2014 will also see the Government injecting hundreds of millions more into the sector as well as possible ISA inclusion, creating the biggest year for P2P lending to date.
The predictions come as Assetz Capital, one of the fastest-growing P2P lending platforms in the world, reveals that it has facilitated loans worth in excess of £10m in its first nine months and is growing exponentially. In the process, it has become one of the few P2P lending platforms to turn a profit, and now expects to lend as much as £100m by the end of 2014.
Stuart Law, CEO of Assetz Capital, outlines his predictions:
“What’s really interesting is that the range of returns on P2P loans should reduce. We’ll see the highest rates come down as increased capital from investors will permit platforms to offer lower rates to businesses, while the lowest rates in the market will increase as default risk becomes more and more transparent and gets factored into the rates that investors demand. Our rates will remain relatively stable at around 10-12 per cent, but the days of many companies borrowing at seven or even six per cent are numbered.”
“Of course, FCA regulation will have a huge impact on the industry: a number of smaller, unprepared platforms simply won’t be able to cope with the cost, complexity and team skills required to comply with regulation and will be forced to shut up shop. From day one, Assetz Capital has worked to build an offering that would always comply with forthcoming regulatory standards. Our team is experienced and know how it works so we view the imminent regulation of the industry as a very positive step.
“We may see consolidation as well-placed companies buy struggling ones out, but of course there’s a risk that some may not find a buyer if their loan books were badly selected and managed. With that in mind, I’d urge anyone with money invested through a P2P platform to ensure that the platform has a plan in place to protect lenders in all events. Successful peer-to-peer lending is not about running a fancy dot com website but instead should be a serious, transparent lending operation run by experienced lending professionals, funded directly by people and businesses and enabled though web technology.”
The P2P lending industry has grown rapidly due to low returns on savings and investment products, involvement by the FCA (which will be regulating the sector from April 2014) and the increasing desire for everyday investors to help UK businesses grow. Having contributed £100m in lending through non-traditional channels, it is anticipated that the Government will lend a further £300m in 2014 via the Business Bank, and this could rise further.
Law continued:
“There’s been a rush towards P2P investments in the past 12 months, and there are no signs of let up. Experienced investors get it, and 2014 will see P2P investment truly enter the mainstream when the FCA regulation kicks in. There’s no doubt that the sector will grow with or without Government involvement, but with regulation, injection of Government funds for lending and the likely incorporation of P2P into ISAs comes validity which will lead to continued exponential growth in the sector. Next year will be huge for the industry, and therefore investors – but let’s keep an eye on the future as I believe that P2P loans could be a part of as many as 50% of investment portfolios within five years once ISA inclusion is confirmed.”
The market growth has led to dozens of peer-to-peer lenders forming, with some using different models to distinguish themselves. Unlike loans provided by many other UK P2P lenders, all Assetz Capital loans are backed by tangible security such as first charges on property – this means that in the unlikely event of a borrower default, Assetz Capital expects to be able to recoup investor funds by taking control of these valuable assets.
To date, there have been no defaults; however, the anticipated rate of defaulting loans is 1.5%. Actual loss rate is expected to be less than half of this figure (0.7%) due to the tangible security taken for the benefit of lenders and thorough credit checks and customer visits.
Law concluded:
“Peer-to-peer lending has grown quickly on its own merits, but it’s certainly been helpful that the alternatives – low-paying cash accounts or high-volatility stocks and shares – are so unattractive to many investors. With our average return before defaults currently sitting at 11.8 per cent, it’s no wonder that investors are taking note.”
