How will Brexit affect P2P Lending?
With the UK now looking set to leave the EU, confidence in trade is as predicted already beginning to flag. In uncertain times, investors begin to look for safe places to put their money, sitting on it until times look more stable, to avoid the risks of losses in a volatile market. Peer-to-peer lending (P2P), however, is uniquely placed to offer a resilient and rewarding investment for those looking to avoid potential falls in the stock market, and those who want a better return than that which is currently offered by high street banks.
Foreign Investment
Because of the uncertain future of trade between the EU and the UK, any industries that rely on foreign investment are likely to suffer from reduced overseas spending. Since most P2P lending involves loans between domestic individuals and small businesses, however, they don’t need to rely on foreign investment to remain stable and profitable, and are protected from reductions in expenditure from overseas.
Loan Defaults
If the UK should suffer more years of sluggish growth and recession, this is likely to have an impact upon the amount of people taking out loans; most P2P loans are used to pay for new cars and home improvements, expenditures that are likely to decrease in times of economic uncertainty. However, while the default rate for loans is also likely to rise if consumers should find themselves with less money in their pockets, P2P platforms like Zopa maintain a fund to cover expected default rates. The P2P lending industry as a whole also has a proven track record of flourishing throughout years of austerity, so even if the UK economy should begin to decline post-Brexit, the industry as a whole is resilient enough to remain competitive.
Good Returns
Many people may feel that Brexit has made the markets too uncertain to place their money anywhere other than a bank, trusting in reliability to keep their money safe. Most high-street banks, however, don’t offer particularly good terms – one of the best current accounts available at the moment is the Santander 123, offering just 3% interest on balances up to £20,000. In contrast, Zopa’s minimum-risk entry-level “Access” account comes with a 3.5% interest rate on an unlimited balance, and the risk of lost earnings to borrower default is neutralised by their “default protection fund”. Therefore, investment in peer-to-peer lending avoids the uncertainty of the stock markets while also offering greater returns than a high street savings account.
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