Summary of a post.
P2P: A silver lining for base rate misery
It was yet another dark Thursday for savers and investors in the UK. News that base rates were to stand firm at a record low of 0.5% would hardly have been a shock to the system, but for those not already numbed by six-and-a-half years in the doldrums, the Bank of England’s (BoE) inflation report was a bitter blow.
The revised forecast cited that even if UK interest rates were to remain as they are until early 2017, CPI inflation would be unlikely to edge above its 2 per cent target. The dovish tone of this message has left little room for interpretation among economists, and if lift off is to therefore be deferred until 2017, it would mean eight years of unchanged borrowing costs – the longest such period of inertia since 1950.
A sucker punch for savers
For borrowers and those with (variable) mortgage repayments to make, it was due cause to put on a celebratory pot of tea. But for those at the other end of the spectrum, it compounded a misery which has already condemned them to derisory rates of return on savings accounts, bonds and relevant investments for so long.
As if to put the nail in the coffin, there was also a downward adjustment on forecast growth for this year to 2.7 per cent (and to 2.5 per cent for 2016 – down from 2.7 per cent) by the BoE, coupled with the observation that emerging markets are continuing to perform poorly against the backdrop of global economic uncertainty - as if to underline their stance.
It sets a pretty grisly outlook for investors and retirees attempting to find a viable home for their money, especially for the latter, whose pension funds are typically very closely linked with interest rates. It also hardly cultivates an inspiring environment for saving in general, which, in turn, is no great thing for the economy.
The argument for peer-to-peer lending
But it isn’t all doom and gloom. Such conditions encourage savers to find alternatives, and, of the abundance which are actually out there, peer-to-peer lending (P2P) in particular presents an oasis of sorts. Annualised returns of up to six per cent for only a small – and transparent - risk at such a disillusioning time stand out like a sore thumb, and have been chiefly responsible for the sector swelling significantly over the last two years. Add to that the tax efficiency of the incoming Innovative Finance ISA (and the inclusion of P2P within the Personal Savings Allowance), and its appeal will only be enhanced further.
Interestingly, from a strictly relative point of view, a platform like Lending Works is theoretically no better or worse off if base rates increase or not. Should lift off eventually occur, our returns for lenders would increase in kind, but there is nothing to suggest that the proportions of such an increase would be lower or higher than the movements of other ‘comparable’ asset classes.
Yet there is one important exception to the above. In truth, there will more than likely be a lag from the time the Bank of England does eventually decide to up base rates to when we see an actual increase in savings rates. The direct link between the two was all but severed in the wake of the recession, when the latter continued to plummet for years after the former had bottomed out. This was largely attributed to the introduction of the Funding for Lending scheme, which made banks far less dependent on savings deposits for capital.
What it all means is that the gulf in benefit between lending through peer-to-peer and putting your money into the bank may even widen when rates do rise. Certainly, consumers can be confident that our efficient and agile model will ensure that if there is any benefit to be had for the lender, it will be passed on in its entirety, and without delay.
Until such an elusive day arrives though, we’d encourage anyone who is unsatisfied with the returns they are currently getting on their savings and investments to have a second glance at their portfolios. That’s not to say drastic measures need to be taken, but rather to take note that, even at this difficult time, there are a myriad of good-value investment options at your disposal. There can be no harm to come from at least looking into them.
Main image "Corner of the Bank of England" by Robert Moore. 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.
Related articles:
- Quick guide to how our interest rates work
- What will a rate rise mean for P2P lending?
- Could peer-to-peer lending hasten a rates hike?
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.
As with all investments, your capital is at risk.
- Summary of a post.
In line with our risk management framework, today we published our Q4 2019 performance update.
As a platform, we take great pride in all that we've achieved since opening our doors for business nearly six years ago. We’ve
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.
Featured
Wednesday’s Budget speech, coupled with the cut to Bank of England rates, represented a decisive response to the coronavirus. Here we analyse the impact it will have on mitigating disruption from Covid-19, along with the long-term implications of this significant fiscal stimulus.
Rumblings from the Treasury ahead of next week's Budget suggest tax grabs will be needed to fund increased spending, and it appears UK enterprise could be in the firing line. Here we articulate why targeting entrepreneurs and small business is ill advised.
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.
There is a variety of literature and research illustrating the importance of building brand loyalty, albeit with some degree of variance.
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 idea of peer-to-peer (P2P) lending is a simple one; you lend money to those who wish to borrow, with a view to receiving a great return for doing so.
Most popular
The 2019-20 ISA season has been a damp squib, with banks disinterested in attracting savers’ cash, rates cut, and the stock market in freefall. However, the emergence of the IFISA means alternatives beckon for those seeking a stable middle ground in terms of risk and reward.
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?
- Summary of a post.
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?
Recent
The Lending Works Shield does not give you a right to a payment so you may not receive a pay-out even if you suffer loss. The Lending Works Trustee has absolute discretion as to the amount that may be paid, including making no payment at all. Therefore, investors should not rely on possible pay-outs from the Lending Works Shield when considering whether or how much to invest. For more information click here.