Fitch upbeat on UK consumer loans despite Brexit

UK CONSUMER lending will remain stable next year despite the Brexit fallout, Fitch has predicted.

“In 2017, uncertainty about the UK’s economic outlook will weigh on corporate investment, while sterling’s depreciation will result in real wage falls, cutting consumer confidence,” said the ratings agency on Tuesday. “Thereafter, Fitch expects modest unemployment increases and low, but not negative, economic growth. Ratings for UK securitisations would be largely unaffected in this scenario, but the variability of potential scenarios has increased substantially.”

The climate for securitisations – packaging up loans and selling them off to institutional investors in tranches – in the UK and the rest of Europe will remain good, according to Fitch. In the report on European securitisations, Fitch said that over 90 per cent of EMEA structured finance ratings have a positive or stable outlook, with steady economic growth predicted in most of Europe next year.

“The performance of portfolios of UK consumer lending has become ever stronger in recent years,” said the research. “This trend may reverse in 2017, when the cumulative effect of repeated relaxation of underwriting standards combines with cuts to real household incomes. Any such deterioration is likely to be minor and therefore the 2017 asset outlook for the sector remains stable.”

P2P Global Investments and peer-to-peer finance platform Zopa announced a £138m securitisation deal back in September. The deal was Europe’s first securitisation backed by unsecured consumer loans originated online and Zopa has told Peer-to-Peer Finance News that it is definitely planning more securitisations.

P2P platforms Funding Circle and LendInvest have also entered the securitisation space, although this was with business loans and property loans respectively.

Read more: P2P securitisation trend continues as Funding Circle mulls new deals

“New market entrants will seek to lend in sectors that still offer the possibility of earning attractive margins, such as consumer and residential lending,” said Fitch. “Lenders may seek to gain market share by competing on price, but may also offer product innovations or less prescriptive underwriting standards, risking weaker long-term performance.”

Read more: UK P2P set for securitisation boom