June P2P Lending News

Posted 4 July 2016. Categories: Lender Newsletters.

In light of a pretty interesting month over in the U.K., this month we wanted to take a look how P2P marketplaces in the UK have performed to date, and whether we can expect Brexit to impact them. 

  1. In a public statement referencing Brexit, the CEO and founder of auxmoney, the largest German P2P lender, pointed to the current environment of high volatility in markets and the contrasting, relative stability of investing in P2P loans. He's quoted by Crowdfund Insider as stating,  “Especially in this environment, P2P loans are a convincing investment by yield and stability. The average yield in auxmoney is 5.50% and is independent and is far above the yields traditional interest bearing deposits.”

    Read the full article here
    .

  1. Off the back of Brexit, U.K. peer-to-peer marketplace RateSetter has just announced plans to move more into SME lending in an effort to bolster their offering to investors seeking to lend to consumers, property and business borrowers across the platform.

    Read the full article here.

  1. Orca Money suggests that "Brexit will undoubtedly have a significant and resounding impact on the UK economy and society more generally. How Brexit will affect peer-to-peer lending UK will remain to be seen, but be positive, see this as an opportunity to capitalize on an innovative asset class that has, and will continue to, offer the best interest rates on the market. Especially when 0% savings rates are upon us." 

    Read the full article here
    .

  1. Orca Money further argues that "Brexit may have gifted the P2P market an extension of the post 2008 conditions which allowed the market to flourish," in another provocatively titled post, "How P2P lending can rescue savers and investors from Brexit".

    Read the full article here.

But how have U.K. based P2P lending marketplaces performed so far, anyway?

  1. Zopa
    Zopa (
    www.zopa.com) is one of the largest P2P lenders in the U.K., with a loan book of £1.54 billion (NZ$2.9 billion). After 10 years of operation, Zopa published their expected borrower default rates vis-à-vis actual defaults over the period from 2006 to 2015. 

    Year

    Expected Default (%)

    Actual Default (%)

    2015

    2.88

    1.15

    2014

    2.06

    1.46

    2013

    1.30

    0.67

    2012

    1.26

    0.72

    2011

    1.72

    0.76

    2010

    2.31

    1.65

    2009

    2.43

    1.43

    2008

    3.58

    4.33

    2007

    2.74

    0.41

    2006

    1.28

    0.13

    Average

    2.156

    1.271

    Source: www.zopa.com/lending/risk-data

    Over the decade the actual default rate averaged 1.27% pa which was significantly below expected default rate.

  2. Funding Circle

    Another leading U.K. P2P marketplace is Funding Circle (fundingcircle.com/uk) which offers loans to SME businesses and has a loan book of £1.34 billion (NZ$2.52 billion). It has over 50 thousand lenders, and an average loan of almost NZ$50k.

    The British Business Bank (which is wholly owned by the UK Government) has lent £40M through Funding Circle, in an effort to stimulate the growth of small businesses, bypassing traditional High Street Banks that were reluctant to lend to smaller businesses.

    For investors, the projected returns from Funding Circle after projected loan write-offs are attractive. Funding Circle project a return of 7.2% p.a. (compared to the deposit rate for a UK Sterling two year bank deposit is only between 1.2% to 2.4%).

We'll be watching closely to see how things develop. While the end conclusion is hard to predict with certainty, there's little doubt that it will be an interesting ride.