MID-SIZED direct lending platforms in the UK are occupying more market share than ever before, while growth at bigger lenders slows, according to BondMason research.
The peer-to-peer investor’s 2018 Direct Lending Report found direct lenders – which include P2P platforms – facilitated more than £4.5bn of lending in 2017, with the ‘big four’ – Zopa, Funding Circle, RateSetter and LendInvest – making up two thirds.
But loanbook growth at the biggest lenders was up just six per cent last year, while mid-sized lenders saw their lending grow 50 per cent to £1.6bn, according to the report.
The report said loanbook growth was slowing as the market moves from opening to scale phase and said consolidation was coming, but not yet.
It predicted more bank involvement and that lender rates would falling as competition increases to attract borrowers and provide cheaper loans.
The report also looked at the performance of P2P and alternative finance-focused investment trusts, finding that if you had invested the same amount in the main funds – P2P Global Investment, Ranger Direct Lending, VPC Specialty Lending, SQN Secured Income Fund and Honeycomb – last year, you would be down 1.69 per cent.
In comparison, BondMason, which invests across several P2P platforms on behalf of investors, returned eight per cent on average last year.
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“We predicted a ‘flight to quality’ would start to emerge in our Direct Lending Report last year, but it’s only in the last twelve months that we’ve really started to see an up-tick in platforms’ governance standards, and some of the weaker platforms struggle with their loan books,” Stephen Findlay, chief executive of BondMason, said.
Findlay insisted there was still potential for the direct lending market, something which the banks and large institutions are increasingly recognising.
“We believe the range of investors and the methods of investing will diversify in the coming year and competition and consolidation will continue to produce better products, which will improve regulation standards,” Findlay said.
“Direct lending is proving itself to be an asset class here for the long-haul and we expect it to mature and change form over the coming years – becoming an increasing component of asset allocations for retail and institutional investors.”
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