The 2019 ISA season is now in full swing, and it's as good a time as any to focus on financial planning - and, within that, looking ahead to your retirement years to ensure financial security.
Could peer-to-peer lending hasten a rates hike?
It’s the burning question for many of us… when on earth will rates increase? For those paying off mortgages and other such debts, you’ll be soaking up every last ray of light from record-low base rates, which have been entrenched at 0.5% since March 2009. For savers and pensioners though, it’s become a case of cursing each miserable day that goes by with poor returns on your money. After all, in the midst of the recovery, recent hopes of a hike have been dashed on a monthly basis, with only vague (and varying) indications of when the long-awaited upward nudge may occur.
We had a chinwag recently about what impact an increase in rates would have on the peer-to-peer lending sector, but, at the time, the converse thought never really crossed our minds. Could P2P actually be an influence on when the Bank of England decides to give base rates a long-awaited hoist? According to Monetary Policy Committee (MPC) member Ian McCafferty, the answer is a resounding yes.
In Wednesday’s speech at Bloomberg in London, McCafferty centred his argument on the fact that the tight credit conditions which followed the 2008 recession have “diminished markedly”, and that alternative finance – with peer-to-peer lending at its core – provides a significant gateway to credit for both firms and consumers.
Sustainable growth
However, he also pointed out that the dangerous waters of uncontrolled borrowing which helped perpetuate the financial crisis bore no resemblance to the more dynamic, but also sustainable credit channels these growing sources of alternative funding are currently cultivating.
“We have not returned to the conditions in the run-up to the crisis – nor would we want to,” McCafferty said. “Lending spreads were unsustainably low and lending conditions too accommodative. But we are approaching what might be seen as ‘a new normal’. And current conditions appear unlikely to act as a material constraint on investment planning."
While acknowledging that peer-to-peer lending still makes up a small portion of UK financing compared to banks, he pointedly added: “Alternative finance is growing, and is likely to be a developing feature of the market in future years.”
It’s a significant compliment for the sector, both in its dealing with consumers, SMEs and large firms, and in the fact that it’s a measure of how far it has come if it can influence the decision making within the UK’s MPC. Despite the so-called ‘headwinds’ of an unstable global economy and a contractionary fiscal policy at home, business finance in particular continues to strengthen, and it leaves McCafferty in little doubt that the Bank of England should respond in kind.
“If we on the MPC are to achieve our ambition of raising rates only gradually, so as to minimise the disruption to households and businesses of a normalisation of policy after a long period in which interest rates have been at historic lows, we need to avoid getting ‘behind the curve’ with respect to the neutral rate. And for me, that provides an additional justification not to leave the start date for lift off too late,” the 59-year old concluded.
It will be interesting to see if the vote among his fellow committee members shifts to align with the affirmative McCafferty says he has cast since August. His rumblings also follow those of his colleague Kristin Forbes last week, who said “the next move will be up” and that it would take place “sooner rather than later”.
So, could it all be a sign that the plates are finally starting to shift? Like you, we’ll certainly be keeping a close eye on developments.
Main image "Mark Carney" by Policy Exchange. Image subject to copyright. A link to the image and appropriate licence can be found here. You must not use or reproduce this image other than in accordance with the licence.
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