Brexit – How It Will Affect Peer To Peer Lending
The Brexit people have spoken and the results are in; they want out of the EU. Well, roughly half of them want out and others who want out, might not want out after all:
Some voters obviously don’t know they voted for. As a result, Britain is headed out to the greener and lonelier independence pastures, and as I predicted, the financial markets are now drowning in instability.
Now the big question is, where will the Brexit leave peer to peer lending? Answer is, no one really knows but I can give you an educated guess of what might happen.
Brexit Short Term Effects on Peer to Peer Lending
It seems like the EU is anxious to have the UK leave as soon as possible, like the ex who wants their ex’s belonging removed out the house after a nasty breakup.
In the short term, spooked lenders might sell their peer to peer lending investments or at the very least, discontinue investing further. The platforms that focus on purely property loans could see a slow down due to the uncertain future of property development and property prices. You can already see some of the fallout on sites such as Saving Stream and Funding Secure. Recently, Savings Stream cancelled three large London property loans and its secondary market is flooded with people attempting to sell loans parts. Funding Secure has several few property loans that are slow to fill.
I predict platforms that focus on pawn style loans will flourish. People will continue to borrow against jewelry and gold prices should remain high leading to further borrowing. This will present many lending opportunities within websites such as Collateral and Unbolted.
Unsecured loan sites such as Ratesetter and Funding Circle will be largely dependent on what happens with the economy. If the economy deteriorates, loan defaults will rise and this will affect unsecured peer to peer lending sites. Small businesses who rely on EU exports must be very nervous about how the Brexit will affect their business dealings.
I predict sites such as Landbay, who lend to buy-to-let Landlords, will be fine. If the housing market downturns, rental property demand will increase.
Brexit Long Term Effects on Peer to Peer Lending
This is very difficult to predict since the actual Brexit could take years to complete and no one knows how the inner workings of a EU-free UK will look. People who voted to Brexit are receiving confusing commentary from politicians and leaders such as London’s Mayor Boris Johnson who was quoted as saying:
“British people will still be able to go and work in the EU; to live; to travel; to study; to buy homes; and to settle down,”
If this is true, the UK’s borders may remain open which questions what immigration changes will realistically be made. Remember immigration was one of the main reasons people voted to Brexit. This could take a very long time to figure out.
The long term Brexit effect on peer to peer lending will depend largely on the economy and how the lending platforms adjust to supply and demand of borrowers and lenders. There will continue to be plenty of borrowers but if lenders appetites decline, the platforms will not be able to write as many new loans so their revenues could fall putting them into a difficult financial situation. It remains to be seen which platforms have a healthy enough cash balance to ride out the uncertainty. Just this week Funding Knight entered administration. If platforms can survive and the UK stays out of recession, peer to peer lending will be healthy long term. People have very short term memories and the Brexit turmoil will be forgotten once the financial markets settle down and the politicians and figure out the inner workings of a new UK.
How I Adjusted My Investments and Peer to Peer Holdings Post Brexit Results
Since peer to peer lending is ever changing, it’s important to make adjustments as needed. The morning after the Brexit results I came up with a new asset allocation game-plan. Firstly I plan to buy lots of US index trackers. Secretly I was hoping for a Brexit but it was purely selfish as I’m looking for buying opportunities within the stock market.
For peer to peer lending, I’ve reduced my property development loans and increased investment into jewelry loans. The problem with property loans is if they default, they can take months or years to go through the collection and sale process. Jewelry can be sold after the 14 day default notice has been sent and is easy to resell.
You can see my updated allocations here.
How Should You Proceed?
The Brexit should text your risk appetite and see if you are allocated correctly. Ask yourself how you would feel if you left your peer to peer lending allocations as is. If you’re feeling nervous, you might have too much invested in peer to peer lending. If you are able to sell your peer to peer loans, you could reduce your exposure and re-buy when things settle down. Personally I think long term peer to peer lending will be fine so I’ll continue to leave most of my investments as is and adjust as needed.
Remember peer to peer lending comes with risks and is largely dependent on the economy. If the UK goes into recession then certain sectors within peer to peer lending will be hurt (property development due to house price declines and unsecured business loans) while others may flourish (pawn style jewelry loans and rental properties).
Again this is just my best guess at how the Brexit will affect peer to peer lending and you should always do what feels comfortable to you.