Peer-to-peer lending platforms have claimed that the Bank of England’s base rate increase to 0.25 per cent will not have any impact on the P2P lending sector.
The Bank of England has raised interest rates for the first time in more than three years today, up from its record low of 0.1 per cent.
Nicola Horlick, chief executive of Money&Co, was surprised at the increase given uncertainty around the rapid spread in Covid cases but said it will not affect the P2P sector.
“I don’t think it will have any impact on the P2P sector as we have continued to charge much higher rates throughout the pandemic,” she said.
“I am concerned, however, about the impact on the economy.”
Daniel Rajkumar, managing director of Rebuildingsociety, was not surprised by the Bank of England’s decisions given the “problem” of inflation.
He said a small rise will not have an impact, but significant rises could as that may bring platforms’ borrower rates more in line with the Bank’s subsidised lending.
“It’s only a tiny rise so I don’t think it’s anything significant,” he said.
“I wasn’t surprised. I think there will be a lot of gradual small raises over the next two years. Inflation is a problem and there’s a risk of overheating certain parts of the economy while starving others. The government needs to look more closely at controlling money supply like the Swiss government is doing.”
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Ian Anderson, chief operating officer at ArchOver, said the news is not surprising and will have “little effect”.
“It was widely expected to rise,” he said.
“Though this will have little effect, what it does say is the Bank Of England is concerned about inflation and we will probably see more rises in 2022. I don’t see any impact in the P2P sector at this time.”
However, David Jelly, founder of Property Bridges, said the low rate rise will only continue to result in savers seeking alternative investments, including P2P, for returns.
“Rates have been at historical lows for a while now which has driven investors to seek alternative investments in order to get yield,” he said.
“There is no doubt P2P has been a benefactor of this. I can’t see a 0.25 per cent increase moving the needle at all, savings accounts are still close to zero so investors still need yield to beat inflation.
“In a wider sense, it will be interesting to see if the larger investment funds will unwind from the property sector and refocus on bonds.”
Neil Faulkner, managing director of P2P ratings and research firm 4thWay, said the sector will see P2P experience problems.
“In times like this, investors have to ask themselves what is their strategy?” he said.
“I expect the sector will weather higher base rates and inflation easily and don’t forecast any substantial problems.”
Robert Burgess, chairman of Invest & Fund, said the rate rise could be beneficial for the P2P sector.
“The P2P model is well set up to take advantage of the base rate increase, more so than traditional lenders as it is less reliant on net margin demands and pressures,” he said.
“Any headline movement which gains media attention and profiles interest rate impacts (both borrower and lender) is useful for the sector as it gives the opportunity to profile the clear and now proven attractiveness of the P2P model.”