Who will be the greater driver of the P2P industry, institutions or ISA’s?
The level of P2P lending in the UK broke the £2billion barrier earlier this month. With the noticeable lack of any institutional players in the UK P2P market, it can only be assumed that the majority of that money is being lent by individuals who are withdrawing money from their Zombie UK bank accounts in the desperate search for income. Zombie accounts, so called for their lifeless returns on ultra-low rates often down to 0.1%. CPI inflation is currently 2%, meaning that these accounts are effectively losing savers 1.9% a year.
Liberium Capital has forecast that in the UK alone, P2P lending could be worth as much as £45 billion within 10 years, so where is this money going to come from?
We believe that there are currently two major sources, Institutional money and ISA’s.
Institutional: In the US, the growth of P2P lending which is expected to reach $8.8 billion in 2014 and is being driven by institutions such as hedge funds and other large investment companies. It is estimated that more that 60% of the industry’s loans are funded by such institutions.
Earlier this year Marshall Wace, a UK hedge fund with around $15.5 billion in assets under management purchased a US P2P specialist Eaglewood Capital Management and successfully raised a £200m P2P investment vehicle from institutional investors. There will be others currently working to attract new institutional capital into this fast growing market, who knows how much they are looking to raise or whether smaller institutions will live up to the P2P ethos and start lending directly themselves.
ISA’s: Chancellor George Osborne announced in the last Budget that the newly increased £15,000 NISA will be allowed to invest on P2P platforms, Treasury are currently consulting on how to implement this plan. So it is not yet clear when this change will come into effect but fingers crossed from April 2015.
Allowing P2P loans into NISA’s will significantly increase both the number of people attracted to lending via the P2P market and the volume of capital available. The fact that this new NISA asset class could be capable of producing returns two or three times greater than existing ISA investments should mean that the P2P lending platforms could attract a substantial portion of the billions invested into the ISA market each year. In 2012-2013, £40.9 billion was invested into cash ISAs meaning even the smallest of P2P Isa take ups, say 2%, would make close to £1bln of new P2P funding available.