P2P will benefit from peak in interest rates

The peer-to-peer lending asset class will look increasingly attractive as interest rates hit their peak, Invest & Fund has said.

In a new blog post, the P2P development lender noted recent comments from Bank of England Governor Andrew Bailey, that rates are “much nearer” their peak than before.

“As an investment opportunity, the P2P asset class will only continue to strengthen its value proposition as the peak is achieved, as the gap between potential return on investment from traditional fixed-income products in the bond market and P2P will only widen as rates start to fall,” Invest & Fund said.

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“These changing conditions will also strengthen the consumer mortgage market and the confidence in the development sector, so with all these circumstances now on the horizon, there is definitely a sentiment change in the air.”

The Bank of England raised the base rate to 5.25 per cent last month. Its monetary policy committee (MPC) is meeting again on 21 September to make its latest interest rate decision.

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Most MPC members have indicated that they are in favour of keeping rates close to current levels for a longer period, rather than raising them further.

Invest & Fund said that high rates are “hurting the mortgage market and the lender market” but warned against “dramatic manoeuvres” in a bid to stabilise conditions.

“A steady course out at this point seems like the correct monetary policy,” the firm added.

A number of P2P lending platforms have been raising their target returns this year in order to compete with banks in a higher-interest-rate environment.

Unbolted, easyMoney, Folk2Folk, Loanpad and CrowdProperty are among the firms to have increased their rates to attract investors.