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2018 saw a record for gross new lending, climbing above £6bn for the first time.

Born out of the financial crisis, and enabled by the digital revolution, marketplace lending is beginning to fill the funding void created by the retreat of traditional banks, meeting borrower demand. At the same time, incredibly loose monetary policy has suppressed yields, leading retail and institutional investors to look further afield to boost their returns.

Platforms are hindered by fewer operational hurdles than traditional banks. They do not receive the same regulation, and do not have the costs associated with legacy IT and physical branches. They do not take risk onto their own balance sheets, and although some utilise contingency funds, they do not face the onerous capital requirements faced by banks.

This has facilitated rapid growth as marketplace lending moves into the mainstream. 2018 saw a record for gross new lending, climbing above £6bn for the first time, while the much-publicised IPO of Funding Circle marked another important milestone for the sector.

However, it has not been an entirely smooth ride. UK property lender Lendy’s issue with late payments made the headlines last year, while LendingClub’s governance failings in the US in 2016 hit confidence in the sector. Exceptions they may be, but they strengthen calls for tighter regulation, which will bring greater credibility to marketplace lending as an asset class. It also reinforces the need for an improved approach to risk management by the industry as it expands.

Greater regulation, following the FCA’s recent consultation paper, should go some way to calming any nerves relating to higher loss rates in the sector. The loss experience is increasing across lending to consumers and businesses, weighing on returns in the past couple of years. This has not yet deterred the provision of capital; attractive net returns of over 4% for 3-year term assets remain hard to find elsewhere in the fixed income universe.

Read the first issue of our Marketplace Lending Index here, or for more information please get in touch with:

Mark Davies
Managing Director
Link Mortgage Services
T: +44 (0) 1473 283 802
E: mark.davies@lgmortgageservices.co.uk