Lending Works warns cost-of-living crisis will increase loss rates
Lending Works said its expected annual returns and losses remained stable in the first quarter, but warned of an imminent rise in loss rates as the cost-of-living crisis hits consumers.
The consumer lender – which announced that it was winding down its P2P business last December – said average returns on the 2014 to 2019 cohorts of loans currently stand at 4.4 per cent per annum for its ‘growth’ product and 3.8 per cent per annum for its ‘flexible’ offering.
The 2020 and 2021 cohorts’ average returns are 2.6 per cent and 4.5 per cent per annum for ‘growth’ and 1.9 per cent and four per cent per annum for ‘flexible’, respectively, Lending Works said in a first-quarter update. This is stable compared to the last quarter of 2021.
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“We will continue to understand the impact of the cost-of-living challenges on the economy, UK consumers and our active loan customers,” Lending Works said in a blog post on its website.
“Overall expected annual losses on the active portfolio remained relatively stable at 4.1 per cent in the first quarter of 2021, compared to approximately four per cent in the fourth quarter of 2021.
“However, we anticipate a potential further increase in loss rates in the short-medium term. We expect some of our loan customers to fall into financial distress as the cost-of-living increases, so we will closely monitor this.”
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Lending Works also said that the future income required to cover expected losses decreased to £1.5m, compared to £2.2m in the fourth quarter of 2021.
” The £1.5m reflects the most recent performance of the portfolio and our latest assessment of the expected credit losses in our portfolio as it matures,” the firm said.
Lending Works’ Shield – which acted as a provision fund – has a “relatively stable” cash balance of £1.1m in the first quarter of 2022.
“Shield cash utilisation continues to be maximised to pay arrears and default to retail investors,” it said.
Lending Works also revealed that its next statistics page update will be in July 2022 and will continue to be focused on the impact that the cost of living could have on its portfolio performance.