The coronavirus will cause lending rates to rise which could create new opportunities for “sensible” investors, claimed Neil Faulkner, managing director of peer-to-peer research firm 4thWay.
Faulkner told Peer2Peer Finance News that most P2P investors are well protected against downturns, provided they have followed a sensible investing strategy.
“This especially means lending through six to 12 different P2P lending accounts and IFISAs, and a very large number of loans,” Faulkner said.
“Sensible investors who don’t panic have an opportunity to do well and come out of the downturn with satisfactory or better results.
“Investors who buy 100 toilet rolls and rapidly try to sell their P2P investments are more likely to end up making mistakes, and possibly even locking in losses before they have earned enough interest to cover the losses, or before giving P2P platforms the chance to recover any of the bad debts that occur earlier on.”
Faulkner explained that when investors withdraw cash, borrowers have to compete harder with each other to receive loans from the remaining investors. To do this they will need to accept higher prices, meaning higher interest rates. And some of that additional interest will be passed on to investors.
“It’s the supply-and-demand situation shifting in favour of investors,” Faulkner said.
“Platforms don’t like it when there are imbalances. It gives them more work to do in balancing what some of them have called ‘the seesaw’.
“If the imbalance is caused by borrowers or investors leaving the platform, it also leads to temporarily lower revenues for the platforms.
“That’s why the pandemic is going to be a setback to their growth plans, although, like all domestic and global events that hit businesses, it will pass.
“The longer that lockdowns, quarantines and other measures last, the more bad debts we expect as a result.”