P2P lending platforms are braced for a shift to alternative investment as savings returns fall following last week’s cut in the Bank of England base rate.
Brad Bauman, chief executive of the property-focused alternative investment platform and Innovative Finance ISA (IFISA) provider Fitzrovia Finance, said it was maintaining its rate of 5.5 per cent for investors.
“Savers and investors have been badly bruised by the recent stock market falls, and now they will most likely suffer from banks and building societies reducing interest rates on their savings accounts,” Bauman said.
“We expect this to cause a significant increase in people moving money from these accounts to property investment platforms – for better returns, or to reduce exposure to a falling stock market.
“Those looking to invest in this sector need to be aware that they are not a direct replacement for cash savings accounts.
“Although the investments on our platform are secured on real estate, the money is at risk and not protected by the Financial Services Compensation Scheme.”
Meanwhile, Roy Warren, managing director of Folk2Folk, said the reduction will push savers to look beyond cash.
“The reality is that consumers need to look beyond traditional saving methods if they want to avoid their money being eroded further,” he said.
“P2P lending platforms, for example, allow them to access inflation-beating returns without the volatility of the stock market.”
Neil Faulkner, founder of analyst 4th Way also said he expects the gap between savings rates and IFISAs to grow.
“High street banks typically take longer to lower interest rates for borrowers than they do for savers,” he said.
“That delays the pressure on P2P lending providers and IFISA providers to follow suit.
“Therefore, even those online lending platforms that are most closely competing with bank lending can keep their lending rates up for longer as well.”