Money Insider: Peer-to-peer lending gathers pace as faith in banks falters
Saturday 22 September 2012
Many people doubted whether peer-to-peer lending would ever really gain a foothold in the UK; however, the sector appears to be going from strength to strength and is increasingly accepted as a credible alternative to the banks.
This new breed of finance is still in its infancy with Zopa, the UK's first peer-to-peer lender, still less than eight years old.
A lack of confidence in the UK banking sector since the credit crisis combined with high borrowing rates and low savings returns has seen the peer-to-peer market flourish, with new providers entering the industry in the last couple of years.
Zopa remains by far the biggest player, and to date has arranged more than £200m in loans, including a monthly record of 1,621 loans totalling £8m in July alone – up by 72 per cent on the same period last year.
A more recent player on the peer-to-peer scene, and acting as the middleman for individual savers and borrowers, is Ratesetter. Launched in October 2010, to date it has already lent more than £30m. This year has seen a major increase in demand for loans with applications for funds currently running at about £1m a day and business levels up 45 per cent on 2011.
Along with Zopa and Funding Circle, Ratesetter formed the Peer2Peer Finance Association, a UK trade body set up to ensure that the sector maintains high minimum standards of protection for consumers and small business customers.
The peer-to-peer market is not solely aimed at personal customers, and with banks tightening credit policy and reportedly increasingly reluctant to lend to small and medium enterprises (SMEs), we've seen the emergence of a new type of business lender, such as Funding Circle and Crowdcube.
Funding Circle has lent more than £49.3m to businesses since it launched in 2010, with the average loan at around £39,000. The company pools the savings of investors, who have averaged returns in excess of 8.3 per cent, while the current bad debt is just 0.3 per cent.
Consumers shouldn't see this alternative banking concept as a soft touch, as strict credit-scoring criteria is absolutely vital to ensure defaults are kept to a minimum to give people confidence to continue to deposit their savings with peer-to-peer companies.
Ratesetter, for example, recently stated that only 10 to 15 per cent of loan applications are approved, so if you don't have an excellent credit profile you're going to have to seek your finance elsewhere.
One of the main concerns for people depositing their cash with peer-to-peer providers is that although the returns far outweigh those paid by the banks, they don't offer the cast-iron guarantee to savers that bank customers enjoy under the Financial Services Compensation Scheme.
There is still an element of risk, albeit small, that you don't have with a bank or building society. As long as you are comfortable with this, the lower overheads of not having to run a nationwide network of branches, means you can obtain better returns on your cash in the peer-to-peer market.
Providers have their own methods of trying to mitigate the risk to depositors. Zopa for example, will spread your money among a wide range of borrowers, while Ratesetter adopts a different approach by operating a "provision fund" which is built up from borrower fees, and reimburses lenders in the case of late payment or default.
Co-op's tough call on bankrupts
This week, the Co-operative Bank announced that it will no longer allow undischarged bankrupts to open a basic account.
Until Monday, the Co-op, along with Barclays, was one of only two banks which gave bankrupts access to basic facilities.
However, with the rest of the industry failing to play a part in this unprofitable market segment and no response from the Treasury Select Committee to requests for a review of the situation, the Co-op felt it had no alternative but to pull out of the market.
With some 55,000 new, undischarged bankrupts every year, the Government needs to ensure that all existing and new banks play a full and active part in the basic banking market.
Let's hope this shot across the bows on the part of the Co-op will be the catalyst to get key players round the table.
Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk
Derek Pain: I'm cautious, but remain one of the few bulls in the market
Donald MacInnes: Who would want to be a Barbie girl in a non-Barbie world?
Mark Dampier: How to get an income now that savings are past the 'use by' date
Thousands of UK investors could lose out following collapse of Secured Energy Bonds
Bargain Hunter: Fly off for a winter break in France or Portugal for well under £100
- 1 Venezuela Expo Tattoo 2015: Extreme body art from 'Vampire Woman' to 109mm earlobes
- 3 Ball pool for adults opens in London
- 4 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
9 reasons Greece's experiment with the radical left is doomed to failure
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
King Abdullah dead: We can't afford not to hold Saudi Arabia's royals to account
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion