Peer-to-peer lending officials expect defaults to rise for unsecured loans this year, but not for asset-backed facilities.
The latest Bank of England credit conditions survey – which polls a range of bank lenders and building societies – showed defaults on mortgages and unsecured loans are set to rise over the next three first months of this year.
Lee Birkett, chief executive of JustUs, said he expects there will be defaults in unsecured loans due to reduced government support for businesses and Brexit-related issues.
He said JustUs does not expect an increase in defaults as it primarily does asset-backed lending. The small proportion of unsecured loans it provides are for homeowners who need a relatively large amount of equity in their property to prove their financial position or to have a guarantor with that quality.
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“You’re going to have a natural storm of backlogs because of Brexit and lack of government support going forward,” Birkett said.
“It will not affect us, we do asset-backed loans. If someone lends to tenants, they are really exposed.
“There aren’t as many unsecured P2P platforms, if they’re still running they can reach a bad debt threshold. It’s going to be a tough year ahead, but that’s why we’re asset-backed; Loans asset-backed mortgages and home loans are the real backbone of P2P in the future.
“I wouldn’t want to get into an unsecured lending environment and I don’t think many investors would either. The main reason being that the rates you would need to charge to make it profitable would be frowned upon due to bad debts.
“This year, rates are going to go up and approval levels are going to go down for unsecured loans. When inflation is high, people can’t afford to pay and they don’t repay their loans.”
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Nicola Horlick, chief executive of Money&Co, agreed defaults would increase for unsecured loans while its secure P2P lending platform would remain unaffected.
“For platforms that have lent for working capital and are unsecured, I expect defaults to increase,” she said.
“We have only lent in our specialist areas and are secure, so I don’t expect defaults to increase for Money&Co.”
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Meanwhile, Louis Schwartz, chief executive of Loanpad, said his property-backed lending platform expects no losses on outstanding loans, but stressed that it is “never complacent about regarding payment defaults.
“The P2P industry has many different types of lending, and all lending of any size will be affected by broader market conditions,” he said.
“We are never complacent when it comes to defaults, but we believe our structure provides great protection for our investors against fluctuating market conditions and prices.
“Indeed, our maximum loan-to-value ratio is 50% and our experienced lending partners hold a large first-loss share of each loan.
“Of course, we cannot guarantee anything, but we do not anticipate any losses on outstanding loans. »