market and economic climate to ensure that we amend our criteria for new applications, loan re-term requests, as well as changing processes, where required, to ensure we continue to protect our investors, to the best of our ability.”
CrowdProperty also noted the impact of current market conditions on the property lending industry, with a number of developers exceeding their contract end date as a result.
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“Property development projects are complex by nature – schemes tend to either complete early or run late,” said Mike Bristow, chief executive of CrowdProperty.
“When a loan goes late, it is typically best that the site is progressed and completed by the principle to whom we have lent to.”
CrowdProperty said the first charge security it holds on all projects is only enforced as a last resort. In case of receivership when the first charge is enforced, receiver fees are due as a priority from any capital received and securing the site incurs monthly expense, so the platform ensures that it uses all options ahead of this, Bristow said.
Read more: How will the property downturn impact P2P lending?
As of May 2023, of the £190m CrowdProperty has paid back to investors, 45 per cent repaid in full earlier than the contract end date and 55 per cent repaid in full after the contract end date.
“We always aim for projects to be repaid on time and appreciate the frustration when this is exceeded, which is why investors receive a higher interest rate during any late period,” Bristow added.
A number of P2P platforms have opted to raise their rates for both borrowers and investors, in line with the rising base rate. CrowdProperty, Loanpad, easyMoney and Assetz Exchange have all increased investor and borrower returns in recent months. Meanwhile, SoMo has focused on borrower health, pledging to refund borrowers one month interest upon repayment of the loan in an effort to discourage extensions.
The Bank of England has steadily increased interest rates over the past 18 months, in a bid to tame high inflation. The base rate was 4.5 per cent as of 20 June, with further rate hikes on the horizon.
