Superwoman Nicola launches own lending platform
ONE-TIME star City fund manager Nicola Horlick certainly believes in P2P business lending as an investment.
Horlick – nicknamed Superwoman in the City for balancing work and family commitments – recently entered the fray with her own platform Money&Co, offering lenders from 6 to 10 per cent depending on a borrowing company’s risk rating.
Her platform has recently auctioned loans for businesses as varied as a debt collection agency, a construction business and several manufacturers.
Horlick says: ‘Even six per cent is attractive for investors at the moment, especially when it is so difficult to find a sensible place to invest. Older people in particular are desperate for income but even this is doing badly with share dividends down or no longer paid for some big firms such as BP and Tesco.’
Nor does she think interest rates are going up any time soon and about to threaten the sector’s competitive advantage.
Justin Modray, of independent financial adviser Candid Financial Advice, is more cautious. He says: ‘P2P lending is a clever idea but I would be nervous if it were ever to become a default alternative for savers.
‘The potential returns look tempting versus the derisory savings rates but some of the people you lend money to may not pay it back and any losses
cannot be offset against interest for tax purposes and nor will they be covered by the Financial Services Compensation Scheme.
‘It’s this lack of security and potentially disadvantageous tax treatment that makes it hard to recommend P2P as an alternative to mainstream savings. It can make sense for a portion of savings if you are happy to take the risk.’
Another pitfall is that the interest is taxable but basic rate tax is not deducted at source as it is with ordinary savings accounts. Even basic rate taxpayers must declare the interest through a selfassessment tax return, which they wouldn’t need to do with savings accounts.
Andrew Hagger, independent analyst at comparison website Moneycomms, says: ‘Examples of consumers losing money through P2P are rare up to now. However, it’s early days for many platforms that have had the luxury of operating against a stable economic backdrop.
‘Providers should give investors additional reassurance by highlighting the potential impact that a future economic downturn could have on returns.’ CRITICS are nervous that P2P bad debts could end up higher than expected should the Bank of England base rate rise.
Modray says: ‘The Government still has plenty of spending cuts to push through and if interest rates do rise in the next year or two it could hurt many households via higher mortgage payments, reducing their ability to repay loans.’
But Richard Watts, of independent P2P comparison website NurtureMoney, says: ‘Savings rates are still some 4 percentage points below P2P rates, so bank interest rates would have to rise significantly to catch up.’
Banks and building societies are watching the sector with interest but it will take a long time for the centuries old establishments to feel a serious threat.
Households still have £500billion tied up in bank and building society notice accounts and cash Isas alone, according to the British Bankers’ Association.