P2P Money Blog

On Friday the Yorkshire Building Society published their guide to peer-to-peer lending, entitled "Peer-to-peer lending explained".  The first line of the press release sets the tone for the guide:

Research from Yorkshire Building Society has highlighted a lack of understanding about peer-to-peer investment (P2P) and the potential risks it poses among consumers.

The Yorkshire Building Society’s guide highlighted the lack of understanding about peer-to-peer lending, and we would fully concur that there are a lot of misconceptions about the industry.

Ian Gurney, founder of p2pmoney.co.uk responded to the research:

Peer-to-peer lending has grown into a £2billion a year market in the UK.  There are now more than 50 companies operating within this sector, covering various degrees of investment risk.  Returns of 5% to 6% are achievable but there are risks to capital and lenders should do research, as with any financial investment.  Peer-to-peer lenders need to ensure their investments are fully diversified between multiple borrowers and P2P providers.

So why would an organisation publish a guide about a product that they don’t offer?

Banks, building societies and other financial institutions are now starting to take notice to peer-to-peer they are a direct competitor to the incumbents.  We believe that some of these risks are sometimes overstated, or taken out of context.

We fully agree that lenders capital is at risk, however returns of 5% AER to 6% AER are achievable even after deductions for basic rate tax payers, where leders have diversified sufficiently.

Peer-to-peer lending isn’t just unsecured. Loans secured on property and assets are available. Some peer-to-peer providers operate provision funds to reimburse lenders when a loan defaults, and this is paid for through an increased margin between the lender rate and the borrower rate.

As with any financial investment, peer-to-peer lenders should do some research. Lenders need to ensure their investments are fully diversified between multiple borrowers and P2P providers to ensure that a single negative event does not adversely affect their overall return.

Read our press release on the subject.