In line with our risk management framework, today we published our Q4 2019 performance update.
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.
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.
- What will a rate rise mean for P2P lending?
- Will the ISA topple the pension?
- China's slowdown: A boost for peer-to-peer lending?
Get email updates for future blogs:
Our website offers information about saving, investing, tax and other financial matters, but not personal advice. If you're not sure whether peer-to-peer lending is right for you, please seek independent financial advice, and if you decide to invest with Lending Works, please read our Key Lender Information PDF first.
Since opening our doors back in 2014, we’ve always prided ourselves on living and breathing two key principles at Lending Works: innovation, and putting the customer first in everything we do.
With the retail sector enduring its fair share of challenges, companies are looking at new ways to attract customers, and drive conversion. In an overcrowded, dog-eat-dog marketplace, with behemoths such as Amazon flexing their muscle, it’s easier said than done.
On 4 June 2019, the Financial Conduct Authority (FCA) released its new regulatory framework for peer-to-peer lending (P2P); a Policy Statement known as PS19/14. As you might imagine, it's a document which, following a three-month consultation, is a hefty read of no fewer than 102 pages.
In a difficult climate, customer acquisition and lead generation present stern challenges for UK retailers, and a great deal of marketing spend invariably gets directed towards getting feet through the door.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
In a decade of slow recovery, the rapid rise in asset prices has been the standout. But how sustainable has price growth been, and could we be in the midst of a bubble?
Most people consider income tax to be a given, but in the UK it is barely two centuries old. In this article, we look at how this tax has developed over the years, and also why it is set to remain at the core of our tax system for many decades to come.
Open banking celebrated its second birthday last month, but has the ‘revolution for financial services’ that was promised actually come to pass? In this article, we look at the progress the initiative has made so far, and what the future holds in the face of high levels of scepticism.
On the face of it, a 'broken' energy market needed fixing, and the price caps introduced in early 2019 were heralded as the solution. But, one year later, have they actually helped consumers save?
Last week, the Office for National Statistics surprised economists by announcing that the Consumer Price Index (CPI) had sunk to 1.3 per cent for December – a full 20 basis points lower than City expectations, and also the November equivalent.