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p>At the recent AOBP AGM, a question from the floor sparked debate upon whether the P2P market is only here for the short-term and whether investors are fully aware of the risks. Other industry figures have since given their own opinions, where one stated that the P2P offering is used by investors as a form of “social media on steroids”.
The P2P market has enjoyed exponential success since its arrival. However, professionals are now coming to question whether everyday investors who invest money into schemes are aware of the risks involved.
When asked whether he believes the P2P market poses risks, Russell Martin of Finance 4 Business stated that he does, adding that the market and appetite to invest is largely driven by the reported low delinquency rates.
“My opinion is that the market is not mature enough to really know what the true delinquency rates will be and with the number of ‘investors’ in each loan - I would imagine the collections process being very difficult.”
“It is hard to say what the longevity will be. The mechanism will certainly continue to grow whilst the banks are still sorting out their balance sheets and starving SME’s of working capital.
“I see some ‘investors’ using P2P as a type of social media on steroids,” he added.
James Bloom of Regentsmead believes that the P2P market is here to stay for the time being, as it is relatively new and has a long way to run. “This might change in the next financial crisis however,” he added.
James commented that there are substantial risks for the average non-informed investor who does not realise the dangers of the investment they are involved in.
“For an extra 2-3 per cent, people are sometimes taking massive additional risks which they do not understand. Like any new market, the problems will only become evident when the market collapses, and this could be the next financial scandal to hit the market.
“Certain companies like LendInvest are doing things in the right way but there are plenty of others who are not!”
On the other hand, Shoaib Bux of Mayfair Bridging disagreed that the P2P market will be short-lived. “I think the demand from investors will soften if there are copious amounts of defaults happening. This may put people off, but platforms are now being structured with safeguards which is bringing more investor confidence.”
Shoaib also added that this risk is reduced “by platforms spreading investor monies over multiple borrowers and/or securing over property.”
“There needs to be some regulation but the FCA should be careful not to over-regulate.”
Harry Cloke of Imperial Blue Finance also agreed that P2P lending is a long term innovative development in the property finance market, adding that like with any new market, “P2P is facing teething problems”.
Harry added that while already competitive on price, “it will take longer to develop a more streamlined model to compete on getting more quickly to drawdown.”
Mobeen Chishti of Total Money Management commented that P2P has been created by the lack of lending via banks, however when rates go up, it will be safer to stick to traditional savings accounts via banks and Building societies.
“Peer to Peer lending will still exist but will need to adapt to changes,” he said, adding that the fallout of these types of loans is an unknown, meaning that it is in fact too early to comment.
Concluding his thoughts, he added: “I still believe there is a strong argument that high street banks should be lending more, but also, we as brokers need to be going all out for our clients and optimising the way we present our cases.”
At the recent AOBP AGM, a question from the floor sparked debate upon whether the P2P market is only here for the short-term and whether investors are fully aware of the risks.
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