Published on January 18th, 2017 | by P2P Lending Advice0
What Does 2017 Hold for Peer to Peer Lending?
Over the past decade, peer to peer lending has gone from strength to strength. Originally as a novel method for taking advantage of new technology, P2P lending has quickly become a valuable part of many investors’ portfolios, and has gained respect amongst the financial community as a viable option for savers. But the UK’s financial situation is in a constant state of change, and with the political world in such upheaval, it can be tough to predict just how the markets will behave over the next year.
General UK Trends in 2016
In 2016, the Bank of England took the unprecedented step of reducing their base rate to just 0.25%, a historic low. This incentivised savers to turn to peer-to-peer platforms as an alternative to high street savings accounts, since the rates on offer were highly competitive. Because P2P lending quickly became so attractive to so many investors, peer to peer platforms were faced with an oversupply of lenders; demand for loans wasn’t enough to keep up with the supply of funds, and P2P platforms responded in a variety of ways.
Zopa, for example, reduced the interest rates it offered to investors, bringing it closer in line with the rates available from high street accounts. This made it a less attractive option for lenders, and helped to reduce the over-supply of capital. In 2017, Zopa have introduced an investment cap which allows them to close the doors to new investment – this mechanism allows them to control the amount of capital in their system, ensuring that investors receive a reliable return on their investment.
P2P Lending in 2017
With the Bank of England predicting a general rise in inflation beyond their 2% target rate, it seems likely that the base rate will be raised in response. A higher base rate typically results in a knock-on effect which causes interest rates to rise across the country, which is likely to make saving more attractive while increasing the cost of borrowing. Of course, peer to peer lending platforms don’t borrow from the Bank of England as high street lenders do; they source their money from private individuals instead, so they won’t be directly impacted by this rate change.
However, a combination of a reduction in general real wages combined with increasing inflation and better savings opportunities means that P2P platforms will need to match the market in order to continue offering quality investment opportunities. One outcome could be a need to attract more borrowers, as loans from high street banks become less affordable; if P2P platforms can position themselves to reach these consumers, 2017 could well be another year of growth for peer to peer lending.