The top eight Peer-to-Peer platforms in the UK doubled their lending over the past ten years, reaching £4.4 billion in loans in 2015
Peer-to-peer lending platforms seem to be on fire in the UK, with no dark clouds on the horizon. And, with the new tax initiative known as Innovative Finance Isa, which takes effect in April, 2016, the peer-to-peer investment scene is equally hot.
Since 2005, the year that P2P lending hit the market in the UK, the number of borrowers is almost double, up to 273,000. (Peer-to-Peer Finance Association data) Investors have grown to 128,000. The average loan amount is approximately £34,000. And this covers only the eight largest P2P platforms. Analysts suggest that the P2P lending market could go over £6.6 billion in 2016 if growth continues in this same pattern.
Peer-to-peer, evolving and maturing
The first peer-to-peer customers were primarily looking to refinance high-interest debt. On the investment side, during the industry’s infancy, most were dissatisfied with the low interest they were earning on their bank accounts, and were looking for a better return. Since then, the industry has matured, and borrowers can obtain P2P loans for more than debt refinancing, including such needs as student loans, housing loans, and even loans to open a small business. Peer-to-peer became an attractive financing source for consumers tired of the long wait-time and tedious application process required by banks.
What is fueling the growth?
Similar to America, UK consumers are dissatisfied with bank services, especially the level of customer service. More and more find themselves unable to meet the high bar of excellent credit required by bank lenders. Borrowers do not have to convince P2P lenders of their reason for the loan, merely that they can repay the loan. Their ability to do so is assessed by each P2P lender through its own unique qualification algorithm. Everything is online, making it easier for borrowers to apply from their smartphone or tablet, even when mobile.
Investors want more bang for their buck, and bank instruments are becoming less and less attractive. The P2P platform, which matches borrowers and investors appeals to an increasingly hungry and altruistic investor crowd.
Fast, efficient, great financing terms, it is no wonder that P2P is taking off around the world.
Innovative Finance Isa
This new tax initiative which launches mid-April, 2016 will allow consumers for the first time to invest their tax-free annual savings allowance (roughly £15,240) in peer-to-peer platforms, meaning that there will be no taxes on their investment returns. Currently, they pay taxes according to a marginal rate. Isa only applies to new money investments.
Peer-to-Peer’s bright future
According to the chair of the Peer-to-Peer Finance Association (P2PFA) Christine Farnish, “Year-on-year, peer-to-peer lending continues to grow and have a strong impact across all markets. The growth demonstrates that more lenders and borrowers believe our industry to be a real alternative to traditional lenders. This is only enhanced by our members’ approach to transparency and strict business conduct rules.”
Heads of UK peer-to-peer lenders note that large financial institutions and banks are starting to take notice of the P2P industry. They expect that notice to ratchet up a notch once Isa takes place and more investors turn their eyes toward P2P lending platforms as a place to plant their investment dollars.
