How will the pandemic impact on peer to peer lending returns
Having your money work harder for you has become more accessible in recent years with more companies serving the increasing demand for retail investment products.
One of the industries that has seen growth is the peer to peer lending market. Despite the surge in demand through the last century, the current COVID-19 pandemic means many are trying to take their money out of the market before investment completion. Lockdown means many are making purchases that they may not otherwise make for recreational purposes. Brits across the UK are trying their hand at paddle boarding, and taking a look at their investment while they are at it.
How can you withdraw from a loan when the principal has not been repaid?
Whilst this may seem like a sure-fire way to lose money, the peer to peer investments function on the existence of a secondary market. This means you can sell your debt to other investors. Whilst this works well when demand is high, the recent drop in demand due to the pandemic means many are struggling to get their money out of peer to peer platforms. In addition to this lack of demand, many providers have also reduced interest rates to try and fortify the ‘provision fund’ which protects investors against bad debts.
What interest rates are the main providers currently offering?
RateSetter: Access – 1.5% Plus – 1.75% Max – 2.67%
RateSetter made peer to peer lending headlines recently by halving interest rates for investors to try and bolster the provision fund. It says this has been done to protect the money of investors.
Funding Circle: Paused
Funding Circle has taken a different step by pausing lending in both normal and ISA accounts. It is trying to get further control over the market and encourage investors to remain calm. The loan reselling market has also been paused for investors.
Zopa: Between 3.4-6.0%
For the moment, Zoopa has remained pretty stable in terms of their return policy. Whilst investors are trying to get money out of the platform, they are yet to take any major action to try and scale back the business. It has, however, stopped it’s higher risk lending
Will the market return to normal?
At the moment, its too soon to say. The drop in rates is expected given the lowering of interest rates from the Bank of England and the general downturn in the economy. Despite this businesses are still going to need finance and it may be increasingly hard to come by in the future. This could be a market that peer to peer lending is well-positioned to service as we come out of the lockdown.
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