Lending Works will continue implementing negative interest rates, but at a reduced amount, on certain cohorts while starting to pay interest on other loans.
The peer-to-peer consumer lending platform resumed new lending at the start of January 2021 with tightened creditworthiness and affordability criteria and continued negative interest rates, after pausing new lending for much of 2020.
Lending Works said due to the current economic environment, negative interest rates are still required for two annual cohorts, 2017 and 2018 at a lower amount, and interest rates diversion will continue to be applied to all but 2020 and 2021 cohorts.
The platform said that interest rates will drop from minus 17 per cent to minus seven per cent for the 2017 cohort and from minus five per cent to minus three per cent for the 2018 cohort.
Meanwhile, Lending Works said that for the 2020 loans, there will not be any interest adjustments and interest will begin being paid again.
The platform said that whilst 2017 to 2020 cohorts have seen a drop compared to their target annual return, returns remain positive at approximately three per cent per annum on average for these cohorts.
Lending Works said that both its expected annual returns and expected annual loss rates have remained stable, compared to last update for the fourth quarter of 2020.
Average returns on past cohorts (2014 to 2019) are at 4.2 per cent per annum for growth investments and 3.7 per cent per annum for flexible. The 2020 cohort’s average returns have also remained stable at three per cent per annum for growth and two per cent per annum for flexible.
The platform said in the first quarter, expected returns have reduced in line with an increase in expected annual losses in the active portfolio, in particular within the most recent cohorts.
“We continue to understand the impact of Covid-19 on the economy, UK consumers and our loan customers,” Lending Works said in a blog on its website.
“Overall expected annual losses on the active portfolio remain stable at 4.5 per cent in the first quarter 2021. However, we anticipate a further increase in loss rates in the short-medium term.
“Some loan customers will fall into financial distress when their payment deferral period ends, and the government-backed schemes also come to an end.”
Lending Works said that at the end of March, about 100 borrowers were on an active payment deferral, either their first or an extension, accounting for less than one per cent of the loanbook. Approximately 83 per cent of customers exiting their payment deferral period have resumed their regular monthly payments.
However, the platform said the other 17 per cent have not resumed their regular payments and are receiving tailored support.
Lending Works said that there also continues to be another subset of customers that started to miss their loan repayments, did not engage with the collections team or did not request a payment deferral and believe many of these customers will eventually default on their loans.