The Autumn Statement has given a boost to peer-to-peer (P2P) lending through changing a rule that will allow individuals to offset losses from bad loans against other P2P gains.
The government championed P2P lending, where savers willing to lend are matched up with those who want to borrow via an online platform, in October when it announced a consultation on a third-way P2P ISA.
It has now gone a step further and tweaked the rules to make P2P lending more attractive by allowing those lending money through P2P platforms to offset any losses they make on bad loans against any gains they make on other loans. When using a P2P platform, the money an individual lends is typically split among a high number of borrowers to ensure they do not lose all their savings if a loan goes wrong.
‘The government will introduce a new relief to allow individuals lending through P2P platforms to offset any losses from loans which go bad against other P2P income,’ said the Autumn Statement document. ‘It will be effective from April 2016 and, through self-assessment, will allow individuals to make a claim for relief on losses incurred from April 2015.’
The government said it was also review the financial regulation which currently stands in the way of institutional lending through P2P and consult on the introduction of a ‘withholding regime for income tax to apply across all P2P lending platforms from April 2017’ which would allow ‘many individuals to resolve their tax liability without them have to file for self-assessment’.
It has been made clear that P2P lending is seen as one of the solutions to the lack of competition within the banking industry, which is currently under investigation by the Competition and Markets Authority (CMA).
‘The CMA announcement of a market investigation into banking builds on a wide-reaching programme of government reforms to address competition issues and make the UK the leading global hub for financial-technology companies,’ said the Autumn Statement document.
‘The Autumn Statement announces support for P2P and crowdfunding platforms through a package of measures to remove barriers to their growth from regulation and tax rules. These include a new bad debt relief for lending through P2P platforms; a consultation on whether to extend ISA eligibility to lenders using crowdfunded debt-based securities and an intention to review financial regulation which currently stands in the way of institutional lending through P2P platforms.’
Warren Mead, head of challenger banking and alternative finance at KPMG, said some P2P lenders were growing by over 100% per year.
‘The support for P2P and crowdfunding platforms means that it is all systems go,’ he said. ‘It won’t take long before these players begin securing meaningful market share in the higher value parts of banking.
‘However, as this is an emerging new line of funding, the industry is pushing for more regulation, which might reduce the pace of growth. Like with investment products, investors should remember that their investments are not covered by the deposit guarantee.’