Peer-to-peer investors in race to withdraw cash as default fears grow
Peer-to-peer investors are facing long waits to withdraw their cash, amid warnings that loan defaults will rise significantly in the coming months.
There has been a boom in the peer-to-peer sector in recent years as savers have looked for alternatives to savings accounts offering low interest rates. These companies allow investors to lend cash directly to other individuals or small businesses using the peer-to-peer website as an intermediary.
However, with the coronavirus crisis taking hold, many users have tried to pull their cash from platforms. In normal times this would be achieved by another investor taking on the loan but in the current climate few other people are looking to invest. This has left customers facing long waits to sell up.
RateSetter, one of the country’s biggest platforms, said its lenders were experiencing delays when trying to withdraw their money.
The company was unable to confirm how long investors currently needed to wait before their cash was returned, but an update issued last week stated it was at least seven days. Typically users would be able to withdraw funds in a matter of hours. It said around £1.2m was pulled from its site on Monday and Tuesday by concerned investors.
Elsewhere, Assetz Capital has queued withdrawals from some accounts and Growth Street has blocked all users from accessing their funds for 90 days.
Of the other large platforms, Zopa said that customers faced longer queues to access their money and advised lenders to turn off the automatic re-investing function if they needed cash quickly. Zopa said it had tightened its lending criteria several times in the last year to minimise the number of low-quality borrowers, who may be more likely to default, using its platform.
Funding Circle said it had revamped its sales in December to ensure as many customers as possible could receive some funds back, rather entering a queue behind other investors receiving the whole amount.
Neil Faulkner of the 4th Way, an industry analyst, said investors should be prepared to hold on to their loans for the long term. “Every peer-to-peer lending platform makes it clear that liquidity is not guaranteed in its risk statements,” he said. “It is part-and-parcel of this type of investment.”
While loan default rates among borrowers have yet to increase, experts have warned that if the economy continues to struggle in the face of coronavirus, a significant number of borrowers will be unable to repay their loans.
Roger Gewolb of FairMoney, a consumer campaign and peer-to-peer analyst, said: “An increase in arrears and default rates for lenders of every kind is at this point undoubted. Even more so the peer-to-peer lenders, I fear.”
Mr Gewolb predicted a “period of chaos” for investors trying to take money out of platforms. He said he expected multiple platforms would not survive the coronavirus crisis.
However, Mr Faulkner said that because of the growing imbalance in the numbers of investors and borrowers, those who continue to invest could soon earn higher interest rates.
He encouraged all peer-to-peer investors to make sure their funds are spread between six and 12 platforms, to mitigate the risk of individual websites going bust.
