PEER-TO-PEER lending will grow by 50 per cent this year driven by the Innovative Finance ISA (IFISA), but some platforms will fall by the wayside, predicts new research.
Just five IFISAs have been launched so far, but independent P2P analysis firm 4th Way is forecasting a total of 16 by the end of the year, which will boost lending.
This figure could actually even up being higher than 16, as the latest HMRC data in November showed 17 firms had ISA manager status, but not all have launched products. Peer-to-Peer Finance News also revealed today that LandlordInvest has gained ISA manager status.
“We expect a second explosion in the number of people lending and the amount lent in 2017, due to IFISAs,” said 4th Way managing director Neil Faulkner. “This could lead to 2017 being a record year for growth in P2P lending, accelerating by as much as 50 per cent compared to 2016.”
He said he is receiving lots of enquiries about the tax-free wrapper around P2P investments, with the most common question being when the major platforms will offer them.
“Some people interested in peer-to-peer lending are holding cash back to put into these tax-efficient lending accounts as more become available,” he said. “Some investors are even waiting to sell shares from share ISAs to transfer into IFISAs.”
Abundance, Crowd2Fund and CrowdStacker are among the platforms who have already launched their IFISA products, while Lending Works is expected to unveil its product in early 2017 and Landbay has said it will release one by the end of this tax year.
Read more: Crowdstacker IFISA attracting £1m a month
Based on analysis of 35 P2P platforms, 4th Way found lending reached £3.02bn in 2016 with investors receiving returns of between three per cent and seven per cent.
The most popular form of P2P lending last year was consumer loans at £1.27bn, followed by £1bn for small business finance, £690m for development and property loans, £40m for asset-backed products and £10m on rental property.
Bad debts remained low at under one per cent.
However, Faulkner predicted that 2017 will be a ‘make or break’ year for platforms, with some set to experience rapid growth, while others will go under.
“Interest rates in peer-to-peer lending will continue to fall in 2017, benefiting borrowers at the expense of lenders,” he said. “However, we believe P2P has been kind to lenders, as they have been rewarded generously for low risk.
“Over the long term, the amount of interest lenders can earn will be aligned to risk. The high-quality of the loans that most lenders are lending in means more lenders will pile in to push rates closer to a fairer level.
“While the market will grow from strength to strength supported by the overall high underwriting standards, not all P2P lending platforms will win. It is likely that some platforms that have been unable to attract enough borrowers or lenders, or that do not have the skills or resources to assess borrowers properly, will close down.
“That said, we expect that most platforms that fail will wind down their existing loans smoothly, as those before them have done, so that their lenders won’t be seriously out of pocket.”