The industry is bracing itself for what could be the toughest test of the peer-to-peer (P2P) sector to date with a wave of providers expressing concerns over the recovery potential of some platform’s loans.
According to AltFi Data, the sector is worth an estimated £12 billion and analysts say they cannot accurately predict how many of these loans will perform in a stressed environment but some are predicting significant default rates in the next few years.
Mark Antscherl, CEO of UKPP and Craigleith Property Group said “There [have] been a couple [of lenders] that are having problems because they obviously got these funds that have to be deployed… [but] the criteria for lending has been obviously reduced and they just want to get the money out the door and get the returns in.”
GLI Finance, a listed investment company that backs fintech businesses, this week wrote down the value of its investments in eight P2P lending platforms by £12.6 million to £28.9 million.
The Sunday Telegraph reported that a quarter of Lendy Finance’s loan book is now considered to be in default and this follows on from Zopa’s announcement to investors last month advising them on expected higher-than-forecast losses as a result of deteriorating credit conditions in the market. In addition, Wellesley & Co. last year raised £2.5 million to absorb impairment losses that would otherwise have been passed on to P2P investors.
The fears are growing as a result of the surge in unsecured consumer borrowing and rising inflation in 2017. Borrowing reached £202 million in July its highest level since 2008. Meanwhile, inflation is running at 2.9 per cent, well above wage growth.
Deepak Ohri, an associate solicitor at Moore, commenting to Development Finance Today, said “…Overall I think peer-to-peer can be a very good market, but it needs to be regulated a bit more. We’re too fast and we’re not regulated quick enough, so if the government can catch up, I think they [P2P lending market] will do very, very well out there.”