"Interest rates in peer-to-peer lending will continue to fall in 2017, benefiting borrowers at the expense of lenders."
The launch of the Innovative Finance ISA could spark growth of up to 50% in the peer-to-peer market in 2017, according to ratings and research agency 4thWay.
Neil Faulkner, Co-founder and Managing Director of 4thWay, says he expects a "second explosion in the number of people lending and the amount lent in 2017, due to IFISAs", which could see market growth accelerate by as much as 50% compared to 2016.
2016 was already a record year, with a total of £3.02 billion exchanged through 35 platforms in the UK.
4thWay expects to see at least 11 more IFISAs before the end of this calendar year, taking the total up to 16. Lending Works’ IFISA is expected in January with Landbay’s likely to follow before the end of this tax year, according to the agency.
Neil Faulkner continued: “We’re receiving a lot of enquiries from 4thWay users about the new IFISAs, with ‘When are more major platforms going to offer them?’ being the most common question. Some people interested in peer-to-peer lending are holding cash back to put into these tax-efficient lending accounts as more become available. Some investors are even waiting to sell shares from share ISAs to transfer into IFISAs.
“Interest rates in peer-to-peer lending will continue to fall in 2017, benefiting borrowers at the expense of lenders. However, we believe P2P has been kind to lenders, as they have been rewarded generously for low risk. Over the long term, the amount of interest lenders can earn will be aligned to risk. The high-quality of the loans that most lenders are lending in means more lenders will pile in to push rates closer to a fairer level.
“While the market will grow from strength to strength supported by the overall high underwriting standards, not all P2P lending platforms will win. It is likely that some platforms that have been unable to attract enough borrowers or lenders, or that do not have the skills or resources to assess borrowers properly, will close down. That said, we expect that most platforms that fail will wind down their existing loans smoothly, as those before them have done, so that their lenders won’t be seriously out of pocket.”