The first quarter of 2017 has started off promisingly for P2P despite the IF ISA not having taken off quite as expected. Some P2P lenders felt last week’s budget was a bit of a disappointment with some of their key concerns left unaddressed. FCA continues to face regulatory challenges in what can be a complex environment. As the UK’s low interest rates hits its eight-year anniversary what options are there for savers?
P2P Lending forecast remains strong for 2017
As we approach the end of the first quarter of 2017, forecasts for both global and UK growth of the P2P Lending industry is looking positive. Predictions remain strong for the year ahead. The peer-to-peer lending market is increasingly being seen as a credible alternative to investing in stocks and shares – providing good returns without the volatility. Estimates indicate that the total worldwide transaction value of P2P lending money transfers will reach $75.3bn this year.
Indeed, according to AltFi the UK the alternative finance market has just risen to over £10bn in cumulative funding – most of this coming from P2P lending platforms. Brexit concerns seemingly having had little impact as data shows record growth in the third and fourth quarters of 2016.
Have delays in FCA regulation meant a poor start to the ISA season for the second year running?
As the end of the tax year fast approaches time is running out for people wishing to add to their tax free allowance. With the deadline of the 5th April looming, there is a sense of frustration amongst some of the P2P lending industry that for the second ISA season running the Innovative Finance ISA hasn’t been progressed as quickly as it could have been. A number of lenders are missing out due to delays in FCA regulation.
Despite gaining approval back in April last year, the IF ISA hasn’t had the impact it could have had, with a significant number of P2P Platforms still waiting full regulatory approval from the FCA. It is only with this approval that lenders can apply for authorisation from HM Revenue and Customs to become ISA managers.
According to CityWire, last month, whilst 22 P2P lenders had received full FCA authorisation a further 65 applications were still in progress. This included three of the largest lenders – Zopa, Funding Circle and Ratesetter. This has meant that even with their IF ISA products are ready and waiting in the wings, they have not been able to launch them in time for ISA season.
Budget 2017 – a bit of damp squib for P2P lending
Some alternative finance lenders have been disappointed with Chancellor Philip Hammond’s budget. The key points of disappointment concern IF ISA rules, failure to ease housing pressures and the re-evaluation of business taxes.
Currently the rules surrounding the IF ISA doesn’t allow for people to invest across multiple peer-to-peer platforms in the same tax year – a rule lenders were hoping would be addressed in the budget. Stuart Law, CEO of Assetz Capital comments; “Hammond has missed a chance to take a fatal flaw out of the IFISA that prevents investors investing across multiple P2P platforms in the same tax year – leaving investment diversification very difficult for people.”
Property backer lender Landbay lambasted the budget for not doing enough to ease the pressure on the housing market by raising the stamp duty threshold. Lenders also felt that the budget had failed to do enough to support SME’s. The government’s re-evaluation of business tax could see small business and start-ups facing significantly higher costs. P2P platforms have voiced disappoint that the budget has not done enough to improve the tax regime for small businesses, in fact many are facing higher costs from April. Platforms argue this added pressure could have a real impact on economic growth within this sector.
The continuing complexity of FCA regulation
The complexity required for regulation in the alternative finance industry has been flagged up this month through both the FCA admission that the rapid advancement of technology has made regulation more complicated, and its recent warning to P2P lenders about ‘wholesale’ lending.
In a recent speech to the Cambridge Judge Business School, FCA chairman John Griffith Jones shared his thoughts on what constituted good conduct regulation and what challenges the FCA faced in light of technological progression.
“The problem is exacerbated further by the remorseless march of technology. Rules that were designed for the paperwork era do not work necessarily for the online one. The distinction between advice and guidance, once reasonably clear, has become much greyer with the advent of platforms and the potential of robo-advice.”
The FCA is seeking to better understand and indeed embrace these technological developments through its Project Innovate. BondMason, as a member of the FCA's Innovation Hub - for innovative financial services companies - has been on the front end of working with the regulator since early 2015; and has sympathy for the challenges the regulator faces.
At the end of February, the FCA wrote to the CEO’s of P2P Lenders, warning them not to lend to other P2P companies. This is a further example of the growing complexity of P2P regulation and highlights the FCA’s tightening of rules surrounding P2P Lending. The FCA has previously indicated its concerns over this type of ‘Wholesale’ lending but the letter sent out on 28 February confirmed its stance; “Where a loan-based crowdfunding platform facilitates the acceptance of deposits by a borrower that does not hold the correct permission, that platform would not be acting in a manner consistent with our expectations for regulated firms and may be in breach of certain regulatory requirements” . A number of P2P platforms have previously had wholesale lending operations including one of the largest lenders – Ratesetter. Although Ratesetter confirmed that since December 2016 it had no longer been undertaking any wholesale lending operations.
As the UK’s low interest rates hits 8 year anniversary – what options are left for savers?
As the UK hits its eighth anniversary of low interest rates, one in four of us are poorer than a year ago . With stagnant interest rates, rising inflation and average cash ISA’S paying just 0.82%, what options are left for savers?
In last week’s budget the government confirmed the April launch of the NS&I savings bond. Available online only the three year saving fixed rate saving bond will offer 2.2%. Matching the current market leading rate offered by challenger bank Atom.
Challenger banks have been active over the last month or so, increasing their cash savings rates. Although few of the one year bonds are beating the current inflation rate, some of the two year and three year fixed rate bonds are meeting it. Last month challenger bank Charter Saving launched two new market leading products and announced it would be increasing rates on four of it fixed rate bonds. In direct response Atom Bank unveiled a 2.0% rate on its one year fixed saver (up from 1.5%) alongside rate increases on it two, three and five year bonds.
Tesco recently had to pause new applications for its high interest paying account that guarantees 3% on balances of up to £3,000 due to unprecedented demand.
Peer to Peer lending continues to fill a gap for savers willing to take on more risk for a higher return than offered by even the more competitive challenger banks, without the volatility of investing in stock and shares. In an interesting Moneywise article, Jeff Prestige Finance Editor the Financial Mail on Sunday, discusses how he uses peer-to- peer lending to beat the banks.
*Warning: nothing in this article should be construed as advice. Your capital is at risk