Last month, the LendIt Europe Conference heard that the new Innovative Finance Isa could boost competition and lower P2P rates.

Chirag Shah, CEO of Nucleus Commercial Finance, has now warned Bridging & Commercial that although some P2P platforms currently offer high rates, these cannot be considered attractive until they have delivered proven returns.

“A lot of these loans have not necessarily matured on a lot of the platforms, so it’s … easy to say we are getting a good rate, but a good rate is finally achieved when you get the principal back,” Chirag insisted.

“It’s funny, you look at all the websites [and] they all say how much money they have lent, [but] none of them ever say how much has come back.

“Until the book starts maturing and we start [to] see the principal coming back, it’s difficult to know what the real return is.”

Chirag said that P2P rates could vary dramatically, with offers ranging from between 3-15%. 

“At the end of the day, you can’t look at rates alone,” he cautioned.

“What matters is if I lend £100, how much did I get back after a period.”

“If you get rates of 15% but finally instead of £100 you only got £50 back in five years’ time, then is that really a good investment?”

Despite this, Narinder Khattoare, sales director at Kuflink Bridging, suggested that P2P loans could offer good returns provided investors were aware of the risks involved.

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“Savers have had a raw deal from traditional sources and in a low-interest environment, P2P has a lot to offer saver investors who are looking for a decent return.

“With current savings rates at such a low level, demand will continue to be strong, but it is important that the P2P industry clearly sets out the risks and how they mitigate them.”

However, Narinder did admit that P2P rates could settle over time.

“As I said, competition will help maintain a good return, but as the P2P market matures and the risk element is better understood, we might see a softening in rates.”

Nevertheless, Jane Dumeresque, CEO of Folk2Folk, explained that any rate changes may be tied to economic shifts rather than maturation.

“[P2P] businesses will have the option of increasing borrowing rates in line with banks should they need to do so, meaning investors will see higher returns.

“If the base rate drops further, then loans will become cheaper for borrowers and returns to investors will go down in line.”

Regardless, Robert Pettigrew, director of the Peer-to-Peer Finance Association, claimed that P2P would remain attractive despite any changes in the financial terrain.

“Peer-to-peer lending represents a cost-efficient form of financial intermediation, particularly given the relatively small-scale nature of a number of the investments and when compared with asset management.

“In the context of the efficiencies inherent in the peer-to-peer lending model compared with other forms of financial service who have similar approaches to credit-risk management, it is likely that platforms will continue to be able to offer an attractive investment opportunity whatever path monetary policy takes.”