4th Way reveals extent of Trussonomics on UK P2P
Trussonomics has had major knock-on consequences for the UK’s peer-to-peer lending sector, particularly those platforms which specialise in development finance.
Industry analyst and ratings agency 4th Way has reported that two platform heads have spoken out about the ongoing impact of the Liz Truss budget in October 2022.
“The consequences are finally coming to a head in P2P development lending,” said Neil Faulkner, managing director of 4th Way .
“Clearly, it all impacts the level of risk in outstanding loans.
“As the chief executive of one P2P development lending provider just put it to me: ‘The last six months have been the worst for a number of years, including the pandemic.’”
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Truss’s budget, delivered by then-Chancellor Kwasi Kwarteng, let to an immediate spike in interest rates, which caused chaos for lenders across the UK, including P2P lenders. It also led to a fall in property prices, and increased the risk of default among consumer, business and property lenders.
However, Faulkner said that the P2P sector has dealt with the fallout admirably, continuing to deliver positive returns by offering diversified investment portfolios and working closely with borrowers.
4th Way’s research has found that several property-backed lenders have a higher than usual rate of late paying loans, but Faulkner said that while many of these loans require closer watching, they will still ultimately recover in full.
“With some of them, I strongly expect lenders will indeed face some losses,” he added.
“A 20 per cent loss on one loan would still likely see lenders’ annualised return for the year drop by somewhat less than one percentage point if they’re spread across 25 loans.
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“If a major recession and property crash was to happen now, even in these already stressed conditions, you’ll see more loans take longer in the coming months.
“Returns can obviously fall further if a disaster piles on top of the existing situation and that applies most in the highest-risk lending,” he added.
However, Faulkner added that he agrees with industry sentiment that green shoots are starting to emerge, leading him to believe that the sector will endure.
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