We reflect on how P2P lending can bring much needed cash to SME house builders
According to data published by the Bank of England, monetary financial institutions’ loans to UK small and medium-sized construction companies between January and the end of May 2018 amounted to £2.8 billion, almost the same amount as in the first five months of 2017. Around 50% of that funding was channelled through to development of buildings, that’s just over £1.3 billion in the first five months of 2018. Our own research shows that in order to get anywhere near building the government’s target of 300,000 new homes per year, £20-25 billion per year are required. We believe peer to peer lending (P2P) is a solution to fill the funding gap.
We’re finding that we’re not really competing with the banks, we are more taking the business the banks don’t do anymore.
– Yann Murciano, Blend Network CEO
The UK government-mandated bank referral scheme was created by the Small Business, Enterprise and Employment Act 2015 to provide a legal framework to the collaboration between traditional lenders and P2P lenders and challenger banks. Launched in November 2016, it allows the UK government to track businesses and their requests for business finance. Under the scheme, businesses who have been unsuccessful in a credit application process with a traditional bank will be asked for their permission to have their financial information passed to alternative finance providers, who can contact the business in a regulated time-frame. It is not surprising then that, according to a recent article by P2P Finance News, banks are recognising P2P as part of financial ecosystem.
Banks are recognising P2P as part of financial ecosystem
– P2P Finance News, June 28, 2018
According to Yann Murciano at Blend Network, ‘We’re finding that we’re not really competing with the banks, we are more taking the business the banks don’t do anymore.’ Although the bank referral scheme saw low numbers of referrals during the first year after it was launched, Blend Network has already started to see an uptick in the referrals coming from traditional lenders.
However, some are more sceptical over the growth in the peer to peer lending space. In a recent article, the FT painted a less positive picture building its argument mainly around 1) the likelihood of rising interest rates, and 2) the near certainty of a slowdown in the housing market in the Greater London and Southeast area. We agree with both. On the rate rise, we believe that platforms offering lower returns (5-6%) will see lenders moving to either cash or to higher return platforms such as Blend Network where the average return to lenders is 12.1% (4thWay’s peer to peer lending rating platform offers a great way for lenders to compare interest rates, risks and costs). On the bearish London view, that’s why we lend strictly outside London and in niche high-growth markets across the UK regions.
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