As industry figures for Q2 are released, the Direct Lending and P2P lending industry currently looks on track for continued growth in 2017 – both in the UK and Europe. It is now a year since the Bank of England cut interest rates to just 0.25% and 10 years since it last raised the base rate, coupled with rising inflation, it has been a tough time for savers. Early Autumn is likely to see the FCA roll out its delayed review of the P2P and crowdfunding industry – potentially introducing tougher curbs for some P2P lending platforms.
P2P Lending industry continues to show growth
According to research, P2P lending in the UK reached a significant lending milestone in July - £10 billion has been lent cumulatively across 23 UK platforms. The first half of 2017 has also performed well with over £2 billion invested through P2P.
The Peer-to-Peer Finance Association (which represents the 8 of the largest P2P lending platforms) recently released its Q2 lending data. Q2 2017, against the same the same period in 2016, showed increased lending levels for P2PFA platforms year-on-year.
Robert Pettigrew, Director of the P2PFA, noted: “comparing the performance of P2PFA platforms in the second quarter in 2017 with the same period in 2016 underscores the progress which peer-to-peer lending has continued to make: levels of new lending in the same quarter last year were £657,939,000, whereas this year our platforms have originated £818,919,129 in the last three months – of which £478,203,444 has supported small business and real estate projects. The number of lenders and borrowers continues to rise, with more than 35,000 more investors participating than during the same period last year.”
However, July did see some setbacks within the industry - P2P Lending platform Ratesetter was hit by £80 million of struggling loans. Ratesetter will use its own funds to prevent the losses being taken by its 50,000 investors.
Closer to home, we have recently updated our own review of investment performance across BondMason, details of which you can find on our Statistics page.
Europe’s Alternative Finance Market expands
Europe’s alternative finance market continues to expand. Deloitte’s Alternative Deal Tracker showed that in Q1 2017, European alternative finance hit $9.1 billion (£7.03 billion) in closed deals – nearly double that of what was raised in the whole of 2016.
New markets are also opening up. European P2P platform TWINO recently announced that it has begun listing short term loans from Kazakhstan. TWINO will be the first European platform to expand into Central Asia.
A year on from the BOE’s 0.25% interest rate cut
It is now a year since the Bank of England cut interest rates to a historical low of 0.25% and actually 10 years since the BOE last raised the base rate. With a current interest rate of just 0.25% and inflation at 2.6% (up against the target of 2%) many savers have not had the best 12 months.
Many people with money in traditional savings accounts have actually seen their cash lose value in real terms. Even challenger banks have struggled to meet the rising inflation rate. Research carried out by Hargreaves Lansdown noted that over the last 10 years (the last time the BOE raised its base rate) a person with £1,000 in a typical easy access savings account would have £1107 today. If you then adjust for inflation, which has increased by 26% over the last 10 years, then the real value would be just £878.
Inflation has risen pretty much steadily since Brexit last June (although figures released this week confounded industry expectations and provided some respite as UK CPI inflation remained at 2.6% for the second month running). Rising inflation has had a significant impact on wage growth and added to a sustained fall in the standard of living for UK households. Despite the employment rate rising to 74.9% (the highest since records began in 1971), real pay has been unable to keep and fell in the 3 months to May 2017 – putting added pressure on already cash strapped households.
There were increasing expectations that the BOE may raise the base rate as early as January 2018. Asset Management Group Shroders note that rising inflation has led to an expectation of a 0.5% rise in January against previous thoughts were that rates would remain at 0.25% until mid 2019. However, thoughts continue to remain divided, with UK growth levels lower than forecast the case for raising interest rates is possibly weakened.
Autumn clampdown of P2P lending from the FCA
The Financial Conduct Authority (FCA) are planning a clampdown on P2P lenders in a delayed review of the crowdfunding industry in Autumn. The FCA are concerned that some platforms are not providing enough transparency or financial information to investors to enable them to compare P2P loans with other investment types.
According to The Times the FCA is considering introducing tougher curbs on platforms in order to better protect investors. Platforms may need to provide more information on the past performance of loans and be more open about how much due diligence is carried out on companies and individuals looking to borrow money on their sites
However, there are some concerns within the industry that P2P and the crowdfunding industry have been singled out and that the impact could be detrimental on small businesses looking to raise finance. Since the financial crisis crowdfunding and P2P has been an alternative source of finance for small businesses and parts of the industry are concerned that the introduction of new regulations could potentially stifle small business growth.
Fintech defying Brexit uncertainty
The UK fintech industry looks like it is holding its own amid concerns over the impact of Brexit. Recent research by Fintech Global indicates that 2017 could be a record year for fintech companies. The firm suggests that the UK sector has shown resilience with a compound annual growth rate of 18.1% between 2014-2016. The trend looks set to continue with fintech firms receiving funding of £769m
According to ALTFI, Fintech funding in the UK did falter in the months leading up to the UK’s referendum last year. However, things appear to have settled down with the first half of 2017 seeing 16.9% more investment compared to the same period in 2016.