Peer-to-peer lending and Covid-19

As the impact of COVID-19 on the entire globe became clear, a minority of investors felt uneasy, selling their loans held in P2P lending accounts and IFISAs.

Yet just a small proportion of investors sold before the panic subsided. Unlike the recent stock-market sell-off, those selling loans did not have to do so at hugely discounted prices.

RateSetter, which mostly does personal loans, was one of the affected platforms. It said: “The performance of RateSetter’s portfolio has been stable, as can be seen from our published statistics, and our expert credit risk and borrower services teams actively monitor and make adjustments every day.

“In the current climate, we will give support to our borrowers. Our provision fund is managed with a buffer to be a shock-absorber for external events and our focus remains on investor protection.”

CrowdProperty, the P2P development lending platform, continues to approve and fund new loans as normal. Michael Bristow, CEO of CrowdProperty, said: “It appears likely that the pandemic will weigh on economic activity, at least in the short-term, and this has had bearing on global equities markets. Real estate, however, is neither the cause nor the centre of this problem like it was in 2008.

“Our project pipeline remains strong and we will continue to monitor all projects very closely with our expert eyes.

“In times of stock-market volatility, robust well-secured debt products are attractive to an even wider range of investors.”

Neil Faulkner of 4thWay, the P2P lending and IFISA ratings and research agency, said:

“This is the time when the P2P lending industry will prove that direct money lending is a very solid investment, providing stable results compared to the stock market, shared more fairly between participants.

“The banks continued to make decent profits on their bread-and-butter personal, business and property lending, even through the height of the economic downturn from 2007 – 2009. The one P2P lending platform that was around at that time easily kept pace with them.

“We’ve never seen anything like this pandemic before, but, while global markets are crashing, the vast majority of peer-to-peer investors will continue to profit through the crisis, thanks to sensible underwriting standards, solid security, provision funds set aside to cover bad debts, and attractive interest rates.”

Three top tips from 4thWay on how to weather the storm with solid results

Following these three tips, and looking to 4thWay’s research and ratings, will give investors a solid basis for stable returns over the coming months and years:

• Continue to take the time to diversify across at least six different P2P lending accounts and IFISAs, and hundreds or thousands of loans.
• Lend across a variety of types of loans, including small business lending, personal lending, development property lending, and lending against tenanted properties.
• Money lending doesn’t require anything like as much smoothing from volatility as the stock market, yet it is still sensible to re-lend your money throughout any downturn and out the other end.