Brexit effect on economy

A lot of negativity has been shed on financial services in the UK after the EU referendum bore a ‘Leave’ result on 24th June, meaning a Brexit (British Exit) from the European Union.

Sterling hurtled down a hill, but has since started to rise again. Inflammatory statements around the losses felt by the stock market were made — Money Week claim over £100bn has been wiped off the FTSE — but markets are now steadying. Savings rates will decline, but we’ve suffered record-low rates for years. The UK has suffered financial crises before, remember, and it was the duty of the Bank of England to steady the ship in 2008. They are prepared for this — £250bn has been raised to rectify fallout post-Brexit, according to Mark Carney, Governor of Bank of England.

All in all, it has been a fairly bleak few days, but a positive outlook, particularly in peer-to-peer lending UK, is starting to surface. If you’re panicking about your finances, try not to. There is an alternative. There is a way to make more money on your money, and it’s not in a bank or the volatile stock market. It is with peer-to-peer lending UK, where you can earn 3–19% per annum. It is not without its risks, of course, find out more below.

P2P lending: an alternative solution for savers and investors

But what about you? The saver worried about 0% savings rates; the retail investor concerned about their P2P loans; well that is why we’re here. Our job at Orca is to present the data, information and facts relating to peer-to-peer lending UK, so you can evaluate the platforms and products on offer with independence, impartiality and confidence.

Savers seeking best savings rates

For savers, this is an innovative and alternative investment class, it is not a savings product, you are not covered by the Financial Services Compensation Scheme (FSCS) like you would with a bank savings product. You could lose all your money. It’s essential you compare peer-to-peer lending platforms and research this asset class thoroughly before investing.

Click: Need Guides?

Retail investors seeking diversification

For experienced investors looking to diversify their portfolio, gaining exposure to a less volatile asset class but with a high-yield, then real-time product rate updates, consistent information on platform performance and statistics/info around security measures employed by P2P platforms are all things provided by Orca Money.

Innovative Finance ISA (IFISA)

This could be a good time to transfer old ISA funds, or your annual allowance (£15,240) into an Innovative Finance ISA, investing funds into a P2P product and earning interest tax-free. For more information on this high-rate, tax efficient account check out our infographic clicking below:

Click: IFISA Infographic

Does Brexit pose a risk to P2P lending UK?

Brexit poses a risk to all areas of the UK, particularly the finance industry. At Orca Money, we firmly believe that peer-to-peer lending is a viable solution to low savings rates, and is an alternative to the volatility experienced in the stock market — even more so now with Brexit. P2P lending has weathered the storm before — Zopa in 2008 — and has a proven track record of providing the best interest rates in the market and maintaining extremely low default rates — under 3% default rate, over 10 years’ period, having facilitated over £6bn of investment to-date.

Peer-to-peer platforms stand strong in the face of Brexit

For existent and future peer-to-peer investors, you may be worried about borrowers’ ability to repay their loans in more challenging economic conditions. There are three types of borrowers in P2P: people (consumer loans), businesses and property investors, who are typically landlords or developers. These three borrower types are affected by unemployment rates, economic conditions and property prices. For the large P2P platforms who have established credit procedures and a spectacular history of low default rates we do not expect these platforms to suffer significant investor losses. As an example, in the consumer loan market, where Zopa dominates, default rates would have to rise from 0.33% in 2015, to 9.9% for investor’ capital to be impacted.

Where we may see an effect is with the smaller, challenger platforms, who do not have established credit models. If investors lost capital in any UK P2P platform, the whole market would be impacted. This is the primary risk to the P2P market.

What are the P2P platforms saying?

John Goodall, CEO, Landbay (buy-to-let mortgage lender — auto diversified)

Investors in the sector are uniquely insulated from the storm.

The private rental sector is built on strong foundations. Buy-to-let mortgages were one of the best performing types of loans throughout the credit crisis, and we believe demand for rental property will continue to outstrip supply, while average rents will continue to increase above the rate of inflation. At a time when investors are tripping over themselves to find an alternative to the equity markets, the strength of the rental sector makes buy-to-let backed peer-to-peer mortgages a sound and predicable investment proposition.

Karteek Patel, CEO, Crowdstacker (SME lender — manual selection — IFISA available)

Most platforms, including Crowdstacker, champion British businesses, enabling investors to support the economy through investment in innovation and development, both of which ultimately create progress.

We also believe that medium sized British businesses that have excellent business models, experienced management teams and strong track records can thrive in an independent Britain

Liam Brooke, CEO, Saving Stream (Property lender — manual selection)

Property has long been a safe haven for UK investors during periods of uncertainty, and is likely to continue to be so during the fall out from the recent referendum. Continuing low interest rates, demand for housing and new developments, and many investors waiting for a chance to buy up property should prices drop, will all help ensure that residential and commercial property continue to offer attractive investment opportunities.

Saving Stream, like many other P2P lenders, exercises firm controls to manage risks, with strict loan to value ratios. In the run up to the referendum, we made every investment decision with the impact of Brexit in mind, and this will continue on now we know the result.

Conclusion

In conclusion, Brexit may have gifted the P2P market an extension of the post 2008 conditions which allowed the market to flourish. Risks are implicit, of course, so ensure and research and compare peer-to-peer lending platforms, products and features here on Orca.