P2P lending rates won’t change yet despite further BoE rate hike
Peer-to-peer lending platforms are not planning to raise their lending rates following the Bank of England’s latest base rate hike.
The central bank’s monetary policy committee has presided over a tenfold increase in rates over the past five months – from 0.1% in December 2021 to 1% by May 5, 2022.
Paul Heywood, director of data and analytics at Equifax UK, warned that the rise will increase the cost of variable loans.
Read more: Base rate hike will see banks ‘beat up’ borrowers
“Borrowing continues to rise as consumers feel the pinch of the cost of living crisis and this rise will increase the cost of variable loans, including on credit cards and mortgages,” he said.
“Many consumers will see their disposable income reduced even further.”
However, several P2P lending platforms have stated News Peer2Peer Finance that they don’t expect to see a spike in rates in the near future.
Ben Shaw, managing director of HNW Lending, said the tenfold increase in the base rate won’t affect most platforms, as it’s not much compared to the lending rates most charge, which are closer to 10%. He added that if there were further increases, his platform might have to raise lending rates and then raise lender yields to reflect that.
Read more: Mortgage approvals and consumer borrowing down
“The average P2P lender charges a lot more than a bank, so a 1% interest rate hike on a 10% borrower interest rate isn’t huge,” Shaw said.
“When it comes to bridging interest rates, 0.25% isn’t really meaningful, so at least for us we’re not changing interest rates for borrowers at this time, but if they continue to increase, we might consider doing so.
“In terms of investor returns…if rate hikes continue, we would look to pay investors more to reflect the fact that we are charging borrowers more. I imagine that as they climb to 2% we would start thinking about the right course of action.
Filip Karadaghi, co-founder of LandlordInvest, said that following the rise in the base rate, he would expect the price of bridge loans to increase, but with the amount of money and the lenders in the l space, that hasn’t happened yet.
Read more: The demand for consumer credit is increasing
“The change in the base rate doesn’t really affect us, what affects us is the price we charge borrowers,” Karadaghi said.
“Obviously we want to profit from every transaction. If the borrowing rate remains unchanged, inflation-adjusted returns to lenders will fall. The problem in the UK is that there is an abundance of institutional capital and bridge lenders to operate at any level, regardless of profit.
Bruce Davis, managing director of Abundance Investment, said that while P2P platforms offer alternative investments and don’t compete with them, they could see an increase in lending opportunities.
“If banks’ funding costs increase, they tend to reduce the amount they lend, which can have the effect of increasing borrowing interest rates,” he said.
“Customers who lend money to businesses might expect to benefit as businesses will seek to borrow from other sources, such as crowdfunding platforms.”