According to the Peer to Peer Finance Association – the industry’s trade association – cumulative P2P lending, as at the end of the second quarter of this year, has risen to more than £3.1 billion, with over 116,000 current lenders and more than 188,000 borrowers. Low consumer confidence in banks, an increasingly high degree of comfort with online platforms and a relaxed regulatory environment have all helped nurture the UK's P2P lending market.
During the financial crisis, high street banks were forced to withdraw from the large loan market. The resulting increase in political scrutiny – alongside the fact that interest rates continue to remain stubbornly low – has created an opportunity for P2P lenders to project themselves as an accessible alternative for borrowers. P2P lenders often offer better rates and improved access to credit, although arguably there are significantly higher risks associated with such lending vehicles.
Since April 2014, P2P lenders have been regulated by the Financial Conduct Authority (FCA) for Consumer Credit Act Lending. Furthermore, the industry’s trade association – the Peer to Peer Finance Association – does require members to sign-up to a code of practice, but only firms which have been operating for over six months are able to become members. Unlike traditional lending institutions however, P2P lenders are not covered by the Financial Services Compensation Scheme, which guarantees savings of up to £85,000 per institution if the company were to collapse. (This will be reduced to £75,000 from 1 January 2016). As they face less regulatory pressures, P2P lenders are often able to compete at lower cost bases.
When it comes to seeing off competition from P2P lenders, niche lenders will need to assess and analyse current cost margins and lending procedures in order to offer even better loan terms and establish a more competitive overall position.
Title Insurance is one mechanism which can be used by niche lenders to reduce their overheads. This product can be used as an alternative to costly title diligence, can reduce loan processing times and can protect against undiscoverable defects, such as fraud, which would ultimately result in higher lending costs.
With a new P2P lender launching almost weekly, other niche lenders must think strategically and creatively about how to structure their proposition in order to deliver a more attractive alternative to these new competitors.
By Reema Mannah, Titlesolv
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