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
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.
- 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.
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.
January tends to be a comedown following the Christmas festivities, and, from a personal finance perspective, a time for many Britons to lick their wounds. In particular, for those who’ve over-extended their credit card, it may feel like the walls have started to close in.
A new year, and indeed a new decade has dawned. Reflecting on 2019, what seemed to have got lost in the noise and political hysteria was the fact that the UK economy actually held up remarkably well.
As the good times rolled in the mid-2000s, only a precious few sounded the alarm as lending became increasingly reckless. Northern Rock's infamous 'Together' 125 per cent mortgage epitomised the rush for high loan-to-value (LTV) deals at a time when it was thought that house prices would just keep going up forever.
For those with an eye on the economy, 'GDP day' is always one to mark off in the calendar each month. And it's been a hot topic for the UK in 2019, with the latest update showing zero growth for the period from August to October.
One of the perceived strengths of the auto-enrolment pension scheme is its simplicity – indeed, it is actually a greater effort for an employee to opt-out of a workplace pension than it is to be enrolled into one. No further actions are required, and the retirement fund grows as the months and years pass by.