It’s official: interest rates have been cut to an all-time low of 0.25%. But what will be the impact for the UK’s alternative finance sector?
The monetary policy committee (MPC) delayed cutting rates three weeks ago, but today the base rate has fallen to 0.25% – a record low and the first cut since 2009. All nine members of MPC voted in favour of the cut. Much of the rhetoric from alternative lenders in the run up to today’s decision has been centred on the industry not being linked to movements in the base rate. But how what are the platforms thinking now?
A large number of platform representatives are already clamouring about the opportunity that the cut will present. Rhydian Lewis, co-founder and CEO of RateSetter, says that the move will further reduce returns on savings accounts. He says it’s “not surprising” that peer-to-peer lending is gaining in popularity, “as investors look for better returns in exchange for taking on some risk”. RateSetter had one hundred thousand new site visits in July alone.
Stuart Law, CEO of Assetz Capital, agrees with Lewis, saying: “We are expecting savvy savers to continue to turn to the alternative finance market, which has matured and grown out of the effects of the last financial downturn, and get decent returns on their capital.”
James Sherwin-Smith, CEO of Growth Street – an alternative overdraft platform for SMEs, says that today’s cut will bring “further misery” to UK businesses. He also issued the reminder that a number of major banks are now preparing to charge negative interest rates to commercial customers. Sherwin-Smith says that businesses “must look to the alternative finance sector, not only as a way to borrow on better terms, but also to earn a superior return on their excess cash".
LendInvest co-founder and director Ian Thomas sees significant potential upside in today’s news: “The fallout from Brexit could spell good news for professional and experienced property investors. If houses prices do cool as predicted, investing in property will become even more enticing, particularly if today’s rate cut translates into cheaper financing.”
Meanwhile Angus Dent, CEO of ArchOver, agrees that the return on offer in P2P “might become even more attractive to lenders”. However, he also warned that no platform can function without high quality borrowers, and he fears that today’s rate cut will send “a strong message of ‘no confidence’” to UK businesses.
Conrad Ford, CEO of the neutral finance referral platform Funding Options, is also concerned about the nervousness of SMEs. He says that the Brexit crunch hasn’t yet shown up in the real economy, but that MPC members must have seen indications that lending to businesses might suffer. “We’ve seen exactly that ourselves,” said Ford. “Immediately as the Brexit result was announced, major lenders such as high street banks backed away from deals they would previously have agreed. Worryingly, it’s now showing up in alternative finance, with many funders retrenching. It wasn’t meant to be this way, alternative finance was meant to take the slack when the next credit crunch came.”
Here Ford is alluding to the idea that alternative finance providers are ideally placed to step up if the banks were to pull back from lending post-Brexit. Nucleus Commercial Finance boss Chirag Shah, for example, recently called Brexit “the best opportunity for us to establish ourselves as a key part in the UK business credit market”.
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.